Ownership splits, decision rights, capital contributions, and what happens when someone wants out. These conversations are easier now than they are in a dispute.
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What's happening here
Starting a business with someone you trust is one thing. Having a written agreement about how it works is what makes the trust durable.
Two or more people are co-founding a business, joining as equal partners, or structuring a joint venture. They've agreed on the concept; now they need to agree on the operational and financial terms in writing.
Without a partnership agreement, state default rules apply — often equal split of profits, losses, and decision-making authority regardless of actual contributions. The default rules rarely match what you actually intended, and discovering the gap during a disagreement is expensive.
A partner who contributes 80% of the work but holds 50% of the equity under a default split. A disagreement on a major decision with no tie-breaking mechanism. A partner who wants out with no buy-out terms. These are the most common ways co-founder relationships end badly.
The right agreement for this situation
The partnership agreement governs the relationship. The IP assignment ensures the business — not the individuals — owns what was built to start it.
Core document
Defines ownership percentages, capital contributions, profit and loss sharing, decision-making authority (voting thresholds, veto rights), roles and responsibilities, compensation, new partner admission, buyout mechanics, and dissolution procedures. The foundational document for any multi-person business.
Ownership of what was built
Any pre-existing work that a partner contributed to the partnership — code, designs, processes, brand assets — should be formally assigned to the business entity. Otherwise one partner technically owns the IP that the entire business runs on, creating a leverage point in any future dispute.
Pre-discussion privacy
Before detailed conversations about forming a partnership begin, both parties may be sharing sensitive business information. A mutual NDA before those conversations protects both sides during the exploratory phase — before the partnership agreement is finalized.
What BizDraft asks you
Names, ownership percentages, and capital contributions. The equity split is the foundation of the entire document.
Cash, IP, labor, equipment, existing clients. Capital contributions should match equity unless you're intentionally structuring a sweat-equity arrangement — which BizDraft can draft.
Majority vote, supermajority, unanimous consent for major decisions? Who has day-to-day operational authority? What requires a full partner vote? These thresholds prevent gridlock and protect minority partners.
Pro-rata to ownership, or a different split? When are distributions made? Are partners drawing salaries before profit distribution? BizDraft drafts the compensation and distribution structure you describe.
Voluntary exit, forced buyout, death or disability, breach. What is the buyout price, who has the right to buy, and what is the payment timeline? This is the most important clause in the document.
The state of formation determines which default partnership law applies. BizDraft adjusts for the state rules that apply when the agreement is silent.
What to watch out for
An equal split is fair — until you disagree on something important. Without a tie-breaking mechanism (a designated tiebreaker partner, a required external mediator, or a supermajority requirement with a deadlock buyout), 50/50 can mean paralysis.
If a partner leaves in year one, do they take their full ownership stake? Without a vesting schedule or a buyout formula tied to fair market value and tenure, early exits can leave remaining partners with a passive co-owner who contributes nothing.
If Partner A built the software that the business runs on but never assigned it to the partnership, Partner A can take it when they leave. The IP assignment must happen at formation — or the business's most valuable asset may not belong to it.
A partner who leaves and immediately starts a competing business using everything they learned from the partnership creates obvious risk. A reasonable post-departure non-compete (1–2 years, defined geography) is standard in partnership agreements — enforceability varies by state.
Example
What you tell BizDraft
"Two partners starting a digital marketing agency. 60/40 split — I'm putting in $20k, my partner is putting in operational expertise. Decisions by majority except hiring — unanimous. Profits distributed quarterly. 4-year vesting for both. 18-month non-compete if someone leaves. Texas."
What BizDraft generates
A partnership agreement with 60/40 ownership, $20k cash + sweat-equity contribution structure, majority vote standard with unanimous carve-out for hiring decisions, quarterly distribution schedule, 4-year vesting with 1-year cliff, buyout formula at departure, 18-month Texas non-compete clause, and dissolution procedure.
Download options
A Word file and PDF with all partnership terms. Inline editor lets you adjust any clause — including the vesting schedule, buyout formula, or distribution timing — before downloading.
Frequently asked questions
For an LLC, you need an operating agreement — which covers the same ground as a partnership agreement but within the LLC framework. BizDraft can draft operating agreements as well. For general partnerships (no entity), a partnership agreement is the governing document.
Shareholders' agreements are for corporations (C-corps, S-corps). Partnership agreements are for general and limited partnerships. Both cover similar ground — ownership, decision-making, exit — but in the context of different legal entity types.
Vesting means a partner's ownership stake is earned over time, not all at once. A 4-year vest with a 1-year cliff means a partner who leaves after 6 months gets nothing; a partner who leaves after 2 years gets 50% of their allocated stake. It protects the remaining partners from a co-founder who exits early.
Yes. Partnership agreements should include an amendment procedure — typically requiring unanimous consent or a supermajority vote. BizDraft includes a standard amendment clause that you can adjust to the threshold you prefer.
Yes. Describe all partners, their ownership stakes, and their contributions. BizDraft generates a multi-party partnership agreement with all parties named and their respective rights and obligations clearly defined.
Draft it now, when everyone agrees. It's much harder after a disagreement.
Draft your partnership agreement