Launching a company with a co-founder? Working with another startup to jointly build something? You need a Partnership Agreement - a roadmap for how the relationship works, how profits are shared, and how problems get solved.
What Is a Partnership Agreement?
A Partnership Agreement sets the rules for how two or more people or businesses will collaborate. Even if you're not forming a legal partnership entity (like a GP or LP), you may still want to define terms clearly in writing.
Key Clauses Every Founder Should Include
1. Ownership and Contributions
Spell out each party’s initial investment - cash, IP, equipment, or sweat equity—and how ownership will be divided.
2. Decision-Making
Who makes what decisions? Can one partner bind the company to a deal? Define voting thresholds and tie-breaker mechanisms.
3. Profit and Loss Allocation
How will profits be distributed (or losses shared)? Equal split? Based on ownership? Spell it out.
4. Roles and Responsibilities
Clarify who’s doing what. This avoids duplication, confusion, or finger-pointing down the road.
5. Dispute Resolution
Agree upfront how to handle conflicts - mediation, arbitration, or court? The clearer the plan, the less likely you’ll need it.
6. Exit Terms
What if a partner wants out? Can they sell their share? To whom? Can the other partner buy them out?
Mistakes to Avoid
- Not having one at all
- Using a template without tailoring it
- Not updating the agreement as the business grows
- Failing to address how to dissolve the partnership
Final Thoughts
Partnerships can be incredibly rewarding - or incredibly messy. A well-drafted agreement creates accountability, trust, and a plan for the unknown. We help co-founders and startup partners set terms that reflect their vision and avoid future friction.
Frequently Asked Questions
FAQs
Do I need a Partnership Agreement if I trust my co-founder?
Yes. Even the strongest relationships benefit from clear rules. A written agreement prevents misunderstandings and protects both parties if circumstances change.
Is a Partnership Agreement legally binding?
Yes. As long as it’s properly drafted and executed, it sets enforceable rules for ownership, profit-sharing, and decision-making.
Can a Partnership Agreement be changed later?
Yes. Agreements should be reviewed and updated as the business grows or circumstances change.
What happens if there is no Partnership Agreement?
Without one, state default laws govern the partnership. These rules may not align with your intentions and can lead to disputes.
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