Starting a business with someone else without a partnership agreement is like getting married without discussing finances — it might work out, but if it doesn't, things get ugly fast. A partnership agreement sets the ground rules before disagreements arise, and it's dramatically cheaper than resolving disputes after the fact.
If you don't have a written partnership agreement, your state's default partnership laws apply — and they might not match what you and your partner intended. In most states, profits are split 50/50 regardless of who invested more money or does more work.
Spell out who's responsible for what: management duties, financial contributions, time commitments, and decision-making authority. Partners who 'just figured it out as they went' are the ones most likely to end up in bitter disputes.
How and when are profits distributed? Can partners take a salary? What happens if the business needs to reinvest profits instead of distributing them? These are the questions that destroy partnerships when they're not answered upfront.
Two equal partners who disagree on a major decision have no tiebreaker without an agreement. Include a dispute resolution process — whether it's mediation, bringing in an outside advisor, or a buyout provision.
Partners leave, retire, get sick, or die. Your agreement should cover how a departing partner's share is valued and bought out, non-compete restrictions, and what happens to the business. This is the most important section you'll hope you never need.
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