Types of Partnership Agreement with Samples

Business partnerships have become essential for entrepreneurs who want to join forces and share resources to achieve a common goal.

However, as with any business relationship, a partnership should have clearly defined roles, responsibilities, and expectations to prevent any misunderstandings or disputes from arising. One way to achieve this is by having a partnership agreement in place. Understanding the different partnership agreements can help you decide which to draft.

In this article, we will discuss what a partnership agreement is, the different types of partnership agreements, and examples of each.

What is a Partnership Agreement?

A partnership agreement is a legal document that details the terms and conditions of a business partnership. It is a contract between partners that define each partner’s rights, duties, responsibilities, and the terms of the partnership’s operation.

A partnership agreement is essential because it helps prevent misunderstandings between partners. And serves as a reference point for a dispute or partnership dissolution.

What should a Partnership Agreement include?

A partnership agreement should include the following elements:

• Partnership type: This specifies the type of partnership, such as general partnership, limited partnership, or limited liability partnership.
• Capital contributions: This outlines how much money or other assets each partner will contribute to the partnership.
• Profit and loss sharing: This specifies how the partnership’s profits and losses will be shared among the partners.
• Partnership management: This outlines the roles and responsibilities of each partner and how decisions will be made within the partnership.
• Dispute resolution: This outlines how disputes between partners will be resolved through mediation or arbitration.
• Partnership duration: This specifies the time the partnership will be in operation.
• Dissolution: This outlines the procedure for dissolving the partnership, including how assets will be distributed and liabilities will be paid.

Different Partnership Agreements

There are three main types of partnership agreements: general partnership, limited partnership, and limited liability partnership.

General Partnership Agreement

A general partnership agreement is the simplest and most common type of partnership agreement. It is a business structure in which two or more partners share equal responsibility and liability for the business.

Each partner contributes equally to the business’s capital and shares in the profits and losses. General partners are also responsible for the partnership’s debts and obligations.

Sample General Partnership Agreement

[Company Name] Partnership Agreement

This partnership agreement is entered into on [date] by and between [Partner 1] and [Partner 2], collectively referred to as the “Partners.”

Partnership Type: This partnership shall be a general partnership.

Capital Contributions: Each partner shall contribute $[amount] to the partnership.

Profit and Loss Sharing: The partnership’s profits and losses shall be shared equally.

Partnership Management: The partners shall share the management of the partnership equally.

Dispute Resolution: In the event of a dispute, the partners agree to mediation or arbitration.

Partnership Duration: This partnership shall continue until terminated by mutual agreement.

Dissolution: In the event of dissolution, the partners shall distribute assets equally and pay liabilities in proportion to their contributions.

Limited Partnership Agreement

A limited partnership agreement is a partnership agreement in which there are one or more general partners and one or more limited partners. General partners are responsible for managing the partnership and are liable for the partnership’s debts and obligations.

Limited partners, on the other hand, are only liable for the partnership’s debts up to the amount of their capital contributions. Limited partners are not involved in the management of the partnership.

Limited Partnership Agreement Sample

[Company Name] Limited Partnership Agreement

This limited partnership agreement is entered into on [date] by and between [General Partner] and [Limited Partner], collectively referred to as the “Partners.”

Partnership Type: This partnership shall be a limited partnership.

Capital Contributions: The General Partner shall contribute $[amount] to the partnership, and the Limited Partner shall contribute $[amount] to the partnership.

Profit and Loss Sharing. The General Partner shall receive 60% of the profits and losses, and the Limited Partner shall receive 40% of the profits and losses.

Partnership Management. The General Partner shall have full authority to manage the partnership.

Dispute Resolution. In the event of a dispute, the partners agree to mediation or arbitration.

Partnership Duration. This partnership shall continue until terminated by mutual agreement.

Dissolution. In the event of dissolution, the General Partner shall receive priority in receiving their capital contributions. And any remaining assets shall be distributed to the Limited Partner.

Limited Liability Partnership Agreement

A limited liability partnership agreement is one in which all partners have limited liability protection. This means that partners are not personally liable for the partnership’s debts and obligations, and their personal assets are protected. This type of partnership is popular among professional service firms, such as law and accounting firms.

Limited Liability Partnership Agreement Sample

[Company Name] Limited Liability Partnership Agreement

This limited liability partnership agreement is entered into on [date] by and between [Partner 1] and [Partner 2], collectively referred to as the “Partners.”

Partnership Type: This partnership shall be a limited liability partnership.

Capital Contributions: Each partner shall contribute $[amount] to the partnership.

Profit and Loss Sharing: The profits and losses of the partnership shall be shared equally between the partners.

Partnership Management: The partners shall share the management of the partnership equally.

Dispute Resolution: In the event of a dispute, the partners agree to mediation or arbitration.

Partnership Duration: This partnership shall continue until terminated by mutual agreement.

Dissolution: In the event of dissolution, the partners shall distribute assets equally and pay liabilities in proportion to their contributions.

These sample agreements serve as a starting point for entrepreneurs creating partnership agreements. It is essential to talk to a lawyer specializing in partnership agreements to ensure the agreement is legally binding and meets all requirements.

Conclusion

A partnership agreement is essential for entrepreneurs who want to establish a business partnership. It helps prevent misunderstandings and serves as a reference point in the event of a dispute or dissolution of the partnership. 

Different partnership agreements exist, including general partnership, limited partnership, and limited liability partnership. Each type has unique characteristics and should be carefully considered before entering a partnership.

You should consult a lawyer specializing in partnership agreements to ensure that the agreement is legally binding and meets all requirements.