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What to Include in a Partnership Agreement: 30+ Provisions Ranked by Priority

Updated April 2026. Ten required provisions, six important additions, and optional clauses - each with copyable template language.

How to Use This Guide

Start with the 10 required provisions - these form the legal backbone every court will look for. Add the 6 important provisions to prevent the most common disputes. Then review optional provisions based on your specific business model and risk profile.

Required

10 Required Provisions

Without these provisions, your state's default partnership laws fill the gaps - and those defaults rarely match what partners intend.

01Partner Identification

Why it matters: Establishes who is party to the agreement. Courts have voided agreements where parties were inadequately identified.

Template Language:

PARTIES: This Partnership Agreement is entered into by and between: [PARTNER 1 FULL LEGAL NAME], residing at [ADDRESS] ("Partner 1") [PARTNER 2 FULL LEGAL NAME], residing at [ADDRESS] ("Partner 2") collectively referred to as the "Partners."
02Partnership Name and Principal Place of Business

Why it matters: Required for state registration and legal correspondence.

Template Language:

NAME: The business shall be conducted under the name "[PARTNERSHIP NAME]." PRINCIPAL OFFICE: [STREET ADDRESS, CITY, STATE, ZIP] The Partners may establish additional offices by unanimous written consent.
03Business Purpose

Why it matters: Narrow scope protects partners from unexpected liability. Any expansion beyond stated purpose requires a formal amendment.

Template Language:

PURPOSE: The Partnership is formed for the purpose of: [SPECIFIC DESCRIPTION OF BUSINESS ACTIVITIES] The Partnership shall not engage in any other business activities without the unanimous written consent of all Partners.
04Capital Contributions

Why it matters: Capital disputes cause 28% of partnership failures. Document everything with supporting evidence.

Template Language:

INITIAL CONTRIBUTIONS: Partner 1: $[XX,XXX] cash / [property at $XX,XXX appraised value] Partner 2: $[XX,XXX] cash / [property at $XX,XXX appraised value] OWNERSHIP INTERESTS: Partner 1: [XX]% | Partner 2: [XX]% ADDITIONAL CONTRIBUTIONS: No Partner shall be required to contribute additional capital without unanimous written consent. Failure to fund an approved capital call results in dilution at [1.5x] the unfunded amount.
05Profit and Loss Allocation

Why it matters: Without this, UPA defaults apply: equal split regardless of capital invested or work performed.

Template Language:

ALLOCATION: Partner 1: [XX]% | Partner 2: [XX]% DISTRIBUTIONS: Cash distributions made [quarterly] after maintaining adequate operational reserves. Partners may take draws of up to $[AMOUNT] per month without prior approval. TAX DISTRIBUTIONS: Sufficient cash distributed to cover each Partner's allocated income tax liability within 30 days of each tax payment date.
06Management Authority and Decision Tiers

Why it matters: Without this, every partner can bind the partnership to obligations. 34% of disputes stem from unclear authority.

Template Language:

AUTHORITY TIERS: Routine (any Partner may act): - Purchases under $[X,XXX] - Standard vendor payments and recurring contracts Majority Vote (>50% of profit interests): - Contracts $[X,XXX] to $[XX,XXX] - Hiring and terminating employees Unanimous Written Consent: - Contracts over $[XX,XXX] - Admission of new partners - Sale of Partnership assets - Incurring debt over $[XX,XXX] - Amendment of this Agreement - Dissolution
07Partner Compensation and Draws

Why it matters: Without this, UPA defaults may not permit Partner salaries. Disputes over compensation cause 31% of conflicts.

Template Language:

GUARANTEED PAYMENTS (per IRC Section 707(c)): Partner 1: $[AMOUNT] per month Partner 2: $[AMOUNT] per month These payments are deducted before calculating distributable profit. DRAWS: Partners may take draws against anticipated profit not exceeding $[AMOUNT] per [month/quarter]. Excess draws are Partnership loans at [prime rate + 1%].
08Banking and Financial Controls

Why it matters: Establishes financial controls and prevents unauthorized use of Partnership funds.

Template Language:

BANKING: All funds deposited in accounts in the Partnership name at [BANK NAME]. No personal funds commingled with Partnership funds. AUTHORIZATION: Partners may individually authorize transactions under $[X,XXX]. Transactions of $[X,XXX] or more require two Partner signatures. RECORDS: Books maintained using [cash/accrual] accounting. Each Partner may inspect and copy records upon reasonable notice. Records retained for a minimum of 7 years per IRS requirements.
09Partner Exit and Buyout Rights

Why it matters: The absence of a buyout clause is the single most common cause of partnership litigation. 44% of disputes involve exit terms.

Template Language:

VOLUNTARY EXIT: A Partner wishing to withdraw must provide [90/180] days written notice. Remaining Partners have the option to purchase the Withdrawing Partner interest at Fair Market Value. VALUATION METHOD: [Choose one] (a) Mutual agreement within 30 days of notice, or (b) Independent CPA appraisal, costs shared equally, or (c) [X]x trailing 12-month EBITDA PAYMENT: Buyout paid within [90] days or in [24] equal monthly installments at [prime rate] interest. Partnership has right of first refusal before any transfer to a third party (30-day window).
10Dissolution and Winding Up

Why it matters: Without this, any partner can dissolve the partnership at will under UPA Section 801.

Template Language:

DISSOLUTION EVENTS: The Partnership dissolves upon: (a) Unanimous written consent of all Partners (b) Death, disability, or bankruptcy of a Partner (unless remaining Partners elect to continue within [90] days) (c) Judicial dissolution for cause WINDING UP: (1) Complete pending obligations; (2) Collect receivables; (3) Liquidate assets; (4) Pay creditors in priority order; (5) Distribute remaining assets in proportion to capital account balances.
Important

6 Important Additions

These provisions address the most common causes of partnership disputes. Strongly recommended for any partnership expected to last more than one year.

11Death, Disability, and Incapacity
Upon death or Permanent Disability of a Partner, the remaining Partners have the option to purchase the interest within 180 days at Fair Market Value. "Permanent Disability" means inability to perform material duties for [6] consecutive months, certified by two independent physicians. INSURANCE: The Partnership shall maintain key person life/disability insurance on each Partner in an amount sufficient to fund the buyout.
12Non-Compete and Non-Solicitation
NON-COMPETE: During the term and for [24] months after departure, a Partner shall not engage in a Competing Business within [GEOGRAPHIC AREA]. NON-SOLICITATION: For [24] months after departure: (a) No solicitation of Partnership clients (b) No hiring or solicitation of Partnership employees NOTE: California, Minnesota, North Dakota, and Oklahoma prohibit non-competes. Obtain legal counsel if enforceability is critical.
13Intellectual Property Ownership
IP ASSIGNMENT: All inventions, software, creative works, and trade secrets created by any Partner in connection with Partnership business shall be owned exclusively by the Partnership. PRE-EXISTING IP: IP existing before this Agreement remains the creating Partner property unless contributed as capital (document in Exhibit A with agreed fair market value).
14New Partner Admission
New partner admission requires unanimous written consent. The new partner shall: (a) execute a counterpart of this Agreement; (b) make a capital contribution agreed by all Partners; (c) accept dilution of existing interests documented in updated Exhibit A. New admission does not constitute dissolution.
15Dispute Resolution (3-Step Escalation)
Step 1 - NEGOTIATION: Partners attempt resolution in good faith within 30 days of written notice identifying the dispute. Step 2 - MEDIATION: Non-binding mediation with agreed neutral, costs shared equally, within 60 days of negotiation failure. Step 3 - ARBITRATION: Binding arbitration under AAA Commercial Rules. One arbitrator. Seat: [CITY, STATE]. Award is final and may be entered as judgment in any court.
16Governing Law and Severability
GOVERNING LAW: This Agreement is governed by the laws of [STATE], without regard to conflict of law principles. SEVERABILITY: If any provision is unenforceable, the remainder continues in full force. The unenforceable provision shall be modified to the minimum extent necessary to make it enforceable. ENTIRE AGREEMENT: This Agreement supersedes all prior agreements. No oral modification is effective. Amendments require unanimous written consent.
Optional

Additional Provisions

Situation-specific provisions - include those relevant to your business type.

17Deadlock resolution (required for 50/50 splits)18Equity vesting schedules (tech startups)19Capital call provisions20Silent partner provisions21Liquor license and regulatory compliance22Distribution waterfall (real estate LPs)23Partner compensation models (LLPs)24Multi-unit expansion rights25Retirement and succession planning261031 exchange provisions27Sweat equity valuation (co-founders)28Anti-dilution protections29Insurance requirements30Force majeure and business continuity

Frequently Asked Questions

What is the most important clause in a partnership agreement?

The buyout and exit clause is arguably the most important because it governs what happens when the partnership ends - which it eventually will. Without a specified valuation method, partners face costly litigation. The profit distribution clause is a close second because disputes over money are the most common cause of partnership breakdown.

How do you split profits in a partnership agreement?

Profits can be split proportional to capital contributions, based on negotiated percentages, or based on hours worked. The most common approach is a fixed percentage split agreed at formation. Any split is valid as long as all partners agree and it is clearly documented. Avoid 50/50 splits without a deadlock resolution mechanism.

Does a partnership agreement need to be notarized?

Notarization is not legally required in most states. The agreement is valid when all partners sign it. However, notarization prevents later claims that a signature was forged. For high-value partnerships or those involving real property, notarization is recommended.

What is a partnership agreement non-compete clause?

A non-compete restricts partners from competing with the partnership during their tenure and for a specified period after departure (typically 12 to 24 months). It must be reasonable in geographic scope and duration to be enforceable. California, North Dakota, Oklahoma, and Minnesota largely prohibit non-competes.

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