Partnership Agreement Template

In 2026, you usually shouldn't. A general partnership exposes every partner to unlimited personal liability for the acts of every other partner under the Revised Uniform Partnership Act (RUPA). An LLC taxed as a partnership delivers the same flow-through tax treatment with liability protection and a more flexible operating-agreement framework. The narrow reasons to use a true partnership: (i) licensed professional services in states that restrict LLC use (medicine in some states; law in California — use a PC or LLP instead); (ii) certain regulated industries; (iii) joint ventures between operating companies where the parties want explicit clarity that neither is the agent of the other (usually structured as a contractual JV, not a true partnership). For every other new venture, default to the LLC operating agreement template.

A general partnership (GP) is the default — all partners share management and unlimited personal liability for partnership debts and the acts of other partners. A limited partnership (LP) has at least one general partner (unlimited liability, management control) and limited partners (liability capped at their investment, no day-to-day management role). A limited liability partnership (LLP) is a state-statutory hybrid that shields partners from vicarious liability for the malpractice or torts of other partners — used primarily by law firms and accounting firms. An LLP partner remains personally liable for their own malpractice. State LLP statutes vary; California restricts LLPs to licensed professionals, Texas permits LLPs in any business, and most states require partnership-level insurance minimums ($1M-$5M).

Partners may allocate profits and losses however they agree, subject to Treas. Reg. §1.704-1(b) substantial-economic-effect rules. The allocation does not have to match ownership percentages — a 50/50 partnership can allocate 70% of profits to the working partner and 30% to the investor partner, provided the allocation has economic substance (the partner allocated the loss must actually bear it through capital-account mechanics and a deficit-restoration obligation, or the safe-harbor alternate test for economic effect). For most operating partnerships, allocations follow ownership; for partnerships with disparate contributions (cash vs. sweat equity), a "waterfall" allocation with preferred returns and catchups is common. §704(b) and §704(c) compliance is technical — engage a tax adviser before drafting anything non-pro-rata.

Whatever the agreement says. Without an agreement, RUPA defaults apply — majority-in-interest controls ordinary decisions and unanimous consent is required for fundamental changes (admission of partners, sale of substantially all assets, dissolution, amendment of agreement). A well-drafted agreement should include a specific deadlock-breaking mechanism: (i) escalation to a neutral mediator (toothless on its own); (ii) buy-sell (Russian roulette — one partner names a price; the other can buy or sell at that price); (iii) Texas shootout (sealed-bid auction between deadlocked partners); or (iv) third-party appraisal followed by mandatory buyout. Without one of these, a deadlocked partnership often forces dissolution under RUPA §801(5)(iii), which typically destroys enterprise value.

A buy-sell provision specifies the events that trigger a partner's interest being bought out (death, disability, voluntary withdrawal, divorce, bankruptcy, material breach) and the methodology for pricing. Common valuation methods: (i) book value (cheap, often unfair); (ii) formula-based (e.g., 4x trailing 12-month EBITDA); (iii) appraised value (most accurate, most expensive); (iv) most-recent agreed-upon value, updated annually. Funding the buyout is critical: permanent life insurance on each partner (owned by the partnership or cross-purchased between partners) funds the death trigger immediately; disability buy-sell insurance funds disability triggers; an installment note over 3-5 years funds voluntary withdrawal. Without funding, the surviving partners get stuck owning the partnership with the deceased partner's spouse.

Yes. Partnerships file IRS Form 1065 (informational return) and issue Schedule K-1s to each partner, who reports their distributive share on their personal return. The partnership itself pays no federal income tax (flow-through). The Bipartisan Budget Act of 2015 (BBA) introduced a centralized partnership audit regime under IRC §§6221-6241 — the partnership itself is now liable for federal income tax adjustments unless it elects out (only available for partnerships with ≤100 eligible partners, election made annually on Form 1065). Designate a "Partnership Representative" (the "Tax Matters Partner" terminology was repealed) in the agreement, limit the PR's settlement authority for material adjustments, and provide for indemnification by current and former partners for audit adjustments allocated to the period they were a partner.

Yes, but with significant tax consequences if structured as a capital interest. Under Diamond v. Commissioner and IRS Rev. Proc. 93-27, the receipt of a capital interest in a partnership in exchange for services is immediately taxable as ordinary income at the value of the interest received. The alternative — a profits interest — is generally non-taxable on receipt if it complies with Rev. Proc. 93-27 (no substantially certain stream of income; not disposed of within two years; not in a publicly traded partnership) and the partner files a §83(b) election within 30 days. For nearly every "sweat equity" arrangement, structure as a profits interest, not a capital interest.