What to include in a partnership agreement: 10 key terms

Published 26 September 2026 · Business deals, money and releases

Short answer: who puts in what, how profits are split, who decides what, and what happens when someone leaves. Without a written agreement, default partnership law answers those questions for you, often in ways the partners did not expect.

What happens without an agreement

In many places, two or more people who run a business together for profit are a partnership automatically, whether or not they sign anything. Most US states follow the Revised Uniform Partnership Act, and the UK has the Partnership Act 1890. Under both, unless the partners agree otherwise:

• Profits are shared equally, even if one partner put in far more money.
• Every partner has an equal say, and ordinary decisions are made by a majority.
• No partner is paid a salary for working in the business.
• Each partner can bind the partnership to contracts in the ordinary course of business, and each is personally liable for its debts.

An agreement cannot remove the partners' personal liability to outsiders, but it can change almost everything else between the partners.

The ten terms to include

1. The partners and the business. Names and addresses, the business name, what it does and where.
2. Contributions. What each partner puts in, such as money, equipment, clients, intellectual property or work, by when, and whether it can ever be taken out.
3. Shares of profits and losses. Write each partner's percentage down and check the shares add up to 100%.
4. Drawings and salaries. Whether partners can take money out each month against their share of profits, and whether a partner who works more hours is paid for it.
5. Decisions. What any partner can decide alone, a spending limit, and a list of major decisions that need a majority or everyone, such as borrowing, hiring, big purchases or changing what the business does.
6. Time and loyalty. How much time each partner gives the business, and no competing business on the side without the others' consent.
7. Money and records. A bank account in the partnership's name, who can approve payments, and every partner's right to see the books.
8. Leaving. How much notice a partner must give to withdraw, what happens on death or long-term illness, and the right of the others to carry on the business.
9. The buyout price. Fair market value set by an independent accountant, or an agreed formula, and how long the remaining partners have to pay. This is where many partnership disputes end up.
10. Disputes and dissolution. Mediation before court, and how the business is wound up: pay the debts, return the contributions, then divide what is left.

Five mistakes to avoid

• Equal shares by default. If contributions differ, decide deliberately whether the shares follow money, time, skills or all three.
• No plan for a deadlock. Two 50/50 partners who disagree can stall the business. Agree how a tie is broken, for example by mediation or an adviser you both trust.
• No exit terms. Without them, in some places one partner leaving can end the whole partnership, and the value of their share is argued over later.
• Mixing personal and business money. Open a separate bank account from the first day.
• Never revisiting it. Review the agreement when a partner's role, contribution or time commitment changes.

Partnership, LLC or MOU?

For US federal tax, a partnership files an information return and each partner pays tax on their share of the profit, and an LLC with two or more members is taxed the same way unless it chooses otherwise. Ask an accountant which structure suits you before you start trading.

Free templates

The free partnership agreement template covers all ten terms above as simple questions: any number of partners with their contributions and shares, drawings, a spending limit, a list of major decisions, buyout terms and optional mediation. Still deciding whether to go into business together? Start with a memorandum of understanding and a mutual NDA. If one partner lends the business money rather than contributing it, record it in a loan agreement.

General information, not legal or tax advice. Partnership law differs between countries and states, and a lawyer can check the agreement against the rules where you trade.

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