Contract Glossary
Partnership Agreement
Definition
A partnership agreement is a legal document that establishes the terms and conditions of a business partnership between two or more individuals or entities. It defines each partner's rights, responsibilities, capital contributions, profit and loss sharing ratios, decision-making authority, and procedures for admitting new partners or dissolving the partnership. Without a written agreement, partnerships default to state law (typically the Uniform Partnership Act), which may not align with the partners' actual intentions.
In Practice
Two accountants decide to open a tax preparation firm together. They draft a partnership agreement specifying that Partner A contributes $100,000 in startup capital while Partner B contributes $50,000 plus an existing client list. Profits are split 55/45 for the first three years, then 50/50. The agreement requires unanimous consent for any expenditure over $10,000 and includes a buyout provision if either partner wants to leave.
Example Clause
The Partners agree to share net profits and net losses of the Partnership in the following proportions: Partner A, 55%; Partner B, 45%. Each Partner shall devote their full professional time and attention to the Partnership business. No Partner shall, without the written consent of the other Partner(s), engage in any competing business activity during the term of this Agreement.
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