A partnership agreement is a written or oral agreement that governs decision making within a partnership, as well as how key decisions are handled. A partnership agreement should include information or provide instructions about the following topics:
- The names of the partners
- The amounts contributed by each partner
- The rights and responsibilities of each partner
- Whether partners are designated as general partners or limited partners
- The proportions of partnership gains and losses to be apportioned to each partner
- Procedures related to the withdrawal of funds from the partnership, as well as any limitations on these withdrawals
- How key decisions are to be resolved
- Provisions regarding how to add partners and terminate partners
- What happens to partnership interests if a partner dies
- What steps to follow to dissolve the partnership
If a partnership agreement does not include the preceding topics, then there is a risk of acrimony among the partners when a decision must be made, and there is no formal guidance regarding how to proceed.
A partnership agreement is also known as articles of partnership.