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Top 10 Partnership Plan Templates with Examples and Samples

DivyanshuKumar Rai

When partners enter a business at the outset, they are motivated and excited to embark on this exciting new adventure together. Initially, they agree on almost everything. These new entrepreneurs think they will be in business together for the rest of their lives or until they sell the company for untold millions of dollars.

They believe that nothing can or will go wrong. They are so sure of each other that they never bother to get a written partnership plan. What could possibly go wrong in this scenario? The short answer is, "A LOT!"

The reality is that, despite dreams of longevity and unwavering trust, business owners' desires and expectations change over time. A written partnership plan can manage these expectations and give each partner confidence in the business's future. A written plan can serve as a safeguard that protects both the business venture and the investment of each partner.

Now, you might be thinking, “How to get an effective partnership plan in place?” The quick answer: Partnership Plan Templates .

Every business requires a partnership plan. Small businesses seek out partnerships more to achieve their goals and objectives. Building a strategic partnership is more complicated than creating a partnership document, but it is the first step toward action. SlideTeam’s partnership plan templates maneuver your ship to the shore.

Let’s explore these!

Template 1: Vendor Strategic Partnership Engagement Plan

Get this Strategic Partnership Plan PPT Template and deliver an impactful presentation to your audience. Its layout is divided into four sections, each describing a critical aspect: Plan, Analyze, Identify, and Act. There’s a specified section for review to ensure you have that extra cushion to make amendments, wherever necessary. Get this template now.

Download this template

Template 2: Strategic Partnerships Event Planning Service Company Profile PPT Template

This PowerPoint Template works wonders when you want to explain the role of strategic partnerships within an organization. It has ample space to highlight points you want to deliver in your presentation. You can use its standard layout to emphasize key details, including partner location, services they monitor, objectives, and more. Download it now.

Template 3: Internal Communication Plan For Partnership Firm

The importance of proper communication in the successful accomplishment of business objectives can’t be overstated. With SlideTeam’s handpicked internal communication plan template, you can enjoy the convenience of an uninterrupted flow of information across departments in your company. This plan layout describes:

• Reasons for communication
• Communication activity
• Communication channel
• Individual responsible

Download now.

Template 4: Marketing Campaign Initiated by Partnership Timeline

Build a weekly timeline for your marketing campaign using this fantastic PPT Template. Till the campaign goes live, you can include and track KPIs to ensure your effort is successful. Here, there are some predefined parameters that you can use: Target mapping exercises, Prepare brands and categories, Assign partner roles, risk register update, Negotiation and recruitment, and Activation and management. Download it now.

Template 5: Global Partnership Management for Planning and Communication

Global partnership management is a painstaking task that can be made easy with our exemplary template. It has a unique framework that explains key insights encompassing the five stages, namely: Prepare, Share Knowledge, Plan, Execute, and Achieve Results. Being 100% editable, you can tweak the design and include points in this template to serve your purpose. Download it now.

Template 6: Six Months Teamwork Partnership Strategy Roadmap

Teamwork is the key to success! We know you would have heard this phrase at least a million times, but it doesn’t take away even a slight bit of truth. Build a six-month teamwork partnership framework using our exceptional PowerPoint Template. It highlights the team member and phases spread across a month-wise timeline. The phases include:

• Develop partnership strategy
• How the partnership will operate
• Ensure stakeholder support
• Resource allocation
• Review the partnership development process

Template 7: Five-yearly Teamwork Partnership Strategy Roadmap

With a similar design to the previous template, this template accelerates the process of building a five-year teamwork partnership strategy roadmap. It has some predefined phases which you can change to suit your business requirements. You can present it to higher management to get their approval on the partnership roadmap you are long working on. Get it now.

Template 8: Planned Partnership Strategy PPT Template

If you need a pre-built framework for drafting a planned partnership strategy, this is the perfect piece for you. Its layout is designed into five stages that you can use to explain critical insights that underline your strategy. You can also use it to highlight KPIs as well. Get it now.

Template 9: Strategic Partnership Showing Teamwork

‘Strategic partnership’ is a complex subject that commands resources to spark clarity in your audience. Lucky for you, SlideTeam has prepared this template that touches every essential parameter that encompasses it. This template highlights the points of collaboration, teamwork, strategy, plan, performance, and success. It is a roadmap with checkpoints you need to surpass to foster better partnerships within your organization. Download it now.

Template 10: Partnership Action Plan PPT Presentation

A partnership action plan boiled down into three stages! Hard to believe, isn’t it? SlideTeam presents a PPT Template that displays a layout that does just that. It has three levels: Action, Planning, and Partnership. The idea behind these stages is, you have to define relevant actions to ensure your organizational plans aren’t affected. Doing so will ensure there’s a more inclusive partnership forging in your company across departments. Get it now.

Partnerships are critical to the success of any business. Merchants and traders have used the principles of strategic partnership to conduct their businesses since the genesis of trade and commerce; the trend continues today.

A partnership can take many forms, from business owners working together to invest in a project to firms sharing technical knowledge and ideas. Whatever a company does, finding the right partnership plan template that benefits both parties is critical. (And that’s why SlideTeam has put together this list of top 10 partnership plan templates!)

FAQs on Partnership Plan

What is a partnership plan.

A partnership plan is a way two or more parties in a business agree on conducting the venture together. Each party takes different functions to perform, helping the business run more efficiently. This plan is documented in the form of an agreement. This document lays down the ground rules on how the partners will handle business responsibilities, ownership and investments, profits and losses, and company management.

While "partners" usually refers to two people, there is no limit to how many partners can form a business partnership in this context.

How do you create a partnership plan?

When forming a business partnership, it is critical to draft a partnership plan contract that outlines all of the terms and conditions of the professional relationship. Your business partnership plan should include a list of all partners and should address the following issues:

• Name of the partnership
• Partnership goals
• Partnership duration
• Contribution amounts of each partner (cash, property, services, future contributions)
• Each partner ownership interest (assets)
• Management roles and terms of authority of each partner
• Accounting obligations
• Distribution of profits and losses between the partners
• Salaries, work hours, sick leaves, and vacation times of each partner
• Permissions and restrictions on any outside business activity
• Buyout options of partners
• Process for adding new partners or removing original partners
• Terms and conditions of termination of the partnership

What are the stages of partnership?

Here are the five stages of partnership:

Stage I. The Singles Stage (Non-Partnering)

Stage II. The Searching Stage (Pre-Partnering)

Stage III. The Courtship Stage (Active Partnering)

Stage IV. The Bonding Stage (Consolidated Partnering)

Stage V. The Commitment Stage (Going to Scale)

What are the 5 principles of partnership?

There are five basic tenets that work together to form a framework for establishing a solid foundation for effective business relationships.

• Shared knowledge
• Agreed Goals
• Balance of return

While some of these are easier to quantify than others, each has a significant impact on the partnership's strength.

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Business Plan for Partnership Firm

A business plan for partnership firm is recommended for anyone entering into a business partnership. 3 min read updated on February 01, 2023

Updated November 2, 2020: 

A business plan for a partnership firm is recommended for anyone entering into a business partnership. A business partnership is two or more people working together to run a business. Each person takes on equal risks and rewards that come from the business. A proper business plan is ideal for handling current and future business decisions.

Steps For Planning a Business Partnership

• Write a mission statement to clearly state the direction and goals the business plans to take. By writing a mission statement, the partners agree to the company's direction now and in the future.
• Develop a reimbursement plan for the costs and investments incurred during startup. The amount of money provided for the startup is not always equal. Therefore, it is beneficial to make a plan that takes this into account with repayment and returns on investment. Avoiding arguments over the value of the startup amount versus levels of sweat equity will be removed with a reimbursement plan.
• Create a method to resolve partner disputes. If an odd number of members are part of the partnership, you can choose to vote democratically. In the case of two partners, the partners may split areas of the business having the final say. For example, one person can make final decisions on marketing and sales planning, while the other person makes final decisions on financial planning.
• Appoint an outside panel of advisors, or ombudsman , to resolve any internal disputes. Trusted experts should always be used to avoid ruining the partner relationship.
• Divide all the responsibilities of the partners related to labor and management and assign the amount of compensation they will receive. The compensation is not always equal based on the workload the partner takes on.
• Request that outside experts review the partnership agreement for any legal or accounting mistakes. The experts may be able to point out unknown problems that exist in the agreement. This review should take place before the partnership begins business operations.

Partnership Deed

A partnership deed and partnership agreement are the same, but the partnership deed is in writing . A partnership agreement can exist solely through verbal communications or actions. A partnership deed is recommended for businesses as it clearly defines the terms of the partnership.

The partnership deed helps prove the agreed-upon terms if there are any conflicts. Without a deed, the rules to settle disputes will fall to the state laws where the partnership exists. This creates another issue where one partner may file suit to benefit from the existing laws. Legal action can be avoided with a partnership deed that lists all details of the business that the partners agreed to when they began the business.

Partner Business Plans

When legal firms are looking to add a new partner, a well-written business plan that shows the new partners' intent to grow the business will make them stand out from the rest of the applicants. The business plan should exceed the expectations of the firm.

The key elements of the business plan are:

• Create an introduction that details your professional history, areas of expertise, and why you are the right fit for the firm.
• Provide market research and analysis of the needs of the local area, what competition exists, and why the firm offers the best way to reach this marketplace.
• Describe your current client base, prospective clients, and untapped areas you'd like to reach.
• Include any cross-selling opportunities that exist with current and prospective clients.
• Share ways you can develop business sources including publications, speeches, client seminars, newsletters, and similar.
• Explain your long-term strategy to meet the goals and targets that will benefit the firm.
• Show a history of collections, billing rates, and billable hours and projections for the current year, three-years, and five-years.
• Time the partners must invest.
• Key staff will be needed (paralegals, secretaries, etc.)
• Travel expenses.
• Marketing materials,
• Presentations.
• Foreign language skill requirements.

End with a conclusion that is creative recaps the important points in the plan, what value will be added to the firm, and why you are the best fit for the firm.

If you need help with a business plan for a partnership firm, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

• Limited Partnership Rules: Everything You Need To Know
• Purpose of Partnership: Everything You Need To Know
• Authority of Partners in Partnership: What You Need to Know
• Partnership Agreement Between Company and Individual
• Limited Company Partnership Agreement
• How to Make a Partnership Agreement Legally Binding?
• Contract for Business Partners
• Disadvantages of Partnership
• General Partnership
• Partnership and Company

• Crafting an Effective Partner Business Plan: Essential Elements for Success

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Discuss Partners on Top Law Schools

• ideas on how to network with judge's son who is partner?
• Networking/taking a partner at a firm out to lunch?
• NYC Study Partners- for those truly motivated
• 165+/Retake Study Partner?
• Arizona Study Partner

Partner Business Plans: Key Elements

• The Crucial Role of Business Plans in Law Firm Partner Success
• Maximize Portables in Your Business Plan in Order to Maximize Interest in You

The Importance of a Great Business Plan

Professional Goals For Partner Status

Making an evaluation of your existing practice, describing your vision as a partner, creating a strategy for growth.

• A partner's fit culturally
• The viability of a partner's practice for the long-term
• A partner's record of excellent client service to long-term clients and producing business
• A partner's history of consistently increasing collections
• A partner's practice fit in connection with the firm's strategic plan for expansion
• Whether a partner's practice area is one that is targeted for growth
• Whether the partner brings portable business and/or specific expertise needed in a particular practice area
• The opportunities the partner would bring for business development and significant cross-selling were the partner to join the firm
• Whether the partner's historical information is reflective of consistent productivity
• Whether the partner's client base fits within the firm's client structure
• Any potential conflicts that would preclude the firm from hiring the partner
• A partner's current compensation and compensation expectation
• A partner's potential contribution to the firm's bottom line/profitability
• A partner's fit within the firm's current attorney roster
• A partner's reason for leaving his or her current firm (voluntary/mutual arrangement) and whether the partner would be a problem
• Creative: Serve as a marketing piece on the partner and enable the firm to assess the partner's business potential. It should also provide an outlet to the partner to step out of the resume format and chart his or her previous performance and future prospects for business in a creative format.  
• Illustrative: Illustrate to a firm that the partner is thinking about his or her practice as a business and set forth his or her plan for the future.  
• Persuasive: Persuade the firm to hire the partner.  
• Historical: Chart a historical record of the partner's history of creating business opportunities and his or her ability to develop and foster client relationships over an extended period of time.  
• Demonstrative: Demonstrate a partner's business-development skills, initiative, and ability to contribute not only to his or her own success but also to the success of his or her colleagues through cross-selling efforts. It should also demonstrate ways a partner can contribute to a firm's financial bottom line, enhance its practice-group development, and ultimately bring added value to the team.  
• Prophetic: Prophesy what the partner believes he or she will be able to accomplish in his or her practice and for the firm in the short and long term.  
• Preparatory: Prepare the partner for the interviewing process.

Introduction

• Provide a narrative including professional history, practice overview, and a description of areas of expertise. This section may highlight briefly particular areas of expertise that the firm does not currently have.
• Describe the partner's role historically as a business developer.
• Briefly touch upon why the partner believes he or she would be a good fit for a particular firm.

Market Research/Analysis

• Give analysis of local need for services in partner's practice area.
• Describe local competition/other law firms with similar practices.
• Give overview of need in local market for partners with his or her expertise.
• Describe why partner believes firm provides the best platform in the marketplace for his or her particular practice area.

Current Client Base

• Describe current portable clients (use generic or specific).
• Describe key industries serviced.
• Discuss other partners' clients partner is servicing.

Additional Contacts to Develop

• Discuss contacts not yet tapped.
• Given market analysis, project possible targets in local, regional, national, or international markets.
• Discuss possible expansion of business from current client base.

Cross-Selling Opportunities

• Describe cross-selling opportunities with current clients.
• Describe cross-selling opportunities with known key clients of prospective firm.
• Discuss other practice areas at current firm to which partner is delegating work.
• Discuss services your clients are requesting that you cannot currently service at your firm and could otherwise capture at the new firm .

Other Business-Development Sources

• Describe additional business contacts you are pursuing or plan to pursue
• Speeches, publications
• Community organizations
• Bar associations
• Internal marketing initiatives
• Client seminars/newsletters

Long-Term Strategy Goals and Targets

• Set targets for expansion of practice in terms of collections, attorneys, and clients/industries.
• Consider possibility of local to regional to national growth patterns.
• Consider growth in other key competencies which may be affected by partner's long-term success.
• Discuss long-term strategies in connection with firm's overall strategic plan and practice-group development plans.

Historical Collections, Billing Rates, and Billable Hours

• If a partner with a lower billing rate structure, chart the anticipated rate increases by portable client or anticipated timeline for rate increases to current clients. Discuss any alternative billing arrangements you currently have in place with clients.
• Include three-year client collections history by client (as originating attorney and as billing attorney on other attorneys' matters). Include projection for current fiscal year.
• Include three-year billing rate history.
• Include three-year historical compensation history (including bonus information).
• Include three-year billable hour history.
• Note pending projects contributing to future collections.
• Include a summary of anticipated collection projections for the next three to five years.
• Business-development budget
• Time commitments from partners in other practice areas for cross-selling purposes
• Key staff needed (secretary, paralegals, etc.)
• Foreign-language skill requirements
• Travel expenses
• Marketing materials, presentations, etc.

Creative Conclusion

• Recap key points in plan, added value partner brings, and reasons he or she would be a good fit.
• Emphasize flexibility of plan and eagerness and willingness to discuss and modify in accordance with firm's plans and objectives.
• See 30 Ways to Generate Business as an Attorney for more information.

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Harrison is the founder of BCG Attorney Search and several companies in the legal employment space that collectively gets thousands of attorneys jobs each year. Harrison is widely considered the most successful recruiter in the United States and personally places multiple attorneys most weeks. His articles on legal search and placement are read by attorneys, law students and others millions of times per year.

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Business Partnership Agreement Writing Guide

Table of Contents

Since joining Business News Daily in 2015, Adam Uzialko has become a trusted resource for small businesses. As our Small Business Insider and an entrepreneur, he has spent thousands of hours researching and writing about the software and services entrepreneurs need most.

A business partnership agreement is a document that establishes clear business operation rules and delineates each partner’s role. These agreements are enacted to resolve disputes, delineate responsibilities, and define how to allocate profits and losses . 

Any business partnership in which two or more people own a stake in the company should have a business partnership agreement. This legal document provides critical guidance in a company’s operations.

We’ll explore what a business partnership should include, as well as share resources and best practices for creating this critical legal document.

What is a business partnership agreement?

A business partnership agreement is a legal document between two or more business partners that spells out the business’s legal structure and purpose. It outlines the following information: 

• Individual partners’ responsibilities
• Capital contributions
• Partnership property
• Each partner’s ownership interest
• Decision-making conventions 

The agreement also outlines what steps will be taken if one business partner decides to sell their interest or leave the company and how the remaining partner or partners would split profits and losses.

“I highly suggest formal partnership agreements are put in place as businesses evolve from solo practices into a partnership or ensembles,” said Rich Whitworth, former head of business consulting for Cetera Financial Group. “The biggest reason is that it establishes the ‘rules of engagement’ between the business and its owners … and lays out a road map on how to deal with entity-level issues.”

While businesses seldom begin with concerns about a future partnership dispute or how to dissolve the business, business partnership agreements are essential in situations in which emotions might otherwise take over. A written, legally binding agreement is an enforceable document instead of a spoken agreement between partners.

How to write a business partnership agreement

A business partnership agreement must include all foreseeable issues regarding the business’s co-management. The easiest way to prepare a business partnership agreement is to hire an attorney or to find a customizable template. If you’re writing your own agreement, find a template for a company that’s similar to the business you’re starting .

A business partnership agreement should follow a logical process and include the following information:

• Business generalities. Start by stating the business’s name , its legal structure and the business’s location (i.e., which state’s laws will govern it).
• Business operations. State the partnership’s purpose, and explain the activities the business will and will not engage in.
• Ownership stake. Spell out the percentage of the business that each partner owns. Enumerate each partner’s rights and responsibilities.
• Decision-making process. Outline how decisions are made and the responsibility of each partner in the decision-making process . Include who has financial control of the company and who must approve the addition of new partners. Also include information on how profits and losses are distributed among the partners.
• Liability. If the business partnership is set up as an LLC, the agreement should limit the liability each partner faces in the event of a business lawsuit . To do so effectively, a partnership agreement should be paired with other documents, such as articles of incorporation . A business partnership agreement alone is likely not enough to fully protect the partners from liability.
• Dispute resolution. Any business partnership agreement should include a dispute-resolution process. Even if you’re working with family or best friends, disagreements are common in business.
• Business dissolution. If one or more partners choose to dissolve the business, a business partnership agreement should outline how that dissolution will occur. It should spell out the procedures for partners to join or leave the partnership. It should also outline continuity or succession planning for partners leaving the business.
• Explain how the partnership’s finances (including small business taxes ) will be managed.

Once you’ve spelled out everything in detail, each partner must sign the agreement for it to take effect. 

The stages of a business partnership agreement

A business partnership agreement doesn’t have to be set in stone, especially as a business grows and develops. You’ll be able to add to the agreement, especially if unforeseen circumstances occur. According to Whitworth, there are four primary stages to consider.

• Initial partnership: This stage involves creating the initial business partnership agreement as described above. You’ll draft an agreement that governs the business’s general operations, decision-making process, ownership stakes and management responsibilities.
• Addition of limited partners: As a business grows, it might have the opportunity to add new partners. According to Whitworth, the original partners might agree to a “small carve-out of minor equity ownership” for the new partner, as well as limited voting rights that give the new partner partial influence over business decisions.
• Addition of full partners: Sometimes you’ll want to promote a limited partner to a full business partnership. A business partnership agreement should include the requirements and process for elevating a limited partner to full partner status, complete with full voting rights and influence equal to that of the original partners.
• Continuity and succession: At some point, founders may retire or leave the company without wanting to dissolve it. If you didn’t include continuity and succession planning initially, it’s crucial to outline your plan. Describe how ownership stake and responsibilities will be distributed among the remaining partners after the departing partners take their leave.

“Partnership agreements need to be well crafted for myriad reasons,” said Laurie Tannous, owner of law firm Tannous & Associates Inc. “One main driver is that the desires and expectations of partners change and vary over time. A well-written partnership agreement can manage these expectations and give each partner a clear map or blueprint of what the future holds.”  

Free business partnership agreement templates

Business partnership agreement templates are available for free online. These resources can help you draft your agreement, but you should have legal counsel review your draft and help you revise and finalize the document before you sign it. 

Once a lawyer confirms that your business partnership agreement is thorough and legally binding, you and your partners can sign it to make it official.

When you’re searching for business partnership agreement templates, start with the following resources: 

• LegalTemplates.net
• LegalContracts.com
• TemplateLab

Business partnership agreement mistakes to avoid 

Partnership agreements are complex documents. Unfortunately, many people get bogged down in details and make crucial startup mistakes in their partnership agreement. 

Here are some common mistakes to avoid: 

• Skipping key details. Partnership agreements typically include some complex language around specific topics, and people may leave out this language if they don’t understand it. Don’t assume something isn’t necessary just because it reads like fine print.
• Trusting things will work out. People tend to go into business with people they like and trust, leading them to think there won’t be problems later. A partnership agreement exists to resolve these issues when they inevitably arise.
• Not having the agreement reviewed by counsel. Partnership agreements can vary by state and industry, and laws and best practices are constantly changing. If you choose not to have an attorney draft your agreement, at least have one review it before you sign the document.
• Not amending the agreement later. Partnerships evolve, and governing documents must be updated periodically to reflect the changing business. Otherwise, there may be issues that the document can’t resolve.
• Not forming separate partnerships for new ventures. Creating a business is expensive and time-intensive. Sometimes when a partner has an idea for a new business, their first thought is to make it part of their existing partnership. However, this keeps partners from compartmentalizing their liability. Often, their existing partnership agreement isn’t structured to govern new and different businesses.

Business partnership agreements formalize the relationship between partners and enumerate their rights and responsibilities. This limits partner liability and helps resolve disputes. Failing to draft an appropriate agreement can lead to problems later, including significant personal liability.

Why do you need a business partnership agreement?

A business partnership agreement establishes a set of agreed-upon rules and processes that owners sign and acknowledge before problems occur. If any challenges or controversies arise, the business partnership agreement defines how to address them.

“A business partnership is just like a marriage: No one goes into it thinking that it’s going to fail, but if it does fail, it can be nasty,” said Jessica LeMauk, marketing director at Voxtur. “With the right agreements in place, which I’d always recommend be written by a qualified attorney, it makes any potential problems of the business partnership much more easily solved and/or legally enforceable.” 

In other words, a business partnership agreement protects all partners if things go sour. By agreeing to a clear set of rules and principles at the partnership’s outset, partners exist on a level playing field developed by consensus and backed by law.

Business partnership agreements level the playing field

A well-crafted, airtight business partnership agreement clarifies each partner’s expectations, duties and obligations. In business, things change constantly, so it’s crucial to establish a business partnership agreement that can serve as a grounding force in turbulent or uncertain times. A business partnership agreement also defines how the business should grow and governs the addition of new partners.

If you’re going into business with a partner, establish a business partnership agreement while incorporating as an entity. Even if it seems unnecessary today, when an issue arises, you’ll be glad you had an agreement in place.

Dock Treece contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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How to Create a Partnership Proposal [With Free Template]

When embarking on a business partnership, expect challenges. Partners have different personalities, working styles, daily schedules, and initial investments. You need to juggle working together (possibly for the first time) while addressing market needs and differentiating yourself from competitors.

A partnership proposal can help make those challenges a little less daunting by clarifying the details of your collaboration before you even launch your business. It can get everyone on the same page, reducing the risks of detrimental disagreements later on.

But drafting such a proposal is no small task.

To help you on your journey, we’ve got step-by-step instructions and a helpful partnership proposal template .

What’s in this guide :

Why you need a business partnership proposal

How to create a proposal for a business partnership, partnership proposal template & software.

Research shows that 70% of business partnerships fail—and (here’s the good news) a clear agreement is one of the best ways to improve your odds of success.

Oftentimes, partners will equally share the burden of losses and the gift of gains. But your share should reflect what you put into the business, both in terms of time and money. So if one partner will be giving more, they should also get more out of it. By accurately calculating equity, salaries, and profit draws in advance, you can be sure that each partner is getting their fair share according to their initial investment and ongoing role in the company.

A partnership proposal with clear terms can help settle any financial or legal matters that may arise later. But on a more positive note, it will also improve the quality of your collaboration. When all the terms are laid on the table up front (and no one is guessing or assuming), communication between partners will begin with a much stronger foundation—paving the way for a more profitable relationship.

Creating a proposal for your business partnership is complicated, but fortunately, you don’t have to go it alone. Follow these simple steps to cover all of your bases.

Step 1. Research what your proposal should include

The first step is to research what you need to include in your proposal, such as the share of profit and loss, the managing duties of each partner, and what should happen in the event of the death of a partner. This is a critical legal document so you need to get it right..

You don’t have to get it perfect the first time, as the terms will likely require negotiation. But covering all of the necessary information will demonstrate your attention to detail and ensure that the preceding negotiations are thorough.

Make sure to research requirements that are unique to your partnership type , which usually falls into one of these 3 categories:

General partnership - Shared day-to-day operations and liability for debts and owners.

Limited partnership - One or more partner doesn’t participate in day-to-day operations and is not liable for debts or lawsuits (but receives profits). This is typically used for inactive investors.

Limited liability partnership - Liability protection is extended to all partners so that no one is responsible for the actions of another partner. This is typically used for professionals operating out of shared office space, such as accountants, financial advisors, or plastic surgeons.

Because the taxation structure will affect the way that earnings are distributed and reported, you should also research details specific for your province or state of incorporation as well as your entity type (limited liability corporation, c-corp, etc.).

Brainstorm more information to include based on your unique business and what each partner brings to the table. For instance, if one partner is joining the partnership with a large social media following of ideal customers, you might want to outline how that social media account is expected to be used and what content will not be permitted on that account once the partnership begins.

If you use a partnership proposal template, you’ll save a lot of time on both research and writing. Preview our template here.

Make sure to consult with a business lawyer to get their take on the necessary terms.

Step 2. Outline your proposal

Now that you have your checklist for what to include in your proposal, it’s time to start organizing all of that information into a cohesive outline. A proposal template will save you time here. Start off with the template and then include additional terms that matter to your business.

We suggest this outline for your partnership proposal:

Name and Business - Basic business details like business name and address.

Term - When the agreement begins.

Capital - How partnership capital will be maintained.

Profit and Loss - How profits and losses will be shared and credited.

Salaries and Drawings - How salaries and profit draws will be managed.

Interest - Whether or not initial investments will receive guaranteed interest payments.

Management Duties and Restrictions - How management duties will be split, and what tasks can’t be undertaken without agreement from all partners.

Banking - What chequing account(s) will be used.

Books - How bookkeeping will be managed.

Voluntary Termination - How the partnership can be voluntarily dissolved, and how assets will be distributed if this occurs.

Death - What will happen in the event of the death of a partner.

Arbitration - Basic statement on arbitration for the agreement and the legal association that will be used.

You might be wondering if you need to add a cover letter to your outline. If you don’t need to convince anyone to join the founding team, you probably don’t need a cover letter. But if you’re trying to win over a partner, then check out this guide to writing a cover letter and add your letter to the very beginning of your proposal.

Step 3. Write the proposal sections

Time to write.

A partnership proposal has a very different style than most other business proposals , which are typically sent to prospective clients in order to win deals. For those proposals, you’re trying to sell . But with a partnership proposal, you’re trying to clarify . The prospective partner needs to know what they’re signing off on in order to give you a yes. What’s expected of them? What percentage of equity will they receive?

Because the goal is different, the writing style should be different too. Write using clear, simple, and legally accurate language for the majority of the proposal. By keeping the language of the proposal straightforward , you’ll eliminate any confusion and potential for disagreements later.

Take this text from our partnership agreement template as an example of the writing style you should aim for:

A separate capital account shall be maintained for each partner. Neither partner shall withdraw any part of his/her capital account. Upon the demand of either partner, the capital accounts of the partners shall be maintained at all times in the proportions in which the partners share in the profits and losses of the partnership.

If you need to create content to convince on-the-fence partners, you can do so with your cover letter, business plan, or presentation slides that will go along with the proposal. You might cover the addressable market, your competitive advantage, pricing model, etc.

Step 4. Add e-signatures

The next step is to add e-signatures to your proposal. This will turn the proposal into a binding agreement, so that once signed by all partners, the partnership can begin with clear terms.

You should add the e-signatures to the final page of the proposal.

Make sure that the e-signature software you use is legally binding .

Step 5. Review, sign, and send it

And lastly, it’s time to make sure your proposal is perfect. Review all of the terms and make sure you’ve covered everything in your checklist.

If you can afford it, have a business lawyer review your agreement before you sign and send it. This should be cheaper than having them draft an agreement from scratch (and can save you a lot of money and stress in the long run).

When you’re ready, sign the proposal yourself and then send it for signature to your partners.

You should not open up any bank accounts, file articles of incorporation, take out loans, or conduct any other activity with financial implications until the proposal is signed by all partners. If you do, a partner could later argue that they’re not liable. Instead, use the time before the proposal is signed to work on your business plan and research your addressable market.

Proposify makes it easy to create beautiful proposals for both internal and external use. We offer 75 unique proposal templates that show you exactly what to include and help you draft your proposals quickly.

You can also design your own proposal templates, save content snippets, and track stats on proposal views and closed deals.

How to Write a Business Proposal [Steps, Tips, & Templates]

September 30, 2022

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Get started with a free Proposify 14-day trial. No credit card required. Just more closed deals.

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Write your business plan

Business plans help you run your business.

A good business plan guides you through each stage of starting and managing your business. You’ll use your business plan as a roadmap for how to structure, run, and grow your new business. It’s a way to think through the key elements of your business.

Business plans can help you get funding or bring on new business partners. Investors want to feel confident they’ll see a return on their investment. Your business plan is the tool you’ll use to convince people that working with you — or investing in your company — is a smart choice.

Pick a business plan format that works for you

There’s no right or wrong way to write a business plan. What’s important is that your plan meets your needs.

Most business plans fall into one of two common categories: traditional or lean startup.

Traditional business plans are more common, use a standard structure, and encourage you to go into detail in each section. They tend to require more work upfront and can be dozens of pages long.

Lean startup business plans are less common but still use a standard structure. They focus on summarizing only the most important points of the key elements of your plan. They can take as little as one hour to make and are typically only one page.

Traditional business plan

Lean startup plan

Traditional business plan format

You might prefer a traditional business plan format if you’re very detail-oriented, want a comprehensive plan, or plan to request financing from traditional sources.

When you write your business plan, you don’t have to stick to the exact business plan outline. Instead, use the sections that make the most sense for your business and your needs. Traditional business plans use some combination of these nine sections.

Executive summary

Briefly tell your reader what your company is and why it will be successful. Include your mission statement, your product or service, and basic information about your company’s leadership team, employees, and location. You should also include financial information and high-level growth plans if you plan to ask for financing.

Company description

Use your company description to provide detailed information about your company. Go into detail about the problems your business solves. Be specific, and list out the consumers, organization, or businesses your company plans to serve.

Explain the competitive advantages that will make your business a success. Are there experts on your team? Have you found the perfect location for your store? Your company description is the place to boast about your strengths.

Market analysis

You'll need a good understanding of your industry outlook and target market. Competitive research will show you what other businesses are doing and what their strengths are. In your market research, look for trends and themes. What do successful competitors do? Why does it work? Can you do it better? Now's the time to answer these questions.

Organization and management

Tell your reader how your company will be structured and who will run it.

Describe the  legal structure  of your business. State whether you have or intend to incorporate your business as a C or an S corporation, form a general or limited partnership, or if you're a sole proprietor or limited liability company (LLC).

Use an organizational chart to lay out who's in charge of what in your company. Show how each person's unique experience will contribute to the success of your venture. Consider including resumes and CVs of key members of your team.

Service or product line

Describe what you sell or what service you offer. Explain how it benefits your customers and what the product lifecycle looks like. Share your plans for intellectual property, like copyright or patent filings. If you're doing  research and development  for your service or product, explain it in detail.

Marketing and sales

There's no single way to approach a marketing strategy. Your strategy should evolve and change to fit your unique needs.

Your goal in this section is to describe how you'll attract and retain customers. You'll also describe how a sale will actually happen. You'll refer to this section later when you make financial projections, so make sure to thoroughly describe your complete marketing and sales strategies.

Funding request

If you're asking for funding, this is where you'll outline your funding requirements. Your goal is to clearly explain how much funding you’ll need over the next five years and what you'll use it for.

Specify whether you want debt or equity, the terms you'd like applied, and the length of time your request will cover. Give a detailed description of how you'll use your funds. Specify if you need funds to buy equipment or materials, pay salaries, or cover specific bills until revenue increases. Always include a description of your future strategic financial plans, like paying off debt or selling your business.

Financial projections

Supplement your funding request with financial projections. Your goal is to convince the reader that your business is stable and will be a financial success.

If your business is already established, include income statements, balance sheets, and cash flow statements for the last three to five years. If you have other collateral you could put against a loan, make sure to list it now.

Provide a prospective financial outlook for the next five years. Include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, be even more specific and use quarterly — or even monthly — projections. Make sure to clearly explain your projections, and match them to your funding requests.

This is a great place to use graphs and charts to tell the financial story of your business.  

Use your appendix to provide supporting documents or other materials were specially requested. Common items to include are credit histories, resumes, product pictures, letters of reference, licenses, permits, patents, legal documents, and other contracts.

Example traditional business plans

Before you write your business plan, read the following example business plans written by fictional business owners. Rebecca owns a consulting firm, and Andrew owns a toy company.

Lean startup format

You might prefer a lean startup format if you want to explain or start your business quickly, your business is relatively simple, or you plan to regularly change and refine your business plan.

Lean startup formats are charts that use only a handful of elements to describe your company’s value proposition, infrastructure, customers, and finances. They’re useful for visualizing tradeoffs and fundamental facts about your company.

There are different ways to develop a lean startup template. You can search the web to find free templates to build your business plan. We discuss nine components of a model business plan here:

Key partnerships

Note the other businesses or services you’ll work with to run your business. Think about suppliers, manufacturers, subcontractors, and similar strategic partners.

Key activities

List the ways your business will gain a competitive advantage. Highlight things like selling direct to consumers, or using technology to tap into the sharing economy.

Key resources

List any resource you’ll leverage to create value for your customer. Your most important assets could include staff, capital, or intellectual property. Don’t forget to leverage business resources that might be available to  women ,  veterans ,  Native Americans , and  HUBZone businesses .

Value proposition

Make a clear and compelling statement about the unique value your company brings to the market.

Customer relationships

Describe how customers will interact with your business. Is it automated or personal? In person or online? Think through the customer experience from start to finish.

Customer segments

Be specific when you name your target market. Your business won’t be for everybody, so it’s important to have a clear sense of whom your business will serve.

List the most important ways you’ll talk to your customers. Most businesses use a mix of channels and optimize them over time.

Cost structure

Will your company focus on reducing cost or maximizing value? Define your strategy, then list the most significant costs you’ll face pursuing it.

Revenue streams

Explain how your company will actually make money. Some examples are direct sales, memberships fees, and selling advertising space. If your company has multiple revenue streams, list them all.

Example lean business plan

Before you write your business plan, read this example business plan written by a fictional business owner, Andrew, who owns a toy company.

Need help? Get free business counseling

How to Create a Business Partnership Agreement

4 min. read

Updated October 25, 2023

If you plan on going into business with a business partner, a written partnership agreement is important. If you and your partners don’t spell out your rights and responsibilities in a written business partnership agreement, you’ll be ill-equipped to settle conflicts when they arise, and minor misunderstandings may erupt into full-blown disputes. In addition, without a written agreement saying otherwise, your state’s law will control many aspects of your business.

• How a partnership agreement helps your business

A partnership agreement allows you to structure your relationship with your partners in a way that suits your business. You and your partners can establish the shares of profits (or losses) each partner will take, the responsibilities of each partner, what will happen to the business if a partner leaves, and other important guidelines.

Uniform partnership act

Each state (with the exception of Louisiana) has its own laws governing partnerships, contained in what is usually called the “Uniform Partnership Act” or the “Revised Uniform Partnership Act”—or, sometimes, the “UPA” or the “Revised UPA.” These statutes establish the basic legal rules that apply to partnerships and will control many aspects of your partnership’s life, unless you set out different rules in a written partnership agreement.

Don’t be tempted to leave the terms of your partnership up to these state laws. Because they were designed as one-size-fits-all fallback rules, they may not be helpful in your particular situation. It’s much better to put your agreement into a document that specifically sets out the points you and your partners have agreed on.

• What to include in your partnership agreement

Here’s a list of the major areas that most partnership agreements cover. You and your partners-to-be should consider these issues before you put the terms in writing:

• Name of the partnership. One of the first things you must do is agree on a name for your partnership. You can use your own last names, such as Smith & Wesson, or you can adopt and register a fictitious business name, such as Westside Home Repairs. If you choose a fictitious name, you must make sure that the name isn’t already in use.
• Contributions to the partnership. It’s critical that you and your partners work out and record who’s going to contribute cash, property, or services to the business before it opens—and what ownership percentage each partner will have. Disagreements over contributions have doomed many promising businesses.
• Allocation of profits, losses, and draws. Will profits and losses be allocated in proportion to a partner’s percentage interest in the business? And will each partner be entitled to a regular draw (a withdrawal of allocated profits from the business) or will all profits be distributed at the end of each year? You and your partners may have different ideas about how the money should be divided up and distributed, and each of you will have different financial needs, so this is an area to which you should pay particular attention.
• Partners’ authority. Without an agreement to the contrary, any partner can bind the partnership without the consent of the other partners. If you want one or all of the partners to obtain the others’ consent before binding the partnership, you must make this clear in your partnership agreement.
• Partnership decision-making. Although there’s no magic formula or language for divvying up decisions among partners, you’ll head off a lot of trouble if you try to work it out beforehand. You may, for example, want to require a unanimous vote of all the partners for every business decision. If that seems like more than will be necessary, you can require a unanimous vote for major decisions and allow individual partners to make minor decisions on their own. In that case, your partnership agreement will have to describe what constitutes a major or minor decision. You should carefully think through issues like these when setting up the decision-making process for your business.
• Management duties. You might not want to make ironclad rules about every management detail, but you’d be wise to work out some guidelines in advance. For example, who will keep the books? Who will deal with customers? Supervise employees? Negotiate with suppliers? Think through the management needs of your partnership and be sure you’ve got everything covered.
• Admitting new partners. Eventually, you may want to expand the business and bring in new partners. Agreeing on a procedure for admitting new partners will make your lives a lot easier when this issue comes up.
• Withdrawal or death of a partner. At least as important as the rules for admitting new partners to the business are the rules for handling the departure of an owner. You should therefore set up a reasonable buyout scheme in your partnership agreement to deal with this eventuality.
• Resolving disputes. If you and your partners become deadlocked on an issue, do you want to go straight to court? It might benefit everyone involved if your partnership agreement provides for alternative dispute resolution, such as mediation or arbitration.

Have you gone into business with a partner, and did you write up an agreement beforehand? What would you have done differently? Share your stories or questions with us in the comments.

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Navigating Business Partnerships: Your Comprehensive Guide to Success

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Deciding on a legal business structure is a critical first step when starting a new company. It impacts everything – from how you report income and your level of personal liability to compliance with legal obligations at all governmental levels.

For many, forming a business partnership is a strategic move. Partnerships can offer a synergy of expertise and resources, creating a collective capability greater than the sum of its parts. Unlike an LLC, a partnership implies that the business is conducted by individuals who share the management and profits.

What is a partnership?

A partnership is when two or more people or groups agree to run a business together. Each partner shares in the profits, losses, and business decisions. Partnerships can be formed between individuals, businesses, or organizations – anyone who wants to work together to make a profit and move forward with shared goals. Simply put, it's a team running a business, sharing the ups, downs, and responsibilities.

Once you’ve formed a partnership, it’s pivotal to clearly and legally document the understandings and expectations between partners. This step ensures a smoother business operation and helps prevent potential disputes. This brings us to another crucial term – the partnership agreement , which outlines the detailed terms and conditions among partners.

What is a partnership agreement?

A partnership agreement is a contract between business partners. It answers: Who owns what? Who does what? How will profits (and losses) be shared? It also sets the rules for solving disagreements and explains what happens if a partner leaves or passes away. It's a safety net, ensuring everyone knows the plan and preventing future disputes.

In my nearly 30 years as an attorney, entrepreneur, and advisor, I have navigated the nuances of different business structures, often evaluating the unique benefits and challenges of forming a partnership. And as an attorney, I’ve drafted hundreds of partnership agreements for various ventures. And I was a partner in numerous legal partnerships (which historically had to be structured as partnerships). This guide is your roadmap, with practical advice, actionable tips, and best practices from mentoring hundreds of entrepreneurs and small businesses and helping thousands start and expand their ventures.

Partnerships: A Comprehensive Guide

Types of business structures, benefits of forming a partnership, disadvantages of partnerships, types of partnerships, taxes and partnerships, how to start a partnership, partnership agreement: everything you need to know, frequently asked questions about partnerships.

Before diving into the details, let’s look at the popular types of business structures :

Sole proprietorship: This business is owned and operated by a single individual. This person maintains complete control over the company but bears all the risk.

LLC (Limited Liability Company) : This business structure merges the characteristics of corporations, partnerships, and sole proprietorships. It provides limited liability protection to its owners or members.

Corporation : A corporation is a business entity legally separate from its owners or shareholders. It can sell shares of stock to raise capital, something a sole proprietorship or partnership can’t do.

Hire an expert to form your company and save time. Our trusted partners can help: Northwest ($39 + state fee) or Bizee ($199 + state fee) . We recommend Northwest. After evaluating the leading registration companies, Northwest stands out as our top choice due to its competitive pricing, exceptional customer support, and commitment to privacy. Pay just $39 + state fees and you'll get a free year of registered agent service, articles of organization, privacy, and client support from local experts.

Embarking on a business journey with a partner isn’t just about having company. It’s about combining strengths, sharing responsibilities, and multiplying resources to create a resilient, resourceful, and robust venture.

Forming a partnership can weave a safety net, enabling the business to take leaps with shared risk and blend diverse skills to brew innovation and stability. From shared financial responsibilities to melding distinct skills, a partnership opens up a world where mutual benefits are not just possible but are often amplified. Here are fifteen tangible benefits for people when choosing a partnership structure:

• Shared responsibility. Partnerships often result in shared responsibility, which can lessen individual load. If one partner is adept at digital marketing, they can focus on online promotions, while the other, perhaps skilled in operations, manages order fulfillment. In a retail shop, one partner could manage in-store operations while the other takes care of supplier relationships and inventory management.
• Diverse skill set. Partners often bring varied skills and expertise, enhancing the business’s capabilities. One partner could focus on website design and UX design, while the other manages content creation and customer service. One partner could specialize in sales and customer interaction on the shop floor, while the other could focus on back-end operations and stock management.
• Enhanced creativity. With more minds at work, partnerships often foster enhanced creativity and innovation and can help you develop the best business ideas . An online design store can have one partner focused on creating unique designs while the other ensures they are showcased innovatively on the platform. While one partner brings innovative culinary ideas to a restaurant, the other might introduce fresh, customer-engaging service strategies.
• Risk mitigation. Having a partner means risks, especially financial ones, are shared. Both partners share the financial burden if an e-commerce platform fails to perform as expected. In a physical store, if a new product line doesn’t sell as projected, both partners absorb the financial impact.
• More resources.  Partnerships can mean access to more resources, such as capital, clientele, and industry contacts. In an IT firm, one partner might bring in financial investments while the other brings a rich client database. In a consultancy , one partner may offer a spacious office for client meetings while the other brings in crucial industry contacts.
• Networking opportunities. More partners typically equate to a wider network, which can be leveraged for business growth. An online advertising agency can benefit from one partner’s digital influencer contacts while utilizing the other’s connection with ad platforms. In a real estate business , one partner’s connections with property dealers and the other’s links with advertising agencies can be beneficial.
• Improved decision-making. Different perspectives often lead to well-rounded decision-making. In a digital magazine, editorial and technical decisions can be balanced between partners with expertise in each field. In a bookstore, one partner might select the inventory based on literary knowledge, while the other ensures technological tools (like point-of-sale [POS] systems) are updated and efficient.
• Flexibility . Partnerships often provide flexibility in management and operations. In an e-learning platform, partners can manage course updates and student interactions alternately, ensuring continual operation even during vacations. In a clinic, partners can alternate their duty hours to provide consistent services without burnout.
• Tax benefits.  Partnerships can offer various tax benefits, depending on jurisdiction. An online consultancy might benefit from tax deductions available for partnerships in its operational domain. A manufacturing unit run as a partnership may avail of certain tax credits available in its location.
• Easier to form. Forming a partnership can often be less complex and requires fewer formalities, paperwork, and expenses. Two freelancers might combine services and form a partnership firm with minimal documentation. Two artisans might join to create and sell products in a shared physical space with less bureaucratic involvement.
• Boosted financial capability. A partnership can amplify a business’s financial prowess by pooling all partners’ monetary resources and creditworthiness. In a SaaS business , while one partner might inject direct capital, the other might facilitate a loan due to their robust credit history. A coffee shop partnership might see one partner contributing more towards initial capital while the other agrees to a higher profit-sharing ratio to balance the scales.
• Companionship and moral support.  A partner can offer emotional and moral support, making the entrepreneurial journey less isolating. When running an online retail store, partners can buoy each other during slow sales, brainstorm new strategies, and provide moral support. In a physical fitness center, when one partner feels disheartened due to challenging situations, the other can provide encouragement and shared resolve to navigate through.
• Client satisfaction.  With multiple partners, client needs can be addressed more comprehensively and responsively. A digital marketing firm can provide client services across varied time zones, with partners strategically located in different regions. A consulting firm with partners specialized in various domains can offer clients a one-stop solution, enhancing client satisfaction and retention.
• Flexibility in ownership transfer.  Partnerships generally facilitate smoother transitions in ownership compared to other business structures. In an online tutoring platform, a partner wishing to exit can transfer their ownership stake to the remaining partner or a new entity more fluidly. In a law firm, a retiring partner might transfer their stake to an existing partner or a new entrant, ensuring continued business operations without complex restructuring.
• Greater borrowing capacity.  Partnerships often have a larger borrowing capacity than sole proprietorships due to combined assets and credit. An e-commerce partnership might secure a more substantial loan to scale operations, utilizing the combined assets and collateral of the partners. A manufacturing business partnership could leverage partners’ combined creditworthiness to secure better borrowing terms for expansion or upgrading machinery.

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Being tethered to another person or entity in business could mean conflicts, liability, and intricate financial management. Here are ten potential drawbacks of partnerships:

• Conflict in decision making. Decisions might be contested when more than one person is involved, and conflicts can arise. Two partners in an e-commerce platform might disagree on inventory purchasing decisions. Partners in a bookstore might have conflicts over which books to stock and promote. This is common in other types of entities, too. Over the years, I’ve had many conflicts with partners in partnerships, LLCs, and corporations. However, this is often legally more complicated in partnerships because they are often equal, and it’s not always clear who makes the final decision.
• Joint liability.  All partners share the burden of business debts and liabilities. All partners in a digital marketing agency may be liable for a debt incurred due to a failed campaign. In a restaurant business, partners are responsible for any debts accrued due to a failed event or investment.
• Profit sharing.  All profits have to be shared among partners, sometimes leading to discontent. Profits from a thriving online coaching platform must be distributed among all partners, potentially sparking disputes. Profits from a successful promotional event at a retail shop must be shared among partners, possibly igniting conflicts.
• Limited capital.  Raising funds can be limited to the personal funds or creditworthiness of the partners. An app development partnership may find difficulty scaling due to limited capital investment. Due to constrained capital, a dental practice partnership may struggle to expand to new locations.
• Business continuity.  Partnerships may face continuity issues due to the withdrawal or death of a partner. An online consultancy may face disruptions if a key partner departs unexpectedly. A partner’s sudden exit from a law firm could potentially destabilize client relationships and ongoing cases. I’ve seen this happen often at law firms and other professional partnerships.
• Diverse risk appetite. Partners might have different thresholds for risk, which can influence business strategies. A partner in a FinTech startup might be reluctant to explore a new, innovative, but risky feature, contrary to the other’s willingness. Partners in a construction business might disagree on taking up a large, potentially lucrative, but risky project.
• Limited expertise.  Limited to the partners’ skills and knowledge, some areas may lack expertise. A blogging platform run by content creators might lack technical optimization due to limited IT knowledge. A physiotherapy clinic may not optimize its marketing strategies due to a lack of marketing expertise among the partners.
• Shared losses.  All partners have to bear losses, which can impact personal finances. If an online retail business incurs losses, the personal savings of all partners may be impacted. In an event management partnership, a failed event could dent the personal financial health of all partners.
• Complicated exit strategy.  Exiting or dissolving a partnership can be complex and may affect business operations. Leaving or dissolving a partnership in a web development business might disrupt ongoing projects. A partner’s exit from a salon business might involve intricate valuation and division of assets.
• Customer trust. When a partner leaves or a partnership dissolves, it might erode customer trust and loyalty. In a SaaS business, customers might feel uncertain about the continuity and reliability of the service upon changes in partnership. Patrons of a local cafe might be skeptical about quality consistency if a well-known partner departs.

Recognizing these potential challenges allows prospective partners to tread wisely, crafting strategies that mitigate these risks and leveraging the benefits to navigate the potential hurdles of partnership businesses.

Partnerships are not a one-size-fits-all model. There are various forms, each bearing its distinct set of rules, liabilities, and operational methods:

General Partnership (GP)

All partners share equal rights, responsibilities, and liabilities in a general partnership.

Best for: Consulting firms, law practices, small retail businesses, and local service providers. Not ideal for: Ventures with unequal investment or involvement, high-risk businesses, and tech startups with substantial liability.

Limited Partnership (LP)

Some partners enjoy limited liability and are not involved in management, while others have unlimited liability and manage the business.

Best for: Real estate investment groups, film production companies, family businesses wanting to involve silent members, and venture capital firms. Not ideal for: Small businesses with active partners, technology companies, and businesses that require all partners to be involved in management.

Limited Liability Partnership (LLP)

All partners have limited liability and can be involved in business management.

Best for: Professional practices like law and accountancy firms (my law firms started as partnerships and converted to LLPs when state laws permitted this conversion), consulting businesses, medical practices, and design agencies. Not ideal for: Businesses desiring simplicity in structure, sole proprietorships, manufacturing businesses with high liability.

Joint Venture

Two entities come together for a specific project or a specified period.

Best for: Construction companies on a specific project, tech companies collaborating on a product, multinational business expansions, and research and development projects. Not ideal for: Ongoing, long-term businesses, small local businesses, independent entrepreneurs, and ventures requiring a singular brand identity.

Strategic Alliances

Businesses collaborate and form strategic partnerships for mutual benefit without forming a new entity.

Best for: Airlines sharing certain routes, e-commerce, and retail collaborations, tech companies sharing technology, and cross-promotional marketing campaigns. Not ideal for: Businesses desiring shared liability and responsibility, ventures that need a unified brand, and small businesses with limited resources.

Limited Liability Limited Partnership (LLLP)

A variation of the LP where even general partners can have limited liability.

Best for: Large investment projects, family estate planning, agricultural operations, and certain real estate investments. Not ideal for: Small scale businesses, tech startups, businesses with straightforward operational needs, and single-location service providers.

Depending on different businesses’ unique financial and operational configurations, partnership taxes could be either an ally or an adversary. While a partnership as a business entity does not pay taxes, the profits pass through to partners who report this income on their personal tax returns.

Businesses that benefit from partnership taxation

• Consulting firms. Shifting income among partners can optimize individual tax scenarios.
• Real estate investment groups. Using pass-through taxation to manage investment gains and losses effectively.
• Small local retailers. Capitalizing on simplicity and avoiding double taxation.
• Family businesses. Managing estate planning and wealth transfer with a flexible partnership structure.
• Law practices.  Mitigating liability and enjoying the flexibility of distributing profits.
• Freelance and creative agencies. Navigating varying incomes through beneficial income-splitting among partners.
• Joint ventures in research and development. Appropriating expenses and research credits optimally among entities.
• Professional practices (e.g., doctors, architects). Managing professional income with flexibility among partners.
• Craftsmanship businesses (e.g., boutique craft shops). Handling often fluctuating incomes and expenditures in a straightforward manner.
• Educational services. Distributing educational revenue and operating expenses effectively among partners.

Businesses potentially disadvantaged by partnership taxation

• High-tech startups. Potential challenges with investment funding and allocation of losses.
• Large-scale manufacturing businesses. The complexity in managing and allocating large expenses and revenues.
• Corporations with international operations. Navigating through international tax law and potential double taxation issues.
• Venture capital firms. Managing investor returns and extensive financial portfolios.
• E-commerce giants. Handling extensive online transactions, international sales, and VAT.
• Robust franchise operations. Distributing income and managing expenses across various entities.
• Large agricultural businesses. Allocating extensive operational costs and managing international trade.
• Biotech companies. Allocating extensive R&D expenses and managing investor relations.
• High-risk businesses (e.g., adventure tourism). Balancing high liability with the fiscal flexibility of a partnership.
• Companies with high capital expenditure (CAPEX) . Managing the allocation of significant CAPEX and related depreciation.

1. Choose a business name

Your partnership’s business name must embody your brand while adhering to your state’s regulations. Typically, it should be unique and not misleadingly imply that you’re a government agency or an unauthorized industry.

Brainstorm potential names and ensure they align with your brand message. Run a name check to confirm that no business in your state has claimed it. Also, check for available domain names to create a business website with the same name.

2. Draft a partnership agreement

This crucial document outlines how your partnership will function. Though not legally required in all jurisdictions, a partnership agreement can prevent future disputes.

Consider hiring a business attorney to draft the agreement. This document should cover, at minimum, the following topics:

• The distribution of profits and losses
• The roles and responsibilities of each partner
• The procedures for adding or removing partners
• The procedures for dispute resolution
• The protocol in the event of dissolution of the partnership

Be sure all partners sign the agreement. Doing so is crucial for mutual understanding and legal clarity. The process is hassle-free when you sign documents online .

We go into more detail below on the key terms of a partnership agreement and the pitfalls you should avoid.

3. Register your partnership

Your partnership must be registered with the appropriate state agency, often the Secretary of State.

Check with your state’s Secretary of State office or a legal advisor for the specifics in your area. In most cases, you’ll need to file a document known as a “Statement of Partnership Authority.” This document generally includes details about your business name, purpose, duration of the partnership, and information about each partner.

4. Obtain an EIN

An Employer Identification Number (EIN) is your partnership’s Social Security number. The IRS uses it to track your business’s tax obligations. Even if you don’t have employees, an EIN is usually necessary.

Apply for an EIN through the IRS website—it’s free and straightforward. After submitting your application, you will immediately receive your EIN. The IRS has a helpful checklist to help you decide whether you need an EIN to run your business.

5. Open a business bank account

A separate business bank account helps you keep your business finances separate from your personal finances, making tax time much easier. It also lends credibility to your business.

When opening a bank account, choose a bank that caters to small businesses. Prepare to provide your partnership agreement, EIN, and business registration documents.

6. Register to do business in other states (if necessary)

If your partnership will do business in states other than where you registered, you’ll likely need to register your business there.

Each state has different rules regarding what constitutes “doing business” in their jurisdiction. Consult with a legal advisor to understand whether this step is necessary. Registration usually involves filing a similar form to the one you filed with your home state and paying an additional fee.

7. Obtain necessary permits and licenses

Depending on your industry and location, your partnership may need specific business licenses or permits to operate legally.

Research federal, state, and local requirements and apply for necessary permits and licenses. You can use the U.S. Small Business Administration’s license and permits tool as a starting point.

By following these steps, you’ll ensure your partnership has a solid legal foundation, giving you peace of mind to focus on growing your business.

Embarking on a business journey with a partner requires trust, mutual goals, and a robust partnership agreement that stands the test of time and tribulations. Here are the vital components and the actionable strategies to bolster each item in a partnership agreement.

Ownership percentages

Clearly outline the specific percentages owned by each partner, avoiding generalized statements. Employ precise language and formulas to describe how ownership percentages might change in various scenarios.

Protect against: Discrepancies or disagreements about ownership due to vagueness or oversights in the document—lack of clear procedures for recalculating ownership percentages in the event of capital changes.

Profit and loss allocation

Define explicit mechanisms or formulas for allocating profits and losses among partners. Include clauses for exceptional circumstances, such as unexpected losses or extraordinary profits. Protect against: Conflict arising from perceived unfair distribution, especially in scenarios not covered in the agreement—legal challenges due to ambiguous or non-compliant profit and loss allocation methods.

Roles and responsibilities

Detail each partner’s duties, powers, and limitations, ensuring clarity and specificity. Establish mechanisms for adjusting roles and responsibilities as the business evolves. Protect against: Conflicts or inefficiencies due to overlapping or unclear roles. Legal or operational issues arising from failure to adhere to documented responsibilities.

Dispute resolution

Specify a detailed, step-by-step process for resolving internal disputes to avoid court battles. Incorporate a clause mandating mediation or arbitration before any legal action. Protect against: Ignoring minor disputes that could escalate into larger, more damaging conflicts—encountering a stalemate situation if the agreement is too vague or doesn’t cover a particular dispute.

Capital contributions

Clarify the initial contributions and any additional contributions required from partners. Outline procedures and conditions for raising additional capital in the future. Protect against: Financial stress due to unclear or insufficient capital contribution arrangements. Disagreements about valuation and equity when accepting additional capital contributions.

Decision-making protocols

Enumerate key decisions that require unanimous consent and those that can be made individually. Develop a system or voting mechanism for making collective decisions. Protect against: Experiencing delays or disruptions due to a lack of decision-making structures. Encountering dissension from partners who feel sidelined or overruled in the decision-making process.

Partner exit and succession planning

Define clear exit strategies, including buyout clauses and valuation methods. Implement a structured succession plan for seamless transitions during partner exits. Protect against: Fumbling business continuity during an unexpected exit or transition. Engaging in legal battles over partner exits due to poorly defined exit clauses.

Death or incapacity of a partner

Establish guidelines and procedures for managing the business interest of a partner who becomes incapacitated or passes away. Specify the rights of heirs or successors to a partner’s business interest. Protect against: Enduring business disruption and potential discord with heirs due to the absence of a clear plan. Navigating through legal complexity regarding inheritance and stakeholder rights without clear direction.

Non-compete and confidentiality clauses

Draft precise non-compete clauses defining the scope, duration, and geography to protect the business. Incorporate strict confidentiality clauses safeguarding business secrets and proprietary information. Protect against: Experiencing damage from a partner who engages in competing ventures or leaks sensitive information—facing legal challenges for enforcing overly restrictive or vague non-compete clauses.

Amendments to the agreement

Specify the process and any necessary approvals for amendments to the partnership agreement. Ensure flexibility while maintaining a structure that prevents arbitrary changes. Protect against: Encountering disagreements or legal issues due to inadequate procedures for making amendments and limiting the business’s adaptive capability by making the amendment process overly rigid or cumbersome.

Business sales and transfers

Define the conditions under which business assets or the entire business can be sold . Specify the partners’ rights, such as the right of first refusal, in the event of a proposed sale. Protect against: E ngaging in disputes over the validity of a sale or transfer of business shares. Encountering unexpected exits or entries of partners due to unscheduled sales or transfers.

Financial management and distribution

Clarify protocols for financial management, including budget approvals and financial reporting. Detail the procedures and schedules for distributing profits among partners. Protect against: Mismanagement of finances or inequitable distribution leading to internal conflicts—legal scrutiny or penalties due to non-compliance with financial management norms.

Admission of new partners

Describe the process, conditions, and any restrictions for admitting new partners. Specify any changes to existing partners’ equity, roles, and responsibilities when a new partner is admitted. Protect against: Disrupting business harmony due to the unsystematic admission of new partners and altering the equilibrium of control and influence among existing partners.

Resolution of violations

Develop a mechanism to handle violations of the agreement by partners. Include provisions for penalties, reparations, or corrective actions in the event of a violation. Protect against: Fostering a toxic environment by neglecting or ineffectively handling violations and engaging in legal battles stemming from unaddressed or improperly handled violations.

Dissolution procedures

Establish clear conditions under which the partnership can be dissolved. Detail the process for asset liquidation and debt clearance upon dissolution. Protect against: Encountering legal issues and conflicts during dissolution due to vague or incomplete procedures. Financial losses due to an unstructured or hurried dissolution process.

Remember, these items provide a comprehensive guide, but every business is unique. Tailor your partnership agreement to your specific needs, considering all possible future scenarios, and always consult a legal expert to ensure its solidity and enforceability.

How is a partnership formed?

A partnership is typically formed through a partnership agreement, which lays out all the partners' terms, responsibilities, and profit-sharing. It isn't mandatory by law but is crucial to avoid future disputes. Key steps include deciding on a business name, registering the business, obtaining necessary licenses and permits, and crafting a comprehensive partnership agreement.

What are the main types of partnerships?

Primarily, there are three types of partnerships: general partnerships, limited partnerships, and limited liability partnerships, each differing in terms of liability and management structure. A business might choose a type based on its operational, financial, and legal needs and objectives.

Are partners personally liable for business debts and obligations?

In general partnerships, partners are usually personally liable for business debts and obligations. However, in limited and limited liability partnerships, partners can limit their liability to the amount they have invested in the business.

How are partnerships taxed?

Partnerships themselves are not subject to income tax. Instead, their profits are passed to the partners, who report the business income or loss on their personal tax returns. Each partner's share of profits and losses, usually outlined in the partnership agreement, is reported to the IRS on a Schedule K-1.

How does a partnership agreement protect the partners?

A partnership agreement provides a clear framework regarding each partner's contributions, profit and loss distribution, and rules for resolving disputes, adding or changing partners, and dissolving the partnership. It is a safeguard, providing solutions and predetermined courses of action for various scenarios.

What happens if a partner wants to leave the partnership?

Departure scenarios should ideally be addressed in the partnership agreement. Depending on the terms, the leaving partner may sell their share to the remaining partners, to an outside party, or trigger the dissolution of the partnership. The specific processes and implications may vary based on the agreed-upon terms and type of partnership.

Can partnerships be formed without a written agreement?

Yes, partnerships can technically be formed without a written agreement through verbal agreements or the actions of a business's operators. However, a written partnership agreement is crucial to avoid potential disputes and clearly understand all partners' roles, responsibilities, and profit-sharing.

How are decision-making powers typically shared in a partnership?

Decision-making powers are usually shared based on the terms set in the partnership agreement. This can range from equal power for all partners to specified authority areas for each individual. Clearly defined roles and responsibilities can help streamline decision-making processes and prevent conflicts.

How is profit typically shared in a partnership?

The partnership agreement generally determines profit-sharing in a partnership. It could be shared equally or in proportion to each partner's investment in the business. Without an agreement, profits are shared equally among partners despite the level of investment or effort put into the business.

These questions serve as a starting point, providing a foundational understanding of partnerships and their nuances. Always seek advice from a professional specializing in business structures and partnerships for specific advice and strategic guidance.

Choosing a partnership can be an excellent decision for many entrepreneurs. Each business type has unique pros and cons. Therefore, evaluate your needs, seek professional advice, and make an informed decision.

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Starting a Business | Ultimate Guide

How to Create a Business Partnership Agreement [+ Free Template]

Published August 15, 2018

Published Aug 15, 2018

WRITTEN BY: Kiah Treece

This article is part of a larger series on Starting a Business .

A business partnership agreement is a contract between partners that contains terms like the business’s purpose, partner contributions and voting rights. A partnership agreement isn’t required to form a general partnership and doesn’t have to be filed with your state. However, have your partners sign one to create a legally enforceable document for resolving disputes.

Business Partnership Agreement Templates

Free general partnership agreement template.

We recommend hiring an attorney or online legal service, such as Rocket Lawyer , to prepare important legal documents for your partnership. However, if you’re comfortable drafting your own agreement and want to save on legal fees, download our free general partnership agreement template and follow the steps below to draft a simple partnership agreement for your business.

Get your free business partnership agreement template here:

• Free General Partnership Agreement Template (Google doc)
• Free General Partnership Agreement Template (.docx)
• Free General Partnership Agreement Template (PDF)

State-specific Business Partnership Agreement Template

The 11 steps to draft a business partnership agreement include:

Articles I-V: Organize Basic Partnership Details

Provide basic details about your business at the beginning of your partnership agreement. Articles I through V of your partnership agreement should include your partnership’s name, location, purpose and term. General partnerships don’t have to file this information with the state but include it in a signed partnership agreement to keep on file with your business.

As a lead-in to Articles I through V, provide the names and addresses of your partners in the first paragraph of your partnership agreement. This information lets the public know that you and your partners are all engaged in business activities together as you fill out the articles together.

Screenshot of partnership agreement introductory information

Follow these steps to draft Articles I through V of your partnership agreement:

Identify Your Partnership State

Your partnership state is the state in which you’ll conduct business. The state you select determines the availability of a fictitious name for your partnership and determines the taxes and laws that will apply to your business. This information will be included in the title of your partnership agreement, in Article I and in various places throughout your agreement.

Name Your Partnership

A partnership can be named after its partners or operate under a fictitious business name. If you choose a fictitious name, confirm it isn’t already in use and fill out a fictitious business name statement to give notice that your partners are operating under the name. Once finalized, include the name in Article II of your partnership agreement.

Screenshot of partnership agreement Article I – Formation

If you wish to operate under the name of your partners, list each partner’s last name. However, if you want to operate under a fictitious business name, choose one that describes your business without limiting your geographic area or products. For example, instead of “Northwest Ohio Fishing Lures,” choose a name like “Midwest Outdoor & Fishing.”

Screenshot of partnership agreement Article II – Partnership Name

If you need some help choosing a business name, check out our business name generator .

Identify a Broad Purpose

States don’t require general partnerships to have a partnership agreement, so your purpose statement doesn’t have to meet any state-specific requirements. However, it should describe the nature of your business and be broad enough to allow for future business growth. Include a general purpose statement in Article III that allows your partnership to evolve without revising the agreement every time your business changes.

For example, stating that the purpose of the partnership is to own and develop real property and do all other lawful things as may be necessary to carry on the partnership is general enough to encompass a variety of real estate services and allows for growth. Similarly, if your purpose is conducting the general business of operating a commercial farm and “such other businesses and purposes as the partners may from time to time determine,” you leave your partnership room to evolve.

Screenshot of partnership agreement Article III – Partnership Purpose

Define Your Partnership Term

The partnership term is the amount of time the partnership relationship will exist. This period begins when the partnership is formed and can end at any time. Include a starting date and describe when the partnership may end in Article IV of your business partnership agreement.

For example, if the partnership was created to handle a single task or project, provide a specific termination date for the partnership. Otherwise, state generally that the partnership will exist until the partners mutually agree to dissolve it, until the death of a partner or until any other circumstance agreed upon by the partners.

Screenshot of partnership agreement Article IV – Partnership Term

Locate Your Principal Place of Business

Your principal place of business is the address where you’ll perform the partnership’s business activities. This should be a street address and not a P.O. Box. Use Article V to set forth your place of business at the time the agreement is executed but allow partners to change the address as necessary during the partnership.

For example, if you have a retail store, your principal place of business will be the address of the brick-and-mortar store. In contrast, if you have an e-commerce website, your principal place of business is the address from which your partners and employees are running the website.

Screenshot of partnership agreement Article V – Place of Business

Our template is a great place to start if your partnership is already formed or if this isn’t your first business. However, if you need extra guidance while you set up your business, let Rocket Lawyer help you compile the necessary information to get your partnership up and running. A Rocket Lawyer membership plan is $39.99 per month and its On Call attorneys can guide you through the process of creating your partnership.

Visit Rocket Lawyer

2. Article VI: List & Describe Each Partner’s Contribution

A partner’s capital contributions are cash investments, physical property, and other assets like intellectual property they commit to business operations at the outset of the partnership. Capital contributions establish each partner’s equity in the business. List and describe partner contributions in Article VI of the partnership agreement to establish a record of each partner’s capital account.

Capital contributions of partners can include:

• Cash : This is the most common type of contribution to partnerships and many of your partners will likely contribute cash as their initial capital contribution; denote this value in Article VI of the partnership agreement and specify whether it is earmarked for specific partnership expenses
• Personal property : Personal property contributions include things like equipment or furniture; for example, if you start a restaurant one of your partners may contribute kitchen equipment or furniture for the seating area. Include the value of this property in your partnership agreement
• Real estate : If your partnership will have a brick-and-mortar office or storefront, one of your partners may contribute real estate; include the appraised value, address and other identifying information for this property in the partnership agreement
• Client lists : In addition to industry knowledge, some partners also use their client lists as a capital contribution; it can be difficult to assign a monetary value to this kind of property so don’t undervalue this contribution when assigning ownership interests; you may encounter this kind of contribution if you have a real estate partnership or other business that relies heavily on sales
• Intellectual property : Depending on the type of business, a partner might contribute intellectual property like software code; if possible, estimate the value of the contribution based on similar intellectual property or its operational value to the partnership; this is not a common form of partnership contribution but may arise in a tech startup or software partnership

Screenshot of partnership agreement Article VI – Capital Contributions

About half of businesses with employees don’t survive past five years. One of the major causes of a business failing is undercapitalization — partners underestimate how much money they’ll need and how successful they’ll be early in business. Describing the contributions of each partner carefully in Article VI of your partnership agreement will help you better understand your business’ resources.

3. Article VII: Determine Ownership Interests

Business ownership can be shared between partners in a way agreed upon by the partners. Often, ownership reflects the size of a partner’s contribution. However, ownership is more complicated if partner contributions aren’t easily valued or where partner roles and responsibilities aren’t equal. Use your partnership agreement to describe how your business ownership will be divided.

Equal ownership isn’t appropriate where partners contribute things unevenly like:

• Property or cash : If one partner contributed a significantly larger amount of property or cash to the business, their greater risk should merit a greater ownership and returns
• Ideas : If one partner thought of the original business concept or otherwise completed the first steps toward creating the partnership, their ownership should be greater than their cash contributions
• Time : Conflicts can arise where one partner is working full-time and the other partners are working part-time; make sure this imbalance is reflected in that’s partner’s ownership
• Capital raises : Although venture capital raised by a partner is not a direct cash contribution, it should be recognized as part of his or her ownership interest

Screenshot of partnership agreement Article VII – Interest

If you don’t include partner contributions and ownership interests in your partnership agreement, you should list them elsewhere in your partnership’s records and provide them to each partner. An attorney can help identify partner contributions and determine the best ownership structure for your partnership. However, if your partnership contributions only include cash or other easily valued assets, use our template to draft a simple partnership agreement for free.

4. Article VIII: Determine Profit & Loss Distribution

Partners do not receive a salary for their role in a partnership. Instead, profits and losses are typically distributed among the partners in accordance with their ownership interests. Include details about how your business’s profits and losses will be distributed among members in Article VIII of your partnership agreement to avoid financial disputes between partners.

Generally, a partnership’s profits and losses are distributed among partners based on each partner’s ownership percentage. If you choose this method, indicate in your partnership agreement that the partners must share in profits and losses in the same proportion as their ownership or capital contributions.

When drafting Article VIII, address these issues regarding profits and losses:

• Division : Decide how you’ll divide profits and losses among owners; for example, it’s common to divide profits and losses based on each partner’s ownership percentage and/or relative capital contribution
• Calculation : Identify how distributions will be calculated; for example, you may calculate distributions based on a percentage of annual profits
• Timing : Indicate when you plan to distribute profits to the partners; this can be monthly, quarterly, annually and so on
• Reinvestment of profits : Have the partners determine whether a portion of the profits will be reinvested into the business each month or year

Screenshot of partnership agreement Article VIII – Profit and Loss

5. Article IX: Establish Voting Procedures

A partnership’s voting procedures detail the way partners must vote to make decisions for the partnership. Article IX of your partnership agreement should specifically mention whether there must be a unanimous or majority vote. This section should also describe how much weight each partner’s vote will have.

For example, Article IX of your partnership agreement can require that decisions of the partnership be determined by a majority vote with votes cast in the same percentage as capital contributions. Alternatively, you can require a unanimous vote of the partners, give each member’s vote equal weight regardless of their contribution or ownership percentage.

Screenshot of partnership agreement Article IX – Voting

6. Article X: Describe Accounting Requirements

Keep an accurate accounting of your partnership’s day-to-day business to maintain a comprehensive understanding of business financials and meet tax requirements. Use Article X of your partnership agreement to describe where the partnership’s books should be kept, when partners should have access to the books and how to report transactions to the partnership.

This section should first state where the partnership’s books should be stored — usually at the principal place of business. Article X should also state that the accounting records should be available to all of the partners to inspect at any time. Finally, assert that partners have to report all partnership transactions accurately and as soon after the transaction as possible.

Screenshot of partnership agreement Article X – Accounting

7. Article XI: Prepare for New Partners

Businesses change and sometimes this includes adding partners. Because partnerships are structured around the partners, the addition of a partner changes the ownership structure of the business. Even if you don’t anticipate changes to your business, include procedures for adding new partners in Article XI of your agreement.

Important information regarding new partners to incorporate into Article XI includes who has the power to add new partners, how to adjust partner responsibilities and how voting will be impacted. If you want the flexibility to add partners later on, allow the agreement to be amended to include new partners pending a unanimous vote of all partners.

Screenshot of partnership agreement Article XI – New Partners

8. Article XII: Define the Partnership’s Management & Authority

Your partnership agreement should also describe your management structure and authority of partners to make business decisions. Describe how day-to-day partnership affairs will be managed and identify partner responsibilities and authority to borrow on credit, transfer assets and so on. Include this information in Article XII of your partnership agreement to avoid disputes regarding partners management and authority.

It is important to establish what kind of authority partners have to make decisions on behalf of the business at the outset. Describe the powers of partners to manage business activities at the beginning of Article XII. This prevents a partnership from being responsible for the unauthorized actions of its members and ensures that creditors and other third parties understand the authorities of each member to enter into contracts, borrow credit and transfer assets.

The day-to-day affairs of partnerships can be managed by a management committee made up of several partners. To form a committee, include terms in your partnership agreement describing how many partners should be on the committee, how they will be selected, and the scope of the committee’s authority. For example, you may choose to have three partners on the committee, chosen by a majority vote of the partners and who have authority to operate all partnership business.

Screenshot of partnership agreement Article XII – Management & Authority

Types of commitments the partnership agreement should address include:

• Partnership contracts : Generally, a partner with authority to sign contracts on behalf of the partnership can sign a contract that binds all of the partners. Make sure you limit contract authority to partners with knowledge of the businesses needs.
• Partnership debt : If your business will have a credit card, loan, line of credit or other debts, make sure you specify who may sign for new debts in your partnership agreement. Depending on the business structure that you choose, each partner may be personally liable for any unpaid business debt.
• Partnership expenditures : If you want to limit expenditures made by partners on behalf of the business, limit who may make purchases without consulting other partners. Alternatively, establish a spending limit on purchases made without permission from other partners.

Use Article XII of the partnership agreement to delineate each partner’s authority to sign contracts, open accounts and otherwise commit the partnership to avoid financial and contractual obligations that are not in the best interest of the partnership. For example, limit the amount of money a partner may spend for the business to $50,000 or less to make sure partners aren’t spending large sums of partnership assets on things the partnership doesn’t want or need.

9. Article XIII: Plan for Termination

If there is a partnership agreement in place, a partnership can terminate whenever the partners desire. Use Article XIII of your agreement to specify how your partnership can terminate and describe how partners and partnership assets should be treated upon termination. Include details about whether the business should survive after a partner exits voluntarily or otherwise.

In the absence of a partnership agreement, termination of a partnership occurs pursuant to state default rules. Under default rules, a partnership will terminate upon the death or bankruptcy of a partner or under other state-specific circumstances. Control how and when your partnership will terminate by explicitly listing termination events in your partnership agreement.

Screenshot of partnership agreement Article XIII – Termination

10. Article XIV: Decide How to Resolve Partner Disputes

Disputes are an inevitable part of owning a small business. Conflicts between partners are especially dangerous because, left unresolved, they can cause your business to implode from within. Protect your business from by including language in the partnership agreement describing how and where disputes should be resolved between partners.

One way to handle partnership disputes is requiring alternative dispute resolution (ADR). ADR uses a third party to reach an agreement between partners without litigation and includes practices like mediation and arbitration. Include terms requiring ADR in your partnership agreement to resolve disputes without the cost, hassle and public exposure that comes with litigation.

Other options for dispute resolution include giving the business’ CEO the final say, voting based on ownership percentages, requiring a majority vote for businesses with an odd number of partners or giving a particular partner final say on discrete areas of the business. If you prefer to handle disputes in-house without the help of an ADR specialist, include language in your partnership agreement describing your preferred dispute resolution procedures.

Screenshot of partnership agreement Article XIV – Dispute Resolution

11. Execute, File & Provide Copy to Partners

Partnership agreement filing requirements depend on your business and your secretary of state’s office. Familiarize yourself with your state’s requirements to determine whether a formal filing is necessary for your partnership. Either way, make sure the partnership agreement is signed by every partner and that each partner receives a copy of the document for their records.

Screenshot of partnership agreement signature page

Other Things to Include in a Business Partnership Agreement

Depending on your partnership and business structure, you may need to include additional terms after Articles I through XIV of your partnership agreement. For example, describe partner responsibilities, how to handle new partners or what to expect during a partnership sale. If you have a complex partnership or anticipate changes to your business, include additional terms in your agreement.

Other things you may want to include in your partnership agreement are:

Partner Responsibilities & Commitments

Generally, partners are involved in different departments of the business. To facilitate efficient organization of partnership roles and responsibilities, list expectations in the partnership agreement. If you want to establish work hours, vacation time allowances or a partner’s ability to work outside of the business, include these details in the partnership agreement as well.

Selling the Business

Selling a business can be one of the most difficult tasks partners face. Because the sale of a partnership is likely to cause disputes between partners, it’s important to establish transfer procedures. Use your partnership agreement to specify who’ll manage purchase offers, whether partners can force the sale of the business and the minimum business sale price.

How a Business Partnership Agreement Works

A partnership agreement is a legal document that formalizes business operations and creates a contract between partners. General partnership agreements also protect businesses from internal disputes, establish partner responsibilities and more. Your general partnership doesn’t have to file its agreement but keep a signed copy on file in case disputes arise.

The three types of partnerships include:

• General partnership : A general partnership is the most basic form of partnership and does not require state filings or other formalities like annual meetings or ongoing state fees. Instead, a general partnership is formed each time partners come together to engage in business activities. This article and free template focus on what you should include in a general partnership agreement.
• Limited partnership : Limited partnerships (LPs) are typically reserved for finite projects like estate planning. This structure requires filing documents with the state and offers liability protection for its limited partners only. General partners, who oversee day-to-day business activities, have unlimited liability for the acts and debts of the LP.
• Limited liability partnership : Limited liability partnerships (LLPs) are more complex and can only be formed by certain types of professional businesses that require licensing under state law, like doctors, architects and attorneys. LLPs don’t protect partners from their own malpractice but a partner’s personal assets can’t be used to satisfy the debts of the LLP.

Because partnerships are complex legal entities, we recommend hiring an attorney or using an online legal service to help choose a business structure and file it with the state. If you don’t want to spend money to hire an attorney, download our partnership agreement template to get started with a simple partnership agreement today.

Who a Business Partnership Agreement is Right For

Partnership agreements are legally binding contracts between business partners. Although not required by state law, even a simple partnership agreement will formalize your partnership’s management structure and protect it from internal disputes. If you have a partnership or an LLP, hire an attorney or use our free template to execute a partnership agreement.

Benefits of a Business Partnership Agreement

Having an enforceable partnership agreement for your business has several benefits. If drafted correctly and signed by all of the partners, a partnership agreement can protect your business from internal disputes and prepare partners for difficult management decisions. Familiarize yourself with the benefits of an enforceable partnership agreement before you start drafting one for your business.

The benefits of having a partnership agreement include:

Avoid State Default Rules

States impose default rules on partnerships that don’t have a partnership agreement on file. Under default rules, partnerships terminate under certain circumstances and internal disputes must be resolved using default procedures. Avoid default outcomes by drafting a business partnership agreement describing how profits will be distributed, how the partnership may be terminated and other important procedures.

Prevent & Resolve Disputes

Among other important terms, business partnership agreements describe how partners must vote and who has authority to make decisions for the business. Partnership agreements also include resolution procedures in the event of a conflict between partners. Have dispute avoidance and resolution terms in place to protect your business from failing due to the disagreements between partners.

Clarify Business Structure

Drafting a business partnership agreement will help you and your partners outline how the business will be structured. By detailing the responsibilities and authority of each partner, a partnership agreement provides clarity and allows the partnership to be operated more efficiently. Include partner responsibilities and expectations within the partnership agreement to lend structure to your business.

Facilitate Business Transition

Drawbacks of a business partnership agreement.

A business partnership agreement can protect your business from internal disputes and other management issues. However, hiring an attorney to draft your agreement can be expensive. A partnership agreement may also restrict partner authority and delay decisions. Use our free partnership agreement template and choose broad language that doesn’t limit your partners’ authority more than necessary.

The drawbacks of a business partnership agreement include:

Costly to Draft

Having an attorney draft legal documents for your business can get expensive. Use our free template to create a simple partnership agreement for your business.

Restrictive Language

Formalizing your management responsibilities, voting structure, profit distribution and other elements of your partnership can restrict how partners behave. Although this is generally an advantage of having a partnership agreement, it can reduce flexibility in business operations by limiting partner authority and slowing down the decision-making process.

The Bottom Line

General partnerships are formed when two or more partners agree to enter into business together. A formal filing isn’t required to create a simple partnership but you should execute a partnership agreement that formalizes the business structure. Include terms like partner contributions, dispute resolution methods and profit sharing in your agreement to protect you and your business.

About the Author

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Kiah Treece

Kiah Treece is a staff writer at Fit Small Business specializing in real estate. Before joining the team here, she worked as an environmental scientist and attorney specializing in real estate development. She also researched climate change for The Climate Group . Kiah earned her MS from the University of Florida and a law degree from the University of Toledo . During law school, she served as an editor of the Law Review and edited manuscripts for faculty and students.

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Start » strategy, how to write a business partnership agreement.

Deciding to go into business with a partner is an extremely important decision. Here are some tips for approaching and creating your partnership agreement.

Deciding to go into business for yourself is a major decision on its own — but deciding to join forces with a partner is a completely different ballpark. If you’re thinking about starting a business with a partner, consider structuring your business as a general partnership.

General partnerships are one of the most common legal business entities, granting ownership to two or more people who share all assets, profits and liabilities. In a general partnership, it’s important to understand that each person is responsible for the business and is liable for the actions of their partner(s). To help avoid any issues with your partners throughout your business journey, you’ll want to write a partnership agreement before moving forward.

[Read: What Is a General Partnership? ]

What is a partnership agreement, and why do you need one?

Nolo noted that, because you and your partners are equally responsible for the business, as well as the outcomes of one another’s decisions, creating a partnership agreement is a great way to structure your relationship with your partners to best suit your business.

Partnership agreements are a protective measure to ensure any and all disagreements can be resolved quickly and fairly, and to understand what to do in the event that the partners wish to dissolve the working relationship or business in its entirety.

What should be in a partnership agreement?

Your partnership agreement needs to cover a lot of ground. According to I nvestopedia , the document should include the following:

• Name of your partnership. While it may seem like common sense, one of the first things you and your partner(s) must agree on is the name of your business.
• Contributions to the partnership and percentage of ownership. Create a list of specific contributions you and your partner(s) will make to the business. In addition to contributions, you must decide on the percentage of ownership, which is typically dictated by each partner’s contributions to the business.
• Division of profits, losses and draws. You and your partner must decide how to divide the business’s profits, losses, and draws. Partners can agree to share the profits and losses in accordance with their percentage of ownership, or they can be distributed equally among the partners regardless of ownership stake.
• Partners’ authority. Partnership authority, also known as binding power, should be defined within the partnership agreement. The ability to bind the business to a debt or a contractual agreement can expose the business to unnecessary risk, which is why the partnership agreement should explicitly state which partner(s) have binding authority.
• Withdrawal or death of a partner. While no one wants to consider the possibility of a partner’s withdrawal or untimely death on the brink of launching a new business, this is something that needs to be clearly stated in the partnership agreement. The agreement should also outline the valuation process for the business and/or any requirements for maintaining a life insurance policy designating the other partner(s) as the beneficiaries.

To avoid conflict and maintain trust between you and your partner(s), be sure to discuss all business goals, the commitment level of each partner and salaries prior to signing the agreement.

How do you structure a 50/50 partnership?

• Discuss/agree on important details before drafting . Structuring a 50/50 partnership requires consent, input, and trust from all business partners. To avoid conflict and maintain trust between you and your partner(s), be sure to discuss all business goals, the commitment level of each partner, and salaries prior to signing the agreement.
• Consult with an attorney. Before you draft or sign a partnership agreement, consult with an experienced business attorney to ensure everyone’s investment in the partnership and business is protected.
• Provide both partners with equal access to all fixed assets. When running your business, you and your business partner will have separate roles and responsibilities but complete and equal access to all fixed assets, including any property and equipment you’ve invested in. Including this detail in your business partnership agreement will help ensure total transparency and trust between you and your partner.
• Include a dispute resolution process. With responsibility for the business split between two partners and the high cost of taking legal action, you should include an official dispute resolution process in your partnership agreement to help navigate arguments.
• Determine how you both will be paid. Your partnership agreement should outline reasonable salary expectations for yourself and your partner. Everyone, investors included, should agree to the terms before finalizing the partnership.

Advantages of a partnership

Some of the several advantages of a general partnership include the following:

Easy to establish

Establishing a partnership is simpler and more straightforward than other business structures. Once you’ve drafted a partnership agreement, all partners must agree to the terms listed and sign the document. And unlike other business entities, you don’t have to file federal paperwork — you simply need to file a few documents locally, like a trade name application and partnership authority.

Easy to dissolve

Partnerships can be as easy to dissolve as they are to establish. If all partners agree to dissolve the partnership amicably, refer to the dissolution clause in your partnership agreement and follow the terms outlined. Additionally, you must consult your state’s laws regarding partnership dissolutions, and you may need to file a statement of dissolution. If you and your partners don’t decide to dissolve the partnership amicably, that could complicate the process, especially if legal action is necessary.

Simplifies your taxes

With partnerships, you don’t have to file additional business entity taxes. Your taxes for the business will pass through to the business owners, which means you’ll need to include your share of the business profits and losses in your individual taxes. You’ll also be responsible for paying any additional taxes individually.

Involves extra help and knowledge

Business owners have to play multiple roles, but when you have a business partner to rely on, you can cover more ground than if you were trying to tackle everything alone. A business partner also brings their business expertise to the company, which could differ from your own knowledge and experience. Ideally, your partner has skills and expertise that complement and enhance your own.

Carries less of a financial burden

Rather than taking on the heavy financial responsibility of starting a business alone, your business partner can help ease some of the financial strain. Having a partner to help cover hefty startup costs can be a massive relief to business owners, with the added benefit of possibly being able to invest more upfront or avoid racking up large sums of debt since you’re splitting the responsibility of covering those costs.

Disadvantages of a partnership

Partnerships also come with a few disadvantages, including the following:

Doesn’t protect partners' personal assets and involves no separation from the business

Unlike other business structures, a partnership does not create a separate legal entity from you and the company or from you and your partner. You are liable for any legal or financial difficulties your business may face. Your personal assets could be at risk since they are not covered by the partnership agreement.

Mutual liability

When starting a partnership, you are legally and financially responsible for your partner and the business. If your partner creates legal trouble for the company, you become liable and open to legal prosecution as well. Not only can this strain your relationship with your business partner, but it also affects your personal finances because, as mentioned above, there’s no legal separation from the business unless you dissolve the partnership.

Provides less independence

Unless explicitly stated in your partnership agreement, your partner has an equal say in all business decisions. If you and your business partner disagree on some of the most fundamental decisions regarding your business, such as expansion opportunities, bringing on a management team, or selling the business, this could cause disagreements between you and your partner, hinder your professional growth, or jeopardize the company.

Requires you to split profits

Having a partner means there’s someone to help cover the business’s costs, but that also means you’ll need to split the profits with them. If you have multiple partners, you could be looking at a significantly smaller profit margin than if you started the business alone.

This story was updated by Julianna Lopez. CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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How to Plan for Business Partnerships

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Active Partners Vs. Silent Partners

Disadvantages of an economic partnership agreement, partnership agreement issues.

• The Disadvantages of Two-Person Business Partnerships
• Can a Partner Close a Business Alone?

A general partnership can be thought of as a sole proprietorship for two or more people. Just as a sole proprietor is a single person running a business without the formality of incorporating, a partnership is a business run by two or more people who equally divide the risks and benefits of the business. Partnerships have some dangers in ongoing management, which can avoided with proper planning.

Draw up a mission statement for the business that is agreed to by all partners equally. The mission statement ensures that all partners are literally on the same page as to the goals of the business, and can help forestall debates over the company's future direction.

Develop an equitable means of reimbursing partners for their startup costs and investments. Partnerships pool startup capital to build their business, but frequently partners come to the table with different amounts of money. This can differ widely from the division of labor later in the business; therefore, make repayment of your initial investments, with appropriate returns on investment, part of your business plan, to avoid later disagreements over the value of startup capital vs. varying "sweat equity" of the partners later in the business.

Determine a method of resolving disputes between partners. Many partners are old friends, family members or spouses, and presume that these ties will prevent amicable resolution of disagreements; these partners may find that friendships, families and marriages can be wrecked by the stresses of running a business. Ideally, a partnership of an odd number people can resolve disputes by a democratic voting process; alternately, give some partners a "trump vote" in the areas of their expertise. A married couple, for example, may allocate financial management "trump votes" to one spouse, and marketing and sales planning to the other.

Appoint an outside ombudsman, or a panel of advisers, to resolve disputes which cannot be resolved internally. No matter how solid your resolution process appears to be on paper, your business will be in jeopardy if a business decision threatens to drive out a partner while she is still a key asset to the business. If you cannot resolve a problem internally, have trusted experts on hand to guide you through disputes.

Divide up the labor and management responsibilities of the partners, and determine exactly how each partner will be compensated for their effort. For example, a partnership may decide to divide all profits equally, but may pay salaried bonuses before profit calculations to some partners, to compensate them for workloads or responsibilities, which may be inequitably distributed.

Consult with outside experts after you have finished drawing up your partnership agreement, but before you begin operating under it. Your legal and accounting advisers may see issue areas you missed, or an experienced entrepreneur may be able to point out problems with your methods well in advance of problems that may arise.

• AllBusiness: Advantages and Disadvantages of General Partnerships

Ellis Davidson has been a self-employed Internet and technology consultant, entrepreneur and author since 1993. He has written a book about self-employment for recent college graduates and is a regular contributor to "Macworld" and the TidBITS technology newsletter. He is completing a book on self-employment options during a recession. Davidson holds a Bachelor of Arts in American civilization from the University of Pennsylvania.

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Improving the management of complex business partnerships

Partnerships never go out of style. Companies regularly seek partners with complementary capabilities to gain access to new markets and channels, share intellectual property or infrastructure, or reduce risk. The more complex the business environment becomes—for instance, as new technologies emerge or as innovation cycles get faster—the more such relationships make sense. And the better companies get at managing individual relationships, the more likely it is that they will become “partners of choice” and able to build entire portfolios of practical and value-creating partnerships.

Of course, the perennial problems associated with managing business partnerships don’t go away either—particularly as companies increasingly strike relationships with partners in different sectors and geographies. The last time we polled executives on their perceived risks for strategic partnerships, 1 Observations collected in McKinsey’s 2015 survey of more than 1,250 executives. Sixty-eight percent said they expect their organizations to increase the number of joint ventures or large partnerships they participate in over the next five years. A separate, follow-up survey in 2018 showed that 73 percent of participants expect their companies to increase the number of large partnerships they engage in. the main ones were: partners’ disagreements on the central objectives for the relationship, poor communication practices among partners, poor governance processes, and, when market or other circumstances change, partners’ inability to identify and quickly make the changes needed for the relationship to succeed (exhibit).

In our work helping executive teams set up and navigate complex partnerships, we have witnessed firsthand how these problems crop up, and we have observed the different ways companies deal with them . The reality is: successful partnerships don’t just happen. Strong partners set a clear foundation for business relationships and nurture them. They emphasize accountability within and across partner companies, and they use metrics to gauge success. And they are willing to change things up if needed. Focusing on these priorities can help partnerships thrive and create more value than they would otherwise.

Establish a clear foundation

It seems obvious that partner companies would strive to find common ground from the start—particularly in the case of large joint ventures in which each side has a big financial stake, or in partnerships in which there are extreme differences in cultures, communications, and expectations.

Yet, in a rush to complete the deal, discussions about common goals often get overlooked. This is especially true in strategic alliances within an industry, where everyone assumes that because they are operating in the same sector they are already on the same page. By skipping this step, companies increase the stress and tension placed on the partnership and reduce the odds of its success. For instance, the day-to-day operators end up receiving confusing guidance or conflicting priorities from partner organizations.

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How can the partners combat it? The individuals expected to lead day-to-day operations of the partnership, whether business-unit executives or alliance managers, should be part of negotiations at the outset. This happens less often than you think because business-development teams and lawyers are typically charged with hammering out the terms of the deal—the objectives, scope, and governance structure—while the operations piece often gets sorted out after the fact.

Transparency during negotiations is the only way to ensure that everyone understands the partners’ goals (whether their primary focus is on improving operations or launching a new strategy) and that everyone is using the same measures of success. Even more important, transparency encourages trust and collaboration among partners, which is especially important when you consider the number of executives across the organizations who will likely rotate in and out of leadership roles during the life of the relationship.

Inevitably, points of tension will emerge. For instance, companies often disagree on financial flows or decision rights. But we have seen partners articulate such differences during the negotiation period, find agreement on priorities, and reset timelines and milestones. They defused much of the tension up front, so when new wrinkles—such as market shifts and changes in partners’ strategies—did emerge, the companies were more easily able to avoid costly setbacks and delays in the business activities they were pursuing together.

Nurture the relationship

Even business relationships that start off solidly can erode, given individual biases and common communication and collaboration issues. There are several measures partners can take to avoid these traps.

Connect socially

If executives in the partner organizations actively look for opportunities to understand one another, good collaboration and communication at the operations level are likely to follow. Given time and geographic constraints, it can be hard for them to do so, but as one energy-sector executive who has negotiated and managed dozens of partnerships noted, “It’s important to spend as much time as you can on their turf.” He says about 30 to 40 percent of partnership meetings are about business; the rest of the time is spent building friendships and trust.

Keep everyone in the loop

Skipping the step of keeping everyone informed can create unnecessary confusion and rework for partner organizations. That is what happened in the case of an industrial joint venture: the first partner in the joint venture included a key business-unit leader in all venture-related discussions. The second partner apprised a key business-unit leader about major developments, but this individual did not actually join the discussions until late in the joint-venture negotiation. At that point, as he learned more about the agreement, he flagged several issues, including inconsistencies in the partners’ access to vendors and related data. He immediately recognized these issues because they directly affected operations in his division. Because he hadn’t been included in early discussions, however, the partners wasted time designing an operating model for the joint venture that would likely not work for one of them. They had to go back to the drawing board.

Recognize each other’s capabilities, cultures, and motivations

Partners come together to take advantage of complementary geographies, corresponding sales and marketing strengths, or compatibilities in other functional areas. But it is important to understand which partner is best at what . This process must start before the deal is completed—but cannot stop at signing. In the case of one consumer-goods joint venture, for instance, the two partner organizations felt confident in their plan to combine the manufacturing strength of one company with the sales and marketing strengths of the other. During their discussions on how to handle financial reporting, however, it became clear that the partner with sales and marketing strengths had a spike in forecasting, budgeting, and reporting expertise. The product team for the first partner had originally expected to manage these finance tasks, but both partner teams ultimately agreed that the second partner should take them on. In this way, they were able to enhance the joint venture’s ongoing operations and ensure its viability.

Equally important is understanding each partner’s motivation behind the deal. This is a common point of focus during early negotiations; it should continue to be discussed as part of day-to-day operations—particularly if there are secondary motivators, such as access to suppliers or transfer of capabilities, that are important to each partner. Within one energy-sector partnership, for instance, the nonoperating partner was keen to understand how its local workforce would receive training over the course of the partnership. This company wanted to enhance the skills of the local workforce to create more opportunities for long-term employment in the region. The operating partner incorporated training and skill-evaluation metrics in the venture’s quarterly updates, thus improving the companies’ communication on the topic and explicitly acknowledging the importance of this point to its partner.

Invest in tools, processes, and personnel

Bringing different business cultures together can be challenging, given partners’ varying communication styles and expectations. The good news is that there are a range of tools—among them, financial models, key performance indicators, playbooks, and portfolio reviews—companies can use to help bridge any gaps. And not all these interventions are technology dependent. Some companies simply standardize the format of partnership meetings and agendas so that teams know what to expect. Others follow stringent reporting requirements.

Another good move is to convene an alliance-management team. This group tracks and reviews the partnership’s progress against defined metrics and helps to spot potential areas of concern—ideally with enough time to change course. Such teams take different forms. One pharmaceutical company with dozens of commercial and research partnerships has a nine-member alliance-management team charged mostly with monitoring and flagging potential issues for business-unit leaders, so it consists of primarily junior members and one senior leader who interacts directly with partners. An energy company with four large-scale joint ventures has taken a different approach: its alliance-management team comprises four people, but each is an experienced business leader who can serve as a resource for the respective joint-venture-leadership teams.

Sometimes partnerships need a structural shake-up—and not just as an act of last resort.

How companies structure these teams depends on concrete factors—the number and complexity of the partnerships, for instance—as well as intangibles like executive support for alliances and joint ventures and the experiences and capabilities of the individuals who would make up the alliance-management team.

Emphasize accountability and metrics

Good governance is the linchpin for successful partnerships; as such, it is critical that senior executives from the partner organizations remain involved in oversight of the partnership. At the very least, each partner should assign a senior line executive from the company to be “deal sponsor”—someone who can keep operations leaders and alliance managers focused on priorities, advocate for resources when needed, and generally create an environment in which everyone can act with more confidence and coordination.

Additionally, the partners must define “success” for their operations teams: What metrics will they use to determine whether they have hit their goals, and how will they track them? Some companies have built responsibility matrices; others have used detailed process maps or project stage gates to clarify expectations, timelines, and critical performance measures. When partnerships are initially formed, it is usually the business-development teams that are responsible for building the case for the deal and identifying the value that may be created for both sides. As the partnership evolves, the operations teams must take over this task, but they will need ongoing guidance from senior leaders in the partner organizations.

Build a dynamic partnership

Sometimes partnerships need a structural shake-up—and not just as an act of last resort. For instance, it might be less critical to revisit the structure of a partnership in which both sides are focused on joint commercialization of complementary products than it would be for a partnership focused on the joint development of a set of new technologies. But there are some basic rules of thumb for considering changes in partnership structure.

Partner organizations must acknowledge that the scope of the relationship is likely to shift over time. This will be the case whether the partners are in a single- or multiasset venture, expect that services will be shared, anticipate expansion, or have any geographic, regulatory, or structural complexities. Accepting the inevitable will encourage partners to plan more carefully at the outset. For example, during negotiations, the partners in a pharmaceutical partnership determined that they had different views on future demand for drugs in development. This wasn’t a deal breaker, however. Instead, the partners designated a formula by which financial flows would be evaluated at specific intervals to address any changes in expected performance. This allowed the partners to adjust the partnership based on changes in market demand or the emergence of new products. All changes could be incorporated fairly into the financial splits of the partnership.

Avoiding blind spots in your next joint venture

Partners should also consider the potential for restructuring during the negotiation process—ideally framing the potential endgame for the relationship. What market shifts might occur, how might that affect both sides’ interests and incentives, and what mechanisms would allow for orderly restructuring? When one oil and gas joint venture began struggling, the joint-venture leader realized he was being pulled in opposing directions by the two partner companies because of the companies’ conflicting incentives. “It made the alliance completely unstable,” he told us. He brought the partners back to the negotiation table to determine how to reconcile these conflicting incentives, restructure their agreement, and continue the relationship, thus avoiding deep resentment and frustration on both sides of the deal.

Such dialogues about the partnership’s future, while potentially stressful, should be conducted regularly—at least annually.

The implementation of these four principles requires some forethought and care. Every relationship comes with its own idiosyncrasies, after all, depending on industry, geography, previous experience, and strategy. Managing relationships outside of developed markets, for instance, can present additional challenges involving local cultures, integration norms, and regulatory complexities. Even in these emerging-market deals, however, the principles can serve as effective prerequisites for initiating discussions about how to change long-standing practices and mind-sets.

An emphasis on clarity, proactive management, accountability, and agility can not only extend the life span of a partnership or joint venture but also help companies build the capability to establish more of them—and, in the process, create outsize value and productivity in their organizations.

Ruth De Backer is a partner in McKinsey’s New York office, where Eileen Kelly Rinaudo is a senior expert.

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Partnership business: what it is & how to successfully create one.

Published: January 03, 2024

Updated: January 04, 2024

What is a partnership business? Explore the benefits and drawbacks of a partnership business, the types of partnership businesses that exist, and how to set one up.

There are many ways to form a business, and each has its own distinct advantages and drawbacks. The four main types of business entities are partnership, sole proprietorship, corporation, and limited liability company (LLC).

A partnership business, by definition, consists of two or more people who combine resources to form a business and agree to share risks, profits, and losses. Common partnership business examples include law firms, physician groups, real estate investment firms, and accounting groups.

By comparison, a sole proprietorship places all the responsibilities, risks, and rewards of operating the business on one person, while a corporation operates as its own legal entity, separate from the individuals who own it.  An LLC  is a hybrid of a partnership and a corporation that allows its owners (known as members) to earn profits and losses without incurring personal liability for the company’s debts.

For many individuals, going into business with a partner offers a chance to build experience and expertise with others. This article takes a deep dive into partnerships, what they are, how they work, and how to manage them.

What Is a Business Partnership and How Does it Work?

A business partnership is an arrangement in which two or more individuals co-own a business entity and share in its profits and losses. This co-ownership is formalized through a partnership agreement that outlines roles, responsibilities, and profit-sharing structures. 

Business partnerships can take several forms, each with unique characteristics:

• General partnerships (GPs):  All partners are equally liable for the organization’s debts, obligations, and liabilities.
• Limited partnerships (LPs):  Some partners have limited liability and restricted management roles, while others, known as general partners, assume full liability.
• Limited liability partnerships (LLPs):  All partners can actively manage the business, with liability protections for all partners. Specifics vary by state, but partners in an LLP are typically not personally liable for business debts or the negligence of other partners.
• Limited liability limited partnerships (LLLPs):  All partners have limited liability against partnership obligations, even those stemming from the actions of their co-partners. However, only general partners can actively manage the business.

Advantages and Disadvantages of a Partnership Business

Understanding the  pros and cons of forming a partnership  can help you decide whether it’s the most beneficial structure for your organization.

• Stronger financial position:  The ability to pool resources can provide your business with more capital and access to new investors, while better positioning the company to borrow money. Sharing business expenses with partners can also help you save more than you could on your own.
• Shared expertise:  Sharing skills and institutional knowledge is a key benefit of a business partnership. This can help broaden your expertise and the versatility of your business.
• A broader network:  By sharing contacts and connections with business partners, you can develop new relationships and expand your professional network.
• Fresh eyes:  Bringing in partners  can provide new perspectives on how you do business by seeing things from a different angle. Partners can offer fresh ideas, market strategies, and inspiration to grow your business.

Disadvantages

• Liability:  The primary drawback of a general partnership is that all partners are fully liable for the financial obligations of the business and share losses, debt, and risk. This means creditors can seize any partner’s personal assets if these obligations aren’t met.
• Loss of full control:  Unlike sole proprietors, who are used to complete decision-making autonomy, partners in a partnership must share decision-making authority and may need to compromise when there’s a disagreement.
• Potential for conflict:  Having more than one person making business decisions creates the potential for differences of opinion that can lead to conflict. Partners may also become bitter if they feel like one person isn’t contributing his or her fair share.
• Difficult to sell:  A partner can’t sell a business without the consent of all the other partners, unless stated otherwise in a partnership agreement. This could potentially create a stalemate if and when a partner wants to leave.
• Risk of instability:  Without a comprehensive, predetermined partnership agreement in place, unexpected events, like a  partner’s decision to leave , their death, or an illness may put the future of the company in jeopardy.

How to Create a Partnership Business

Working with one or more partners can add complexity to setting up a business. Adhering to certain steps can help simplify the process.

Select a partnership structure 

To determine the ideal partnership structure, assess your liability preferences an desired management structure. Investment needs and future business goals can also dictate the best partnership choice. For instance, if you’re seeking significant external investment without giving investors a role in daily management, an LP might be ideal. Conversely, if you anticipate rapid growth and want to limit personal liabilities while maintaining managerial control, an LLP or LLLP could be a better fit.

State-specific laws can also affect partnership functions and rights, so that may be another consideration to keep in mind.

Choose partners and their roles 

Find partners you trust, as this decision sets the tone and terms of your business. Decide how much it will cost to join the partnership, what percentage of the profits each partner will receive, and which roles and responsibilities each partner will have. Some partners may contribute equity or ownership share in the business, while others might be salaried partners who are paid as employees. 

Name your business 

Your partnership’s name is often a prospect’s first impression of your business. Consider a name that accurately represents the purpose of your partnership business or that incorporates the names of your partners as well as any designations, such as LLP or GP. Make sure to  pick a unique name  that isn’t already in use or trademarked to prevent legal complications.

Register your partnership 

In the U.S., partnership businesses must  register their names  with the state in which they plan to operate. Additionally, registration might be necessary to obtain the appropriate business licenses or permits required by that state or local jurisdiction. Note that specific requirements can vary from state to state. Registration is typically required to open a business bank account, and will also help prevent inadvertently choosing the same name as an existing business.

Obtain a business identification number

In the U.S., business partnerships must obtain a business identification number from the Internal Revenue Service (IRS). 

Create a partnership agreement

After you and your partners agree to their roles and responsibilities, get everything in writing. An attorney can help you draft a business partnership agreement to detail provisions, such as each partner’s rights and duties, financial obligations, profit distribution, ownership, dispute resolution, confidentiality, and exit strategy.

Secure necessary licenses and permits 

To comply with federal, state, and local laws and regulations, partnerships may need specific permits or licenses to operate. For instance, the nature of the business activity and where it’s located can dictate state licensure requirements. Certain business activities may also require specialized licenses. For example, restaurants might need health permits, liquor licenses, or music licensing. Professional services – such as law, medicine, or accounting – often need professional licenses.

Bringing in partners can provide new perspectives on how you do business by seeing things from a different angle. Partners can offer fresh ideas, market strategies, and inspiration to grow your business.

The Business Partnership Agreement

A business partnership agreement is a written contract between partners that specifies their obligations and contributions to the business, as well as other conditions of their relationship. Every business partnership agreement should detail the following clauses:

• Who makes decisions:  Determine how you will make important decisions and what to do when partners disagree or when there’s a tie.
• Percentage of ownership:  It’s important to calculate and clarify how much of the business each partner owns. Also indicate how much money each partner contributed upon joining the business, and what should happen if the business needs more money to operate.
• Distribution of profits and losses:  Set a formula for how partners will share earnings as well as losses. This might be based on ownership percentage, specific roles, or other criteria.
• Exit and transition strategies:  Come up with contingency plans for what should happen if a partner dies, becomes disabled, or wants to leave the company. Specify the rights of the remaining partners in such situations.

Does a Partnership Business Make Sense for Your Company?

Before you decide whether a partnership is the ideal business type for your organization, consult with an outside expert to carefully consider the following:

• Legal liability:  How much liability is ownership willing to assume? If you’re adequately insured and can afford to put your personal assets at risk, the financial opportunities of a partnership might be worth the risk.
• Long-term plans:  Look ahead to what might happen to the business in the future. In a partnership business, it’s important to consider who will take over the business after the founding partners are no longer involved.
• Costs:  Although corporations offer stronger liability protection compared to partnerships, they require more extensive record-keeping and reporting, thus incurring higher administrative costs than other business entities. They’re also the most expensive business type to form, making partnerships a more attractive option for many.
• Operational freedom:  The business structure you choose can dictate how much flexibility, administrative responsibilities, and decision-making power you’ll have. Corporations tend to be the most restrictive in these areas. If you’re looking for more freedom, less bureaucracy and the authority to call the shots, a sole proprietorship might be the right choice for you. Partnerships fit somewhere in between, combining the benefits of autonomy and shared decision-making responsibilities.

The Bottom Line

Business partnerships have many advantages for someone looking to form a new company. Because they include several variations from which to choose, partnerships often combine the best attributes of other business types, offering flexibility around costs, liability, and autonomy. Selecting the right business type, however, often comes down to the unique circumstances of each business. Consider consulting legal and business experts to understand the implications of each business type, as well as the various federal and state requirements necessary to create them.

A version of this article was originally published January 15, 2020.

Photo: Getty Images

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Strategic Partnership Plan Template

What is a Strategic Partnership Plan?

A strategic partnership plan outlines the goals, objectives, and actions that need to be taken to create and maintain successful relationships with strategic partners. It can help organizations of all sizes and industries to identify potential partners, evaluate existing partnerships, develop strategies to improve quality, and foster collaboration. It is an essential tool for any organization that wants to create a plan to pursue and manage strategic partnerships.

What's included in this Strategic Partnership Plan template?

• 3 focus areas
• 6 objectives

Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.

Who is the Strategic Partnership Plan template for?

This strategic partnership plan template is designed for organizations of all sizes and industries to create a plan to pursue and manage strategic partnerships. It is a comprehensive framework that outlines the steps needed to develop and manage successful partnerships. It provides a clear roadmap to help organizations identify potential partners, evaluate existing partnerships, develop strategies to improve quality, and foster collaboration.

1. Define clear examples of your focus areas

The first step in creating an effective strategic partnership plan is to define clear focus areas. These focus areas are the main topics that you want to address when creating and managing your partnerships. Examples of focus areas could include developing and managing strategic partnerships, improving communication, and fostering collaboration.

2. Think about the objectives that could fall under that focus area

Once you have identified your focus areas, you need to think about the objectives that could fall under each focus area. Objectives are specific goals that you want to achieve with each focus area. Examples of some objectives for the focus area of Develop and Manage Strategic Partnerships could be: Establish Strategic Partnerships, and Improve Partnership Quality.

3. Set measurable targets (KPIs) to tackle the objective

Once you have identified your objectives, you need to set measurable targets, also known as Key Performance Indicators (KPIs). KPIs are measurable targets that you can use to track the progress of each objective. An example of a KPI for the focus area of Develop and Manage Strategic Partnerships could be: Increase number of partnerships.

4. Implement related projects to achieve the KPIs

Once you have identified your KPIs, you need to implement related projects to achieve them. The projects should be specific actions that you need to take in order to reach your goals. An example of a project related to Develop and Manage Strategic Partnerships could be: Identify potential partners and actively pursue partnerships.

5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy

You can utilize the Cascade Strategy Execution Platform to see faster results from your strategy. With Cascade, you can easily track your progress towards your goals, measure performance, and identify areas for improvement. This will help you stay on track and ensure that your strategic partnership plan is successful.

Partner Business Plans in 2024: Why are They so Important?

Introduction

Business plans serve as a foundational framework that aligns the operational strategy of your partner firms with the overarching goals and expectations of your company. Tailored for each partner, these business plans outline specific sales, marketing, and training objectives that are designed to be in perfect sync with your organization's aspirations. These plans are indispensable tools for effectively overseeing your network, enabling you to evaluate and measure performance continually and, as needed, take strategic actions to bolster your partners on their path to success.

By collaboratively constructing business plans in conjunction with each partner, you foster a sense of cohesion within your indirect sales ecosystem. This shared roadmap ensures that all partners are working in synergy, collectively pursuing the identified actions necessary for accomplishing mutual success, further strengthening the strategic alignment between your firm and its partner network.

Develop Partner Bussiness Plan: Two Key Steps to Consider

1. know your partners well.

A thorough understanding of your partner network is a fundamental prerequisite for the successful development of partner business planning. Within your indirect sales ecosystem, business providers, integrators, value-added resellers (VARs), IT service companies, and resellers each operate within distinct logic and economic models. Acquiring deep insights into the nuances of each partner type is crucial for crafting business plans that align with both your partner's strategic objectives and your company's overarching goals.

Isabelle Castellanet, the founder of IXC, a firm specializing in Partners and Growth, emphasizes the importance of recognizing the diverse expectations and requirements of partners based on their typology. She notes, "Depending on the typology of its network, it is important to see that the partners do not expect the same information. A wholesaler, for example, does not require the same information and tools as a VAR, an integrator, or even a third-party publisher who prescribes or resells for you."

Recognizing these key elements in partner business planning ensures that your efforts are tailored to cater to the specific needs and expectations of each partner category, ultimately fostering a more productive and mutually beneficial collaboration.

2. Have a Well-Defined Global Business Objective

Creating a robust business plan in collaboration with your partner necessitates a well-defined and quantifiable overarching business objective. This objective must be crystal clear and expressed in measurable terms. For instance, it could be aimed at achieving specific milestones, such as:

• Capturing more than 20% of the market share in France for your product;
• Reaching an annual turnover target of "X" amount or;
• Expanding your operations to attain 5% of the turnover in a new country.

This overarching business objective serves as the cornerstone upon which you will construct the business plans tailored for each of your partners. The core concept is to apportion individual objectives to your partners that harmonize with your global strategy. Consequently, each partner's unique business plan becomes an instrumental component contributing to the fulfillment of your company's overarching business objective. This strategic alignment ensures that the combined efforts of your partner network work in unison to advance your business toward its ultimate goals.

Establishing a Partner Business Plan: The Objectives

Setting objectives within your partner's business plan is essential, engaging, and decisive for the success of the partnership. Aligned with the main objective of your business, these objectives, whether quantitative or qualitative, must be measurable and, therefore, quantified.

Set Quantitative Targets

Based on a careful analysis of historical sales performance, specific criteria such as outcomes, geographical location, and seniority within the partner network, distinct objectives will be strategically allocated to each partner. These objectives encompass a variety of key areas that guide their contributions to the partnership:

• Business Objectives on Sales Volume and Turnover: Partners will be tasked with well-defined business goals related to sales volume and revenue generation. These objectives may be tailored to the partner's track record, the market potential in their location, and their historical sales figures. This approach ensures that targets are realistic and achievable, motivating partners to excel in their specific market segments.
• Marketing Objectives through Event and Webinar Organization: In addition to sales targets, partners will also be entrusted with marketing objectives, which often involve organizing events and webinars. These events serve as crucial touchpoints for engaging potential customers and driving brand awareness. The specific objectives may vary depending on the partner's strengths and past performance, encouraging them to leverage their marketing expertise to enhance the partnership's overall success.

By customizing these objectives based on partner history and characteristics, the partnership becomes more adaptable and efficient, with each partner playing a unique role in contributing to the collective success of the collaboration. This tailored approach maximizes the potential for growth and achievement within the network.

Set Qualitative Objectives

Incorporating qualitative objectives into your business plan imparts a heightened level of professionalism to your partner network. This is especially pivotal when embarking on new indirect sales partnerships. Training sessions play a central role in this process, serving as a crucial avenue for partners to equip their sales teams with comprehensive knowledge about your brand. These sessions not only elevate your partners' understanding of your products but also empower them to embrace and disseminate your vision over the short, medium, and long-term horizons. This alignment ensures that they are seamlessly integrated into your strategic framework. As an illustrative example, you may set a target, such as achieving a certification for a specific number of "X" sales, within your business plan.

To ensure the optimal monitoring of your business plan and to gauge the progress of your partners, it is imperative to implement KPIs. These quantifiable benchmarks enable you to assess the attainment of objectives, offering valuable insights into areas where potential refinements or additional support may be necessary. By embracing KPIs, you introduce a structured, data-driven approach that ensures the partnership remains on a well-tracked trajectory toward realizing the objectives outlined in your business plan.

Have Regular Monitoring

In pursuit of ongoing refinement and shared operational efficiency, it's essential that these objectives are periodically defined and subject to regular monitoring. Constructing a business plan without a system for ongoing objective assessment is a critical oversight, as it can become too late to take corrective action should your partner deviate from their established objectives. To ensure the long-term success of your collaborative efforts, it's highly advisable to assess and potentially adjust objectives on a monthly basis, accounting for variances such as weaker performance in a specific month, such as August.

KPIs play a pivotal role in facilitating the monitoring and analysis of your partners, allowing you to identify both their strengths and areas that may require improvement. With a monthly review and a systematic reporting mechanism, you gain the capability to:

• Set Realistic Objectives : By closely aligning objectives with the current conditions on the ground, you ensure that they remain practical and attainable in the context of evolving market dynamics.
• Monitor Implementation and Achievement : Regular tracking using KPIs enables you to gauge how well partners are executing planned actions and progressing towards the predefined objectives, offering insights into areas that might need attention.
• Provide Support : Armed with this detailed data, you are better equipped to initiate timely and targeted actions that can help partners overcome challenges and, in turn, assist them in reaching their objectives. This proactive approach ensures that your partnership remains adaptive and robust, fostering sustained success in a dynamic business landscape.

The Essential Tool to Build a Business Plan and Manage it

In the endeavor to establish a comprehensive business plan and ensure its effective management with full transparency into your partner's activities, a PRM, or Partner Relationship Management system, emerges as the quintessential tool. Going beyond the capabilities of conventional management software, a PRM empowers you to systematically structure your indirect sales processes and engage with your partner ecosystem in real time, irrespective of the hour or location.

When crafting business plans for your partners within a proficient PRM platform, you can expect to benefit in several key ways:

• Tailored Business Plans : A robust PRM system should facilitate the seamless definition of unique business plans for each partner, accommodating their specific objectives, strengths, and market dynamics. This tailored approach ensures that each partner's plan is finely tuned to optimize success.
• Real-Time Progress Tracking : The PRM offers the invaluable advantage of real-time progress tracking for the objectives set within these business plans. It allows you to stay updated on your partner's performance, offering insights into their achievements and areas that might require attention or support.
• KPI Integration : Effective PRM systems seamlessly integrate KPIs into the platform, providing you with a set of critical metrics that pinpoint what is vital for the success of your partner's business plan. These KPIs offer the ability to focus on the most significant aspects of your partnership, enabling data-driven decision-making and strategic adjustments as needed.

By leveraging a PRM , your business can optimize its partnership management, ensuring that business plans are not only efficiently established but also actively tracked and adjusted as necessary, fostering the mutual success of both your company and your partner network.

Build your partnership program and strengthen partner engagement.

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Partner Program Tiers: The Set Up Process A-Z

The Top 9 Skills to Look For in a Partnership Manager

Your right to know, why are partner business plans important, what elements should be included in a partner business plan, how do you write a business plan for a partner, what are the 3 types of partners in a business set up, what is an example of a strategic partnership plan, still have questions.

Small Business Partnership Agreement Template

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This small business partnership agreement template can be used by two companies who wish to form a joint venture with one another.

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Prepared by:

​ [PartnerA.FirstName] [PartnerA.LastName] [PartnerA.Company] ​

Prepared for:

​ [PartnerB.FirstName] [PartnerB.LastName] ​ [PartnerB.Company] ​

This small business partnership agreement, entered into on [Document.CreatedDate] is by and between the following entities:

​ [PartnerA.Company] ​ [PartnerA.StreetAddress] [PartnerA.City] [PartnerA.State] [PartnerA.PostalCode] ​ [PartnerA.Phone] ​

​ [PartnerB.Company] ​ [PartnerB.StreetAddress] [PartnerB.City] [PartnerB.State] [PartnerB.PostalCode] ​ [PartnerB.Phone] ​

Unlimited templates & signatures for 19$/month

By signing below, the listed individuals certify that they have full authority to represent the partners to this agreement, and hereby enter into this small business partnership agreement.

​ [PartnerA.Company] ​ [PartnerA.FirstName] [PartnerA.LastName] ​

​ [PartnerB.Company] ​ [PartnerB.FirstName] [PartnerB.LastName]

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What Is a Partnership Business Structure?

• March 24, 2022 May 1, 2024

Business structures help protect owners from liability and enable them to maximize the tax benefits of running a business.

A partnership business structure is one of the simplest ways for two or more people to run a business together. 

The Most Common Business Partnership Structures

One of the first decisions business co-owners must make is what type of structure works best for their business. There are two common types of formal partnerships: limited partnership (LP) or limited liability partnership (LLP).

Limited Partnership (LP)

A limited partnership features a general partner who has unlimited liability, while all other partners have limited liability. The general partner is the operation’s hands-on person. Limited partners may be silent partners who help fund the startup of the business and are not involved with day-to-day operations. 

Profits are reflected on the personal tax returns of all the partners. The general partner takes on the responsibility of paying self-employment taxes on partnership profits. Partners with limited liability also have limited control over how the company operates.

Limited Liability Partnership (LLP)

A limited liability partnership works in much the same way as a limited partnership. The key difference is that under an LLP, every partner has limited liability. An LLP separates every owner’s personal finances from those of the business. Personal assets—bank accounts, property, vehicles, etc.—are protected if legal actions are brought against the company. These assets are also protected against the company’s creditors or the debts of other partners. Most LLPs hire a business manager to oversee daily operations.

General Partnerships and Limited Liability Limited Partnerships

A general partnership does not require filing paperwork with the state. Typically, two or more people form a partnership by agreeing to a written partnership. The partners file taxes under their own names. A general partnership offers no liability protection, which is one of the main advantages people seek when forming a business structure.

The Limited Liability Limited Partnership (LLLP) structure is a recent addition to partnership types. An LLLP operates like an LP, with a general partner managing the day-to-day business. However, it also limits the general partner’s liability so that every partner has protection.

Who Should Form a Partnership?

A partnership works well for companies with more than one owner, professional groups that want the benefits of a partnership but don’t want to run the business (such as attorneys or doctors), or owners who want to try out a new business before creating a more formal business structure like an LLC or corporation .

Entrepreneurs may decide on a partnership business structure if their business falls into one of the following categories: 

• The business has multiple owners.
• It is a low-profit, low-risk business.
• It has a limited customer base.
• It is an enterprise transitioning from a hobby into a business.

How Do You Form a Partnership?

A general partnership requires only a partnership agreement between two or more people. In theory, you could start a business on a handshake, but experts recommend a written agreement. 

The other partnership structures (LP, LLP, LLLP) require registering with the state where the business is located. Forming these types of partnerships also require owners to establish certain aspects of a formal business, such as creating business banking accounts and obtaining required permits and licenses. Some states may allow a business to register online; others may require documents be submitted in person or through the mail. According to the U.S. Small Business Administration, most states also require registration with the secretary of state’s office, a business bureau, or a business agency. 

Challenges of Forming a Partnership

Liability: General partners have unlimited liability, meaning they must carefully choose with whom they enter into a partnership since they are responsible for the partnership’s liabilities. In some cases, a creditor can pursue a single general partner for the obligations of the business.

Self-employment taxes: A general partner must pay self-employment taxes on income received through a partnership. A limited partner does not pay self-employment taxes on their share of a partnership’s income, but does pay self-employment taxes on any guaranteed payments, according to the IRS . Guaranteed payments involve payments for any services rendered to or on behalf of the partnership.

Advantages of a Partnership

• Liability protection: This extends only to limited partners, not general partners in an LP structure.
• Capital investment: Pooling the resources of the partners allows for creation of a better business than trying to run it alone.
• Specialization: Either through a general partner or a business manager, partners can bring in professionals with expertise in business operations rather than try to run a business on their own.
• Simple tax filings: Partnerships file Form 1065 and report income on their personal taxes, usually with a Schedule K-1.
• Avoid double taxation: Profits pass through to the partners, rather than first getting taxed at the corporate rate as with a C corp.

Evaluating the requirements, advantages, and challenges of a setting up a partnership is essential before deciding if it’s the right legal entity for your business.

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What Is a Partnership?

• Advantages and Disadvantages

Partnerships by Country

• Partnership FAQs

The Bottom Line

• Types of Corporations

Partnership: Definition, How It Works, Taxation, and Types

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.

There are several types of partnership arrangements. In particular, in a partnership business, all partners share liabilities and profits equally, while in others, partners may have limited liability . There also is the so-called "silent partner," in which one party is not involved in the day-to-day operations of the business.

Key Takeaways

• A partnership is an arrangement between two or more people to oversee business operations and share its profits and liabilities.
• In a general partnership company, all members share both profits and liabilities.
• Professionals like doctors and lawyers often form a limited liability partnership.
• There may be tax benefits to a partnership compared to a corporation.

Investopedia / Matthew Collins

Types of Partnerships

In a broad sense, a partnership can be any endeavor undertaken jointly by multiple parties. The parties may be governments, nonprofits enterprises, businesses, or private individuals. The goals of a partnership also vary widely.

Within the narrow sense of a for-profit venture undertaken by two or more individuals, there are three main categories of partnership: general partnership , limited partnership, and limited liability partnership.

General Partnership

In a general partnership, all parties share legal and financial liability equally. The individuals are personally responsible for the debts the partnership takes on. Profits are also shared equally. The specifics of profit sharing will almost certainly be laid out in writing in a partnership agreement.

When drafting a partnership agreement, an expulsion clause should be included, detailing what events are grounds for expelling a partner.

Limited Liability Partnership

Limited liability partnerships (LLPs) are a common structure for professionals, such as accountants, lawyers, and architects. This arrangement limits partners' personal liability so that, for example, if one partner is sued for malpractice, the assets of other partners are not at risk.

Some law and accounting firms make a further distinction between equity partners and salaried partners. The latter is more senior than associates but does not have an ownership stake. They are generally paid bonuses based on the firm's profits.

Limited Partnership

Limited partnerships are a hybrid of general partnerships and limited liability partnerships. At least one partner must be a general partner, with full personal liability for the partnership's debts. At least one other is a silent partner whose liability is limited to the amount invested. This silent partner generally does not participate in the management or day-to-day operation of the partnership.

Finally, the awkwardly-named limited liability limited partnership is a new and relatively uncommon variety. This is a limited partnership that provides a greater shield from liability for its general partners.

Taxes and Partnerships

There is no federal statute defining partnerships, but nevertheless, the Internal Revenue Code (Chapter 1, Subchapter K) includes detailed rules on their federal tax treatment.

Partnerships do not pay income tax. The tax responsibility passes through to the partners, who are not considered employees for tax purposes.

Individuals in partnerships may receive more favorable tax treatment than if they founded a corporation. That is, corporate profits are taxed, as are the dividends paid to owners or shareholders. Partnerships' profits, on the other hand, are not double-taxed in this way.

Advantages and Disadvantages of Partnerships

A successful partnership can help a business thrive by allowing partners to pool their resources and labor. Most sole proprietors do not have the time or resources to run a successful business alone, and the startup stage can be the most time-consuming.

Creating a partnership allows the partners to benefit from one another's labor, time, and expertise. Moreover, a shrewd partner can also provide additional perspectives and insights that can help the business grow.

But there is also an additional risk in joining a partnership. In addition to sharing profits, the partners may also assume responsibility for any losses or debts from the other partners. There is also a higher chance of conflict or mismanagement. When the time comes to exit, it may be harder to reach an agreement about selling the business.

Pros and Cons of Partnership

Partners can pool their labor, capital and expertise.

Partners can share tasks, allowing greater work-life balance.

More partners can bring their experience and new perspectives to the firm.

Partners may bring additional debts or liabilities.

There is a greater chance of disagreement or mismanagement.

It may become harder to sell the business.

The basic varieties of partnerships can be found throughout common law jurisdictions, such as the United States, the U.K., and the Commonwealth nations. There are, however, differences in the laws governing them in each jurisdiction.

The U.S. has no federal statute that defines the various forms of partnership. However, every state except Louisiana has adopted one form or another of the Uniform Partnership Act ; so, the laws are similar from state to state. The standard version of the act defines the partnership as a separate legal entity from its partners, which is a departure from the previous legal treatment of partnerships.

Other common law jurisdictions, including England, do not consider partnerships to be independent legal entities.

How Does a Partnership Differ From Other Forms of Business Organization?

A partnership is a way of structuring a business that involves two or more individuals (the partners). It involves a contractual agreement (the partnership agreement) between all of the partners that set the terms and conditions of their business relationship, including the distribution of ownership, responsibilities, and profits and losses. Partnerships outline and clearly define a business relationship and responsibility.

Unlike LLCs or corporations, however, partners are personally held liable for any business debts of the partnership, which means that creditors or other claimants can go after the partners' personal assets.  Because of this, individuals who wish to form a partnership should be extremely selective when choosing partners.

If Partners Don't Have Limited Liability Why Set Up a Partnership?

Partnerships have several benefits. They are often easier to set up than LLCs or corporations and do not involve a formal incorporation process through a government. This has the added benefit of not being subject to the same rules and regulations that apply to corporations and LLCs. Partnerships also tend to be more tax-friendly.

What About Limited Partnerships?

In limited partnerships (LPs), there are general partners who maintain operations of the firm and have full liability, whereas limited (silent) partners, who are often passive investors or otherwise not involved in day-to-day operations, enjoy limited liability. A limited liability partnership (LLP) is different from an LP.  In an LLP, partners are not exempt from liability for the debts of the partnership, but they may be exempt from liability for the actions of other partners. A limited liability limited partnership (LLLP) is a relatively new business form that combines aspects of LPs and LLPs.

Do Partnerships Pay Taxes?

The partnership itself does not pay business taxes. Instead, taxes are passed through to the individual partners to file on their own tax returns, often via a Schedule K .

What Types of Businesses Are Best-Suited for Partnerships?

Partnerships are often best for a group of professionals in the same line of work where each partner has an active role in running the business. These often include medical professionals, lawyers, accountants, consultants, finance & investing, and architects.

A partnership is a legal arrangement that allows two or more people to share responsibility for a business. Those partners share the ownership and profits, but they also share the work, responsibility, and potential losses. A successful partnership can give a new business more opportunities to succeed, but a poorly-thought out one can cause mismanagement and disagreements.

U.S. Small Business Administration. " Choose a Business Structure ."

Utah Department of Commerce. " Limited Liability Limited Partnerships ."

U.S. Congress. " U.S. Code, Section 26, Subtitle A, Chapter 1, Subchapter K: Partners and Partnerships ."

Uniform Law Commission. " Partnership Act ."

National Conference of Commissioners on Uniform State Laws. " Uniform Partnership Act (1997) ," Page 91.

Thompson Reuters Practical Law. " Partnership ."

Internal Revenue Service. " Tax Information for Partnerships ."

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• Key Partners in Business Model Canvas

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© Entrepreneurial Insights based on the concept of Alex Osterwalder

In this section, you will learn about the next building block in the Business Model Canvas which is Key Partners (or Key Partnerships) that an entrepreneur needs to have to perform its key activities and ultimately provide its value proposition to its customer segment.

We will look at 1) key partnerships , 2) types of partners , 3) motivation behind partnerships , 4) key partners and value propositions , and 5) case studies .

KEY PARTNERSHIPS

A business partnership is when two commercial entities form an alliance, which may either be a really loose relationship where both entities retain their independence and are at liberty to form more partnerships or an exclusive contract which limits the two companies to only that one relationship.

The following factors are very important to keep in mind when forming partnerships:

• Right Partnership Agreements: Whether your partnership is with a business or an individual, it is important for all the relevant parties to have clear partnership agreements drafted along with legal counsel.
• Defining Expectations: Many times new businesses fail to establish their expectations from the outset leading to much confusion and conflict later. An entrepreneur needs to ensure that he has shared his expectations openly with his partner and vice versa from the beginning.
• Impact on your clients: When forming a partnership, it is important to evaluate your value proposition and your key resources and make sure your partner is filling any gaps in either. This can only be done by also evaluating how the partnership will translate to the customer.
• Win-Win situation: For a partnership to be healthy and sustainable, there need to be visible gains on both ends.
• Selecting partnerships: Some partnerships may seem lucrative in theory but fail to get off the ground practically. In addition, changes in the business context may also make some business partnerships irrelevant. In such cases, it is important to end these partnerships quickly to avoid further wastage of resources.

This building block refers to the network of suppliers and partners that make the business model effective. The reasons for a company opting for a partnership are myriad, but healthy partnerships are instrumental in making a business success or a failure. A company can optimize its resource utilization, create new resource streams or mitigate risks behind major business decisions by taking on a partner before starting a new course of action. It is important to note here that your organization maybe partnering with a number of organizations for various reasons, but not all their relationships will be key to your business.

Partnerships can change over the course of a business’ lifecycle. The types of partnerships that may be a necessity during year 1 of a start-up will differ significantly from the nature of the required partnership in year 3.

Key Questions

When evaluating the various key partnerships that your business requires, it is fruitful to analyze the nature of the partnership based on the following key questions;

• Which partnerships are critical to our business?
• Who are our critical suppliers?
• Which of our suppliers and partners are sourcing our key resources?
• What type of partnerships would suit our needs?
• What is the best cluster/ supply chain where I should be located?

[slideshare id=41589722&doc=businessmodelcanvas-swlisbon14-141115053427-conversion-gate02]

TYPES OF PARTNERS

Partners and partnerships can be categorized into four different types;

• Strategic alliances: These types of alliances are between non-competitors. So if you are working through different channels, like a news agency can supply news to both online and offline channels.
• Co-opetition: There can also be strategic partnerships between partners. Such a partnership will help spread the risk both companies may take. It may also help when both partners are trying to do something new; additionally it could mean a confirmed supply stream. For example, there is a need for earth metals in mobile phones. So securing the supply of rare earth metals could be the reason for competitors to form a strategic partnership.
• Joint-Ventures: Another thing could be to develop a joint venture in a new business. Both partners could have a mutual interest in developing new business, possibly due to the emergence of a new market or access to a new geographic area. Both organizations will only opt for such an option if they both provide some inputs into the business. Hence, a Dutch company that specializes in producing cheese might choose to go into a joint venture with milk producing local company to start making cheese in the new region.
• Buyer-Supplier Relationships: These are the most common type of partnerships which assures that you have a reliable source of supplies coming in and for your supplier this means they have a steady confirmed buyer for their product.

MOTIVATIONS BEHIND PARTNERSHIPS

Partnerships are a tricky business involving a lot of negotiation and an element of trust. There can be a number of reasons why organizations would make the decision to take on a key partner rather than doing things themselves or taking on a partner but not considering them as key to the success or failure of their business. Primarily, one of the three kinds of motivations can be attributed when a business chooses to enter a partnership.

Optimization and economy of scale

Most organizations are heavily focused on the bottom-line. And many focus on cost-cutting or smart spending through optimizing the allocation of either their resources or activities. This is the most common motivation for people to enter into partnerships of different types.

When you are looking for efficiency in your company or optimizing your productions chains, key partners can help you achieve this goal. It is unrealistic to think, as an entrepreneur that you have the resources in place to conduct all your key activities in-house. Most partnerships give organizations the ability to share their infrastructures or outsource some activities to more cost-effective options.

Citroen, Peugeot and Toyota joined hands to create a small, cheap car for the masses that they tried to sell for 5000-6000 euros. These cars looked almost the same except for the chassis and a few internal and external details.

Reduction of risk and uncertainty

If you have a good relationship with a key partner, you reduce the inherent risk that comes with doing your own business. You also guarantee supply to your business rather than being dependent on suppliers who aren’t key partners and would therefore not give precedence to your business over others.

Many competitors may form strategic partnerships to share the risk of bringing something new into the market while still competing in various aspects in the industry. A classic example of this is the advent of blu-ray technology which was developed in collaboration by some of the world’s premier consumer electronics and computer technology firms. The development of this technology was expensive and several competitors had to get together and decide that they would all be selling their products based on blu-ray technology; hence they needed to collaborate to make blu-ray technology more mainstream. The group joined hands to bring the technology to the mass market but still competes on the basis of their various blu-ray based gadgets in the consumer market.

Acquisition of particular resources and activities

If there are certain things that you don’t have in-house and which would require a heavy investment of time, money or both, a key partner who already has these processes and the infrastructure developed would come in extremely handy.

Business models can be extensive maps of the myriad activities that a business needs to perform or the endless resources required to perform these activities successfully. However, it is rare for a new company to have the resources or capabilities in place to fulfill the mandate set down by the business model. Hence, many new companies are beginning their journeys by forming partnerships that give them access to the required resources or processes that they require, but are unable to own yet. Hence, many mobile operators partner with IT companies to develop the operating system their handsets require rather than bearing the heavy investment such an endeavor would require if done in-house. This also gives the IT company a steady source of revenue as well as the advantage of publicity if the mobile manufacturer’s brand is well recognized. Bicycle companies do not manufacture their bicycle accessories. Instead, they get into selective partnerships with bicycle parts manufacturers who customize the parts like the color or size of the bicycle seat according to the preferences of the manufacturer.

Heineken is one of the most popular producers and suppliers of beers in the world, and it is especially well-known in the Netherlands, where they have created very strong relationships with bar owners. In fact, Heineken frequently invests in new bars by providing not only equipment for free but also investing in the décor of the bar. In return, the bar provides Heineken beer exclusively. Hence, Heineken gets a repeat customer for their beer while the bar owner can minimize the cost of setting up the business. Conversely, however, the bar owner is limited to selling just Heineken, which means that if Heineken increases the prices of its beers, the bar owner has no choice but to abide by the new prices.

KEY PARTNERS AND VALUE PROPOSITIONS

For fast moving consumer goods, availability is key to the success of the company and a major value proposition. For supermarkets and retail chains, distribution partners are key if you want to provide your fast moving consumer goods to the market. Your advantage is that your products will be available to everyone, but the supermarket will drive down your price and resultantly your margins significantly.

Technologies are advancing at a very high rate that increases their risk factor is well. However, if the technology forms a significant value proposition for your business, then you can take on a partner to share the risk and cost associated with the technology in question.

Focus on where you are creating value but consider that the rest can be outsourced if needed. The activities that are adding value to your value proposition must be outsourced very carefully because they are the ones that are key partnerships for your business.

Starbucks has established several key partnerships worldwide such as with coffee growers worldwide to grow eco and farmer friendly coffee beans. This key partnership is a typical buyer-supplier relationship, motivated by a need to acquire key resources. Another key partnership is with specialized coffee machine makers who make specialized coffee makers for Starbucks. Again this helps Starbucks mitigate cost because it does not have to invest in infrastructure, R&D, and manpower to create these coffee machines in-house. Instead, it is much more cost effective to partner with an organization that already holds expertise in this area and has the infrastructure in place already to cater to Starbucks’ needs. Conversely, Starbucks provides them with a steady buyer for their product as well as the added boost that the Starbucks brand holds for the coffee machine manufacturer.

A Comparative Analysis of Facebook’s and Google’s Partner Networks

Though Facebook has a number of partners in its network, it isn’t entirely dependent on any of these partners. Most of Facebook’s partners provide valuable content for its users so Facebook partners with content providers such as Netflix, Washington Post, Hulu, etc. to provide movies, articles, music and other forms of content to its subscriber base.

Conversely , Google has Google Network members who are content companies that partner with Google to provide content on for its search engine. It provides Advertisers access to these content companies web pages through the Google AdSense program and in return shares revenues from the said program with the relevant companies, leading to a mutually beneficial partnership. Additionally Google also partners with Distribution companies to attract traffic to its websites. However, these are a group of Distributors and Google does not leave itself dependent on any one distributor.

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More From Forbes

What makes a good business partnership.

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Burkhard Boeckem, CTO of Hexagon AB .

Forming successful partnerships is like composing a piece of music for an orchestra. Fundamentally, each section needs to work well together, but that's not enough. Each stage of the process can create a triumph, a failure or something in between that doesn't represent the effort involved.

As CTO of an innovative global tech company, I have experienced positive strategic alliances that evolved both businesses, and I've experienced partnerships with potential that didn't deliver. What should you be looking for with a collaboration? What's the secret to making joint projects work? Here, I discuss how, when and why to enter into a partnership and some of the reasons why cooperative endeavors succeed or fail.

Identifying A Good Strategic Alliance For Your Business

Creating a great partnership begins with a great foundation. To know what makes a good partner for your company, you first must know your own strategy inside and out. Once you have identified your own domain expertise and plan for development, you can then work out what you're missing. That's the basis of a beneficial partnership.

It is finding an overlap between you and them. What's the complementary thing that brings both of your companies together, and what would the benefits be of collaborating? What could you achieve together that you can't achieve alone? Often in technology, it's accelerating innovation and commercialization—the reason that 94% of tech industry executives consider innovation partnerships a necessary strategy, according to a Harvard Business Review article.

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To find that partner with the skills, technology or route to market to support your growth, knock on doors, make contacts and aim high. Sell those benefits you've identified. Building that initial agreement will depend on both companies being clear on the business benefits of the collaboration.

Building A Partnership With Purpose

After finding your potential ally, work out what kind of partnership suits you both. Will it combine both of your offerings (in our case, technologies) or combine your product with their go-to-market? Do their customers need something from you, or do your customers need something from them? At Hexagon, we rely on a network of trusted partners to serve our customers around the globe.

Usually, a good tech collaboration is built between two CTOs—they can see the business case in the technology or service and know how the solutions are going to fit together. In terms of what the partnership should do, it should solve a real-world issue, not revolve around a hyped-up press release. Figuring out the purpose of an alliance is about answering the question: "What's in it for the customer?"

The reason for the partnership needs to be easily explainable. If you sit for too long around the table without a clear aim or unity present, then it's unlikely the project will inspire your team or customers.

Getting The Timing Right: When To Look For A Strategic Collaboration

Partnerships can work in almost all stages of a company's life cycle if the organizations connect well and the purpose is complementary. However, there are more risks if there's a big imbalance between the parties.

If you are an early startup, for example, the bigger and better-known partner may overshadow you. Make sure to agree to co-marketing early on so you can grow your brand through the partnership. Assess if the benefits outweigh the risks. A pilot project is a good way to test the waters, followed by further rollout if successful.

Getting The Cultural Fit Right

Even though it's a corporate partnership, you are always partnering with people. From my own experience, the personalities of those involved and cultural compatibility can be up to 90% of what determines if a partnership succeeds.

Invest in trust—two companies that get along very well will make things happen. Partnerships don't just function on their objective compatibility but also on an emotional, human level. If there's no connection and mindsets are very different, then it's difficult to make a partnership work. You should communicate both externally and internally why you're creating the partnership, which can get people excited and help that partnership work.

The Partnership Success Rate

Successful partnerships require a combination of strategic vision, effective execution and adaptability. They can be difficult to maintain. According to one McKinsey analyst, key challenges include disagreements on objectives, poor communication, governance issues and the ability to adapt to changing circumstances.

In my experience, it's possible to tell early on whether or not a collaboration is going to work. Thankfully, it's more unusual to get, say, 50% of the way through a partnership and then realize it's not going to work. A partnership can be exciting initially but will fail without a strong foundation in purpose, compatibility and people. It is a tech cliche, but it is good to fail fast in this circumstance before you have invested too many resources.

Equally, it's important never to close a door completely. A partnership may not work at a certain point in time because you might be in different positions in your strategic cycles. However, if you agree to talk again in a few years, it might be the perfect time.

Overall, a partnership's success lies in its origin—identifying and solidifying why the partnership should exist in the first place and what problem it's solving for people. For business alliances, the importance of the human element should never be underestimated.

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