Mistake
No buyout formula
When a partner wants to leave, "we'll figure it out then" never works. Agree on the valuation method before anyone wants out — and it needs to be binding.
Free. No signup. Ownership splits, decision rights, capital contributions, profit distribution, and exit terms — documented before you start building together.
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What a partnership agreement is for
A partnership agreement is the founding document of a general or limited partnership. It governs who owns what, how decisions are made, what happens when a partner wants out, and how profits and losses are allocated. Without one, state default rules govern — and they rarely reflect what partners actually intended.
Two or more individuals starting a business together as a general or limited partnership. Professional service firms. Investment partnerships. Co-founders who have not yet formed an LLC or corporation.
Before any money is invested, any work is started, or any client is signed. The hardest conversations — equity splits, decision-making authority, what happens if someone wants to leave — are much easier to have before there is money on the table.
Not the right document for businesses formed as LLCs — use an LLC operating agreement. Not suitable for co-founder relationships in a corporation — use a shareholders' agreement or co-founder agreement with equity vesting instead.
What BizDraft asks you
Each partner's name, role, and ownership percentage.
Business name, purpose, principal place of business, state of formation.
What each partner is putting in — cash, assets, services, IP.
How profits and losses are allocated among partners.
Routine vs. major decisions. Voting thresholds. Managing partner authority.
When cash distributions are made, what percentage is retained for operations.
Right of first refusal, buyout formula, death and disability provisions.
What triggers dissolution and how assets are distributed on wind-down.
What the AI generates
Plain-English, state-aware, built for real partnerships. The sections that prevent the most common partnership disputes before they start.
Each partner's ownership percentage, initial capital contribution, and capital account tracking methodology for profit and loss allocation.
Profit and loss allocation percentages, distribution timing, reserve requirements, and partner draw policies.
Managing partner designation, authority limits, decisions requiring unanimous consent vs. majority vote, and the decision-making process for deadlocks.
Right of first refusal when a partner wants to sell their interest. Consent requirements for transferring to outside parties. Anti-dilution provisions.
Voluntary withdrawal process, buyout formula (book value, EBITDA multiple, or agreed appraisal), payment terms, and non-compete obligations post-exit.
Successor rights, disability buyout trigger, and dissolution process including asset liquidation priority and partner distribution on wind-down.
Common mistakes
The most common reasons business partnerships end in disputes instead of mutual success.
Mistake
When a partner wants to leave, "we'll figure it out then" never works. Agree on the valuation method before anyone wants out — and it needs to be binding.
Mistake
Equal partnerships need a deadlock-breaker — a third-party mediator, a tie-breaking vote procedure, or a buy-sell mechanism. Without one, the business can become ungovernable.
Mistake
A partner who leaves can immediately compete using the business's client relationships and methods unless the agreement restricts it. Non-compete and non-solicitation on exit protect the continuing partners.
Mistake
Partners who contribute unequally but split 50/50 often resent each other within a year. Document contributions and tie profit allocation to actual contribution or ongoing effort.
Example
"Two partners starting a catering business. 60/40 split — Partner A contributes $40k cash and runs operations, Partner B contributes $20k cash and handles sales. Distributions quarterly after 20% reserve. Major decisions require both. Buyout at 2x prior year's net profit. Right of first refusal on partner exits. Tennessee law."
A 14-section partnership agreement, Tennessee-governed. 60/40 profit and loss allocation. Quarterly distributions with 20% operating reserve. Managing partner (Partner A) handles routine decisions; major decisions require mutual consent. Buyout at 2x prior-year net profit, payable over 24 months. Right of first refusal on any transfer. 12-month non-solicitation on exit.
Word (.docx) for editing in any tool. PDF for sending out as-is. Both formats, no watermark, no account needed.
When to ask a lawyer
BizDraft is a drafting tool. It is not a substitute for a lawyer who knows your specific situation. Reach for one when:
When partners are contributing significant assets, assuming debt, or when the business will hold real property, attorney review protects each partner's interests independently.
Sweat equity, vesting schedules, preferred return provisions, and complex profit-interest arrangements require careful tax and legal structuring beyond what a template provides.
General partnerships expose partners to unlimited personal liability. An attorney can advise whether an LLC (with an operating agreement) is a better structure for your specific situation.
FAQ
State law fills in the gaps — and it rarely reflects what the partners intended. Most states' default partnership rules provide for equal profit sharing regardless of contribution, each partner having equal management rights, and the ability of any partner to dissolve the partnership at any time. A written agreement overrides all of this.
In a general partnership, yes — each partner is generally an agent of the partnership and can bind it to contracts in the ordinary course of business. The partnership agreement can limit this by requiring approval for contracts above a specified dollar threshold or certain categories of decisions.
In a general partnership, all partners have unlimited personal liability and management rights. In a limited partnership, there are general partners (unlimited liability, management authority) and limited partners (liability limited to their investment, no management role). LPs require state registration; GPs can be formed by agreement alone.
Partnerships are pass-through entities — profits and losses flow through to the partners' individual tax returns. The partnership itself does not pay federal income tax but must file an informational Form 1065. Each partner receives a K-1 showing their share of income and loss. Consult a CPA for the tax implications of your specific allocation.
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Free. Tailored. State-aware. Yours to keep.
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