- A business partnership agreement is a legally binding document that outlines business operations, ownership stakes, financials and decision-making details.
- When coupled with other legal entity documents, business partnership agreements could limit liability for each partner.
- Business partnership agreements should always be written or reviewed by legal counsel before they are signed.
- This article is for business partners who want to formalize their partnership with an airtight business partnership agreement.
A business partnership agreement is a document that establishes clear business operation rules and delineates each partner’s role. These agreements are enacted to resolve disputes, delineate responsibilities, and define how to allocate profits and losses.
Any business partnership in which two or more people own a stake in the company should have a business partnership agreement. This legal document provides critical guidance in a company’s operations.
We’ll explore what a business partnership should include, as well as share resources and best practices for creating this critical legal document.
What is a business partnership agreement?
A business partnership agreement is a legal document between two or more business partners that spells out the business’s legal structure and purpose. It outlines the following information:
- Individual partners’ responsibilities
- Capital contributions
- Partnership property
- Each partner’s ownership interest
- Decision-making conventions
The agreement also outlines what steps will be taken if one business partner decides to sell their interest or leave the company and how the remaining partner or partners would split profits and losses.
“I highly suggest formal partnership agreements are put in place as businesses evolve from solo practices into a partnership or ensembles,” said Rich Whitworth, former head of business consulting for Cetera Financial Group. “The biggest reason is that it establishes the ‘rules of engagement’ between the business and its owners … and lays out a road map on how to deal with