What Is A Partnership Agreement?

A Partnership Agreement is a contract that establishes a relationship between two or more people who wish to join as partners and form  a “for-profit” business together. Unlike an LLP or LLC, all partners are personally liable for any debt incurred under the partnership.




  What are the key terms under a Partnership Agreement?


This Partnership Agreement will include the following key terms:



The partnership outline will include basic details such as:

  1. The name of the partners and the partnership
  2. The purpose for which the partners who wish to join the partnership
  3. The address where partnership business will be discussed



The partner’s will have to decide how much they will each contribute towards the original capital and provide a description of how they will contribute.The partner’s will also provide details on interest they will collect on their initial capital contributions.



The partner’s will decide how  their shares in the partnership will be calculated (a method for determining shares will be making them proportional to the amount of initial contribution by each partner).



Typically, any profits and/or losses associated with the partnership will be distributed and/or debited from a Partner’s income account. Once this occurs, a description of when profits and/or losses will be accounted for should be provided (ex.,monthly or quarterly).



The partners will agree upon key management issues which will include:

  1. If a partner decides to the leave the partnership, the partner’s should explain the process by which a partner may leave,  and detail what would happen to their contribution (ex., any remaining partner may or may not purchase the withdrawing Partner’s interest in the Partnership).
  2. If a partner dies unexpectedly, the partners will need to explain will happen (ex., 1) whether his/her heirs receive his/her interest in the partnership; 2) whether one Partner can buy the interest; 3) whether the interest will be distributed equally among remaining partners).
  3. If the partners collectively agree to remove one or more members, they must provide the conditions under which that partner may be removed, and the process by which this removal should occur.
  4. Some examples that would warrant removal may include:
    • Illegal activity such as fraud, embezzlement, or any other form of theft;
    • Imprisonment or threat of litigation in relation to the partners private matters;
    • Any other reason the partners deem would harm the partnership.



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  Last Review Date: 12 JUNE 2021


  Length: 5 pages (Min.) 


  Review Number: 178


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