Going into business with someone is a significant commitment. A well-drafted partnership agreement protects everyone involved and prevents the disputes that destroy businesses and friendships.
Many partnerships start with a handshake and good intentions. The problem is that without a written agreement, the default rules of your state's Partnership Act apply. These default rules are often not what the partners expect.
Without an agreement, profits are split equally -- even if one partner contributed more capital or works longer hours.
Any partner can enter contracts on behalf of the partnership, creating obligations for all partners.
If a partner leaves or dies, the partnership dissolves by default. This can be catastrophic for a running business.
A written partnership agreement replaces these defaults with terms that reflect your actual arrangement. It costs far less to draft an agreement upfront than to litigate a dispute later.
Define what each partner contributes -- cash, assets, intellectual property, or sweat equity. Specify how additional capital calls are handled and what happens if a partner cannot contribute.
Specify the ratio for sharing profits and losses. This does not have to be equal. Consider partner salaries or drawings separate from profit distributions. Address how and when distributions are made.
Clearly define who does what. Which partner manages finances? Who handles operations? What decisions require unanimous consent versus a simple majority? Ambiguity here is the top source of partnership disputes.
Specify spending limits for individual partners, which decisions require all partners to agree, and how deadlocks are resolved. Many agreements use a tiered system based on dollar amounts.
Include a structured process: first informal discussion, then mediation, then arbitration, and only then litigation as a last resort. Specify who bears the costs. Include a mechanism for independent tie-breaking.
How can a partner leave? What notice is required? How is their share valued -- book value, market value, or an agreed formula? Include buy-sell provisions and the right of first refusal for remaining partners.
What happens if a partner dies or becomes permanently incapacitated? Consider key person insurance, buy-sell triggers, and whether the partnership continues or dissolves.
Restrict partners from competing during and after the partnership (within reasonable limits). Protect trade secrets, client lists, and proprietary processes. Specify the duration and geographic scope.
Simplest model. All profits and losses are shared equally regardless of contribution.
Best for: Partners with equal contributions of capital and time.
Profits split according to agreed percentages (e.g., 60/40 or 70/20/10). Reflects differing levels of contribution.
Best for: Partnerships with unequal capital or time contributions.
Partners receive a base salary for their work. Remaining profits are split by a separate ratio (often based on capital contribution).
Best for: Partnerships where some partners work full-time and others are investors.
The best partnership agreements anticipate conflict and provide a structured process to resolve it.
Partners discuss the issue directly and attempt to resolve it informally within 14 days.
If unresolved, partners engage an independent mediator. Cost is shared equally. Most disputes resolve here.
For financial or valuation disputes, an independent expert makes a binding determination.
If mediation fails, the dispute goes to binding arbitration. Faster and cheaper than court.
Court proceedings as a last resort. The agreement should specify that the losing party bears costs.
How a partner exits is often more important than how they enter. Without clear exit provisions, a departing partner can force dissolution of the entire business.
SignAndGo includes a partnership agreement template that covers all the essential terms. Customise it with our AI assistant Sharna, or upload your own agreement drafted by your solicitor.
Start with our template or upload your own.
Each partner gets a unique signing link.
Partners sign on any device, any time.
Complete record of who signed and when.
While not legally required, a partnership agreement is strongly recommended. Without one, the Partnership Act in your state applies default rules that may not suit your arrangement. For example, profits are split equally regardless of contribution, and any partner can bind the partnership to contracts.
Essential terms include: partner names and contributions (capital and labour), profit and loss sharing ratios, roles and decision-making authority, drawings and salary arrangements, dispute resolution process, exit and retirement procedures, death or incapacity provisions, and non-compete clauses.
Yes. Partnership agreements can be signed electronically under the Electronic Transactions Act 1999 (Cth). Electronic signatures provide a timestamped, auditable record that all parties agreed to the terms.
Profit sharing is entirely negotiable and should reflect each partner's contribution of capital, skills, time, and risk. Common arrangements include equal splits, percentage splits based on capital contribution, or tiered structures where a base salary is paid before remaining profits are split.