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A Partnership Agreement is a contract between two or more individuals, corporations, trusts, or partnerships (the partners) that join together to carry on a trade or business. Each partner contributes money, labour, property, or skills to the partnership. In return, each partner is entitled to a share of the profits or losses of the business. The business profits (or losses) are usually divided among the partners based on the partnership agreement.
Partnerships can be created by contracts, such as this Partnership Agreement. But even where no formal contract exists, the courts may find a partnership based on the characteristics of the relationship between the parties. When no partnership contract is in writing and the partnership breaks down, the courts will decide the terms of the partnership which may not be what the parties intended. Using this document ensures that the terms of the partnership agreement are what the partners intend them to be.
This Partnership Agreement describes the Partner responsibilities, outlines the ownership interest in the Partnership, defines the profit and loss distribution of each Partner, prepares the Partnership for common business scenarios, and includes other important rules about how the Partnership will be managed and conduct business.
The document is a critical foundational document for running a new business and serves to set the business up for success by ensuring clear communication and defined responsibilities for all of the Partners. This Agreement documents both contingency plans for when things go wrong as well as descriptions of the Partnership's day-to-day operations. A Partnership Agreement may be used to protect all of the Partners involved in the business and it is preferable for any individuals who plan to do business together to complete one.
How to use this document
A Partnership Agreement can be created either as a first step to outline Partner expectations and responsibilities before the Partners begin doing business together or after the Partnership has already been in business if a Partnership Agreement was never created and the Partners wish to codify or clarify how the Partnership operates. No matter when in the life of a Partnership a Partnership Agreement is created, the Agreement will cover the following grounds:
The Agreement also includes the possibility to define management roles within the corporation if the Partners wish to do so. Once the Partnership Agreement is completed, all of the Partners should sign and date the Agreement and keep copies of the Agreement for their records. If the Partners wish to change any of the terms of the Agreement, they should be sure to do so in writing.
Partnerships are subject to provincial and territorial laws on partnerships.
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