Partnership agreement template

What is a Partnership Agreement?

A partnership agreement is a legal document that outlines the rights, responsibilities, and obligations of each partner in a business partnership. It sets the terms and conditions under which the partners agree to conduct their commercial relationship.

Partners use this type of business contract to agree on various aspects of their business, such as profit and loss distribution, decision-making processes, dispute resolution, and exit strategy.

By doing so, partnership agreements provide clarity and prevent misunderstandings that could potentially harm the business later down the line. They are often also referred to as business partnership agreements or partnership contracts.

While partnership agreements may not always be legally required, they are highly recommended for any business partnership, as they create a solid foundation for a mutually beneficial relationship.

When should you use a Partnership Agreement?

The most common use cases for partnership agreements include:

• Forming a new business partnership: This agreement will outline each partner's investment in the business, if relevant; their roles and responsibilities; and how profits and losses will be shared.
• Bringing in a new partner: ‍If you're adding a new partner to an existing business, a partnership agreement can help define their role and stake in the business, as well as protecting the interests of existing partners.
• Changing the structure of a partnership: ‍If your business is evolving and the partnership structure needs to change, a new partnership agreement puts all parties on the same page about the new structure and their roles within it.
• Planning for the future: ‍A partnership agreement can also be used to prepare for a smooth transition in future scenarios, such as the retirement, death, or exit of a partner. 
• Resolving disputes: ‍If a dispute arises between partners, a well-drafted partnership agreement can provide a roadmap for resolution, potentially saving the partners time, money, and stress in the event of a disagreement.

Partnership agreement vs joint venture agreement: what’s the difference?

A joint venture agreement and a partnership agreement are both legal arrangements that facilitate collaboration between two or more parties, but there are some important differences in their structure, purpose, and duration.

A joint venture agreement is a temporary collaboration between separate entities to achieve a specific goal, sharing resources, risks, and rewards, often dissolving after the project’s completion. 

In contrast, a partnership agreement establishes an ongoing business relationship where partners share ownership, profits, and liabilities within a single business entity, intended for long-term operations. 

The simplest way to understand the difference between the two is that: joint ventures are project-specific and temporary with limited liability, while partnerships are long-term with shared liability.

Who should create the Partnership Agreement?

Due to their importance and breadth, partnership agreements affect various teams in different ways. As a result, different stakeholders will be involved in creating and reviewing partnership agreements, depending on the situation and the way the business is set up.

These teams often include legal, finance, operations, and the management group. If you are part of a business partnership, you are already a potential user. However, you may find that legal counsel will often create and own the partnership agreement templates, and they will usually have approval rights too. 

In fact, contracts that can expose the business to risk or financial impact above a certain threshold will almost always have some legal oversight. Of course, this will vary depending on your organization’s risk appetite, though. 

What should a Partnership Agreement template cover?

The information that your partnership agreement template covers will depend on the needs of your business and how you choose to operate.

That said, in addition to the basic elements of a contract, a partnership agreement template will typically include the following provisions:

1. Details of the parties involved

‍Your partnership agreement should include basic information about the parties involved and the people that the agreement will cover. This should refer specifically to the different partners involved in the agreement.

Example Clause:

This Partnership Agreement is made on [Date], between [Partner 1 Name], residing at [Address], and [Partner 2 Name], residing at [Address]. Collectively, these parties will be referred to as "Partners" throughout this Agreement.

2. Definition of the partnership

You also need to set out a clear definition of the partnership, including its purpose and the roles and responsibilities of each partner. You should also define the nature of the partnership, whether it is a general partnership or a limited partnership.

Example Clause:

The purpose of this partnership is to operate a [describe business purpose], under the name [Partnership Name]. The partnership shall be a [general/limited] partnership with each partner's role and responsibility defined as follows: [Role of Partner 1], [Role of Partner 2], etc.

3. Capital contributions and profit and loss distribution

‍The partnership agreement should clearly outline each partner's capital contribution to the partnership and how profits and losses will be distributed among the partners. This is a critical aspect of any partnership agreement and can help prevent disputes down the line.

Example Clause:

Each partner's initial capital contribution is as follows: [Partner 1] shall contribute [amount] and [Partner 2] shall contribute [amount]. Profits and losses will be distributed as follows: [percentage or ratio] to [Partner 1] and [percentage or ratio] to [Partner 2], after the deduction of necessary expenses.

4. Decision-making processes

‍The partnership agreement should also outline the decision-making processes within the partnership, including how decisions are made, who has the authority to make decisions, and what happens in the event of a deadlock.

Example Clause:

All decisions regarding the operation of the partnership shall require the unanimous consent of all partners. In the event of a deadlock, the partners agree to submit the issue to [mediation/arbitration] for resolution. Each partner shall have equal voting power unless otherwise agreed upon in writing.

5. Dispute resolution

‍The partnership agreement should include a clause outlining how disputes between partners will be resolved. This could include mediation, arbitration, or litigation.

Example Clause:‍

Any disputes arising out of or in connection with this Agreement shall be resolved by [mediation/arbitration]. If mediation is chosen, the mediator's decision shall be binding on all partners. The costs of mediation/arbitration shall be shared equally by all partners.

6. Exit and dissolution strategies

‍The partnership agreement should also include provisions for the exit of a partner and the dissolution of the partnership. This could include buy-sell provisions, retirement provisions, and procedures for winding up the partnership.

Example Clause:

If a partner wishes to exit the partnership, they must provide at least [number] days' written notice to the other partners. Upon exit, the remaining partners have the option to buy out the exiting partner's share based on the current market value. In the event of dissolution, all partnership assets will be liquidated, and the proceeds will be distributed according to each partner's profit-sharing ratio.

7. Legal jurisdiction

‍A partnership agreement should also outline what jurisdiction(s) the legal agreement will be governed under if a contractual dispute arises.

Example Clause:

This Agreement shall be governed by and construed in accordance with the laws of the State of [State Name]. Any legal action or proceeding arising under this Agreement shall be brought exclusively in the courts of [State Name].

8. Additional clauses

‍Depending on the situation, some partnership agreements may require additional clauses on issues like non-compete and confidentiality, all of which should be outlined from the onset.

Example Clause:

Each partner agrees not to engage in any business that competes directly with the partnership for a period of [time] after leaving the partnership. Additionally, all partners agree to maintain confidentiality concerning all proprietary and business information related to the partnership.

By including these provisions and clauses, your partnership agreement template can effectively address key aspects of the partnership, ensuring that all parties have clear expectations and protection from the onset and throughout. 

How to create a Partnership Agreement

Even with an exhaustive list of what to include, creating a partnership agreement from scratch can be a tiresome ordeal.

In fact, business users hoping to improve their contract process frequently complain of how painful the process can be. The process you’re familiar with probably looks a bit like this:

1. A partner in the business emails a member of the legal team asking for a partnership agreement.
2. The legal counsel, probably buried in low-value admin tasks, directs the partner to the shared drive where they're usually stored.
3. The partner grabs any old partnership agreement template from the shared drive, fills in various fields in square brackets and emails it to the legal team to review.
4. Legal corrects various details and returns it to the partner via email.
5. The partner then shares the approved version of the partnership agreement to the other partners for them to review and negotiate. They redline the contract in Word before emailing back their revised version.
6. If there are still disagreements over the terms, each party will redline the document and pass it back and forth, often creating and sharing a new version each time.
7. Eventually, they agree the terms of the partnership agreement and sign the contract. This is traditionally done with wet ink, but today most businesses opt for an eSignature tool like DocuSign, or a DocuSign alternative.
8. Once signed, the partnership agreement is shared with the relevant parties and stakeholders (legal, finance, and so on), and hopefully uploaded to a shared drive like Google Drive, Box, Dropbox or OneDrive.

But this approach to creating partnership agreements is both time-consuming and admin-heavy, surfacing the following complaints:

• Low-value work: “I’m the General Counsel, responsible for the company’s legal affairs, and yet I spend most of my working day directing business colleagues to find contract templates in our shared drive”
• Version control risks: “Partnership agreements can be high risk. But I never know which the most up-to-date template is - are these the right terms? Getting it wrong can be costly”
• Incorrect templates: “Do I need the general partnership agreement or a limited version?”
• No visibility during negotiations: “Negotiations on these partnership agreements are getting lost in my emails. I can't remember who requested what changes, and which ones have been actioned already”

A better approach to managing Partnership Agreements

Fortunately, it's possible to streamline and automate the process used to create and manage partnership agreements in 2024 and beyond. This is achieved by adopting a flexible contract management platform like Juro.

By leveraging a contract management platform, you can save valuable time, stop switching between multiple tools, and allow your legal team to focus on higher-value tasks.

Juro's automated contract templates enable you to generate simple partnership agreements in a matter of seconds using terms pre-approved by legal. 

Legal and business teams can also leverage Juro’s legal AI assistant to automate the drafting process further. Users can prompt the AI to draft, revise, or amend partnership agreement terms, or even full templates - all within a few clicks. 

This is particularly useful during negotiations where your prospective business partner pushes back on your terms, and you need to redraft a term that allows you to meet in the middle.

But that’s not all. As an end-to-end contract lifecycle management platform, Juro also offers the rich set of features you need to sign, store, and track partnership agreements. This means you can agree them from start to finish in one centralized workspace.

With Juro, you’ll experience less friction and smoother transitions into new and exciting business partnerships. 

That's why businesses like Trustpilot, Deliveroo, Remote, Angellist, and Quantumscape use Juro to manage their contracts.

Interested in joining them? Book a personalized demo today.