Preparing a Partnership Agreement in Writing: An Important Step for Business Success

Starting a business with a partner can be an exciting venture, but it`s important to remember that going into business with someone means that you`ll need a clear understanding of each other`s roles and responsibilities. Before moving forward, it`s crucial to prepare a partnership agreement in writing.

What is a Partnership Agreement?

A partnership agreement is a legal document that outlines the terms and conditions of the partnership between two or more parties. It defines how profits and losses will be divided, how decision-making will be handled, and what to do in the event of a dispute or the dissolution of the partnership. It`s recommended that all partnerships have a written partnership agreement.

Why is a Written Partnership Agreement Important?

A written partnership agreement is important for several reasons. First, it helps to avoid misunderstandings between partners. By outlining each partner`s roles and responsibilities, there is transparency and clarity in the partnership. This helps to prevent disputes and disagreements from occurring down the road.

Additionally, a written partnership agreement is essential for legal protection. It can be used as evidence in court in the event of a dispute. Without a written agreement, partners are at risk of having their personal assets exposed in the event of legal action.

Another important reason to have a written partnership agreement is for tax purposes. The IRS requires partnerships to have a written agreement to properly allocate profits and losses among the partners.

What Should be Included in a Partnership Agreement?

A partnership agreement should include several key components. It should clearly define the roles and responsibilities of each partner in the business. It should also indicate what percentage of the profits and losses each partner is entitled to. This helps to avoid disputes over finances.

The agreement should also indicate how decision-making will be handled. Will it be a unanimous vote, or will one partner have the final say? It should also outline what happens in the event of a disagreement.

Finally, the partnership agreement should include an exit strategy. This should outline what happens if a partner wants to leave the business, sell their share, or if the partnership is dissolved. This helps to prevent legal battles between partners when they decide to go their separate ways.


In conclusion, preparing a partnership agreement in writing is an essential step for any business partnership. It helps to avoid misunderstandings, provides legal protection, and ensures that each partner is clear on their roles and responsibilities in the business. With a well-crafted partnership agreement, business partners can focus on growing their business and achieving their goals together.