Do You Need a Partnership Agreement?
Written by Law on Call Staff | Reviewed by Nathan Askins | Last Updated July 29, 2025
A partnership agreement is a rule book for your business. A written or oral legal contract, it outlines things like partner responsibilities, business processes, and even how partners get paid.
You can create a partnership agreement yourself, use a generic template, or let our business attorneys draft your partnership agreement for you.
Main Takeaways
- You can write your own partnership agreement, use a template, or hire a licensed attorney to draft it for you.
- Partnership agreements can be verbal or written, but written agreements offer more protections for the business and its partners.
- Partnership agreements need to include basic information about the business, details on how capital contributions, profits, and losses will work, and processes for decision-making like calling votes, transferring ownership, and dissolution.
What Is a Partnership Agreement?
A partnership agreement is a contract that details how your partnership will be run. While optional when starting and maintaining a general partnership, they allow you to get into specifics while ensuring everyone’s expectations are expressed and accounted for.
Though partnerships are not state-registered, lacking an agreement means your operational rules will default to relevant state law. In Arizona, for example, ARS 29-1003 states: “To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.”
Why Do I Need a Written Partnership Agreement?
Though oral partnership agreements can be legally binding, a written agreement ensures clarity from the start. When you write your agreement down, you’re able to critically consider each element and have evidence that your partners also agreed to particular actions and processes.
With a written partnership agreement, you can:
- Avoid miscommunication. Just because you and your partner talked about something, it doesn’t mean that you actually came to an agreement. You may think that “I’ll handle the day to day and you hand the big picture stuff” is clear enough. But if a water main breaks, who’s responsible for the cleanup and inventory assessment? Writing out specific roles and responsibilities can avoid this headache down the road.
- Make ownership simple. Maybe you want to dissolve the partnership entirely, bring on a new partner, fire a partner, or transfer your ownership. All of this can be complicated—and result in litigation—if not handled correctly. Your partnership agreement can list everything you need to do to change, add, or drop owners.
- Open a bank account. Because a business bank account is one way a partnership can separate the business from its owners, it can be crucial at tax time and during legal disputes. Depending on the state and the bank itself, you will need documentation proving that you own the business before you can actually open a business bank account. A partnership agreement will usually do the trick.
- Deviate from generic state laws. By creating your own partnership agreement, you are able to create standards tailored to your specific business arrangement.
Understand what you’re signing before you sign.
How to Write a Partnership Agreement
Writing a partnership agreement can be as complex or simple as you want. At the end of the day, it just needs to include the date, partner signatures, and whatever elements you all deem the most important.
But remember—this is a legally binding document. If you go against it, your partners are fully within their rights to pursue legal action. With that in mind, many partnerships agree to use either an attorney-drafted template or to hire a lawyer themselves with their business’s best interest in mind.
1. Basic business information
Your partnership agreement proves your partnership exists and that you are one of the owners.
This means it needs to include:
- Business name
- Business purpose
- Names and contact information for all partners
- Length of partnership
- Ownership interest, or how much of the business each partner owns
- Statement that identifies all partners as members of the partnership
2. Financial information
Money plays a huge part in why a partnership agreement is important. Especially for dispute settling and funding opportunities, it’s crucial to keep thorough financial records.
You’ll want to outline how finances work for your business. This includes:
- Initial capital contributions, or the amount each partner contributed at the start of the business
- Division of profit and loss, or the percentage that each partner will earn or be responsible for
- When and how a partner can get paid, either from salary or general profit distribution
3. Decision-making information
This is really the meat of the partnership agreement, the brass tacks of business operations.
Include information on how decisions will get made, like:
- Management structure, or who will run the business’s day to day activities
- Voting structure and process
- Dispute resolution, or what to do when the partners disagree
- How to add new partners
- How to transfer ownership from one partner to another
- How to remove partners, both willing and unwilling
- What to do if a partner becomes incapacitated or dies
- Means and conditions for amending the partnership agreement
- Process for dissolving the partnership
Frequently Asked Questions
Yes. In addition to general partnerships, common arrangements include limited partnerships (LP) and limited liability partnerships (LLP). Both require registration with the state and have rules/regulations that general partnerships do not. They can help provide liability protection for certain partners.
For general partnerships, a written partnership agreement is not required. However, some states require LPs and LLPs to have partnership agreements. Typically, this is because the businesses themselves are professional in nature and do not equally split liability.
Partnership agreements do not have to be notarized. That said, notarizing your partnership agreement is an added layer of protection. If the partnership agreement is being disputed in court, for example, a notary signature can help boost the validity of the partnership agreement.
Partnership agreements are voided in the same way other contracts are voided. So, for example, if one of the partners does not have the legal capacity to enter into contracts or the partnership agreement was signed under coercion or threat, that automatically makes it void.
A partnership agreement may also be voided if one of the partners dies or becomes incapacitated, or the business files for bankruptcy.
Like any legal contract, a partnership agreement is binding. It means commitment. But that’s more about actually starting a partnership. The agreement itself is a way to make everything about running a partnership easier. If you’re going into business, there’s no real downside to protecting yourself and your future.