What to check first
A partnership agreement should answer what each person contributes, controls, receives, and can do alone.
- Ownership percentages, capital contributions, loans, salaries, draws, and profit distributions.
- Voting rights, reserved decisions, manager authority, spending limits, and signing authority.
- Duties, time commitments, conflicts, confidentiality, non-solicit, and IP ownership.
- Deadlock process, dispute resolution, removal, buy-sell rights, and valuation.
- Liability, indemnity, guarantees, tax allocations, dissolution, and exit obligations.
Common partnership red flags
The biggest problems often appear when partners disagree or one person leaves.
- Any partner can bind the business without spending or contract limits.
- No deadlock process for 50/50 ownership or unanimous decisions.
- No buyout formula or unclear valuation method.
- Departing partners remain liable without a release plan.
- IP or customer ownership is vague.
Before you sign
Discuss uncomfortable scenarios while everyone is still aligned.
- Decide what happens if a partner stops contributing.
- Define which decisions need unanimous approval.
- Create an exit and buyout process before it is needed.
Partnership agreement FAQ
What is authority to bind a partnership?
It means a partner can make commitments, sign contracts, or incur expenses that obligate the partnership.
What is a deadlock clause?
A deadlock clause explains how partners resolve tied or blocked decisions, such as mediation, buy-sell triggers, or a tie-breaker.
Why does a buyout formula matter?
A clear formula can reduce fights about price when a partner leaves, dies, is removed, or wants to sell.
Can a partner be liable after leaving?
Possibly, especially for obligations incurred before departure or guarantees not released. The agreement should address this.
Should a JV agreement cover IP?
Yes. It should say who owns existing IP, new IP, improvements, data, customer lists, and work created during the venture.