Starting a business partnership can be an exciting development for your organization. But without a structured plan outlining the key elements of the partnership, both organizations face serious complications and risk. Further, a lack of clarity over their roles can potentially lead to regulatory problems in the future.
Any legal entity would be wise to avoid these problems by drafting a partnership agreement. Moreover, a well-defined agreement helps set expectations for executive leadership and provides a clear roadmap for managing changes and resolving conflicts.
Board members must understand how partnership agreements work and exercise due diligence. A lack of transparency may become the foundation of disputes in the future.
What is a Partnership Agreement?
A partnership agreement is a legally binding document that outlines the key terms and conditions that govern a business partnership between two or more parties.
Like a contractor agreement, its purpose is to define each partner’s rights and responsibilities, including their obligations, roles, and how profits are shared between parties.
The partnership agreement covers essential aspects of the partnership, including the purpose of the partnership; duration of the partnership; capital contributions of each partner; division of profits and losses, and more. It can also address issues such as the ownership and transfer of partnership interests, dispute resolution strategies, and arrangements for the dissolution and termination of the strategic partnership.
The board of directors’ role in the writing of a partnership agreement will differ greatly among organizations. Typically, these roles and responsibilities are outlined within the operating agreement. The board could be directly responsible for overseeing the drafting process, protecting the interests of partners, and ensuring the agreement is compliant with relevant laws and regulations.
Keep that work inside your governance record, not a public chatbot.
Elements of an Effective Partnership Agreement
Board members who draft partnership agreements must make sure all key elements are present. In this table, you’ll find all the basic elements of a comprehensive agreement and the parties responsible for each of them.
Process Step | Details to Define | Responsibility |
Define Objectives | Agree on joint goals, success measures, and value props. | Senior leadership, strategy leaders |
Map Roles and Scope | Document roles, responsibilities, deliverables, and boundaries. | Project managers, legal advisors |
Set Financial Terms | Establish revenue-sharing, cost allocation, invoicing, and review process. | Finance teams, legal advisors |
Governance Setup | Create a steering committee, set meeting cadence, and escalation paths. | Partnership managers, executives |
Compliance and Risk Check | Confirm regulatory, ethical, and risk-management requirements. | Legal, compliance officers |
Performance Tracking | Define KPIs, reporting schedule, and review mechanisms. | Partnership managers, data analysts |
Communication Protocol | Set methods for regular updates, issue reporting, and documentation. | Partnership managers, communication leads |
Dispute Handling | Establish an early escalation process, mediation path, and decision authority. | Governance committee, legal counsel |
Amendments Process | Define how adjustments to scope, terms, or deliverables are proposed/approved. | Governance committee, legal advisors |
Exit and Transition | Define steps for winding down, handling assets/IP, and ensuring continuity. | Senior leadership, legal advisors |
How to Use This Table:
- Kickoff Stage → Use the first three rows (objectives, roles, financial terms) to align before drafting the partnership agreement.
- Ongoing Operations → Governance, compliance, performance, and communications rows act as the “living framework.”
- Risk Management → Dispute handling, amendments, and exit steps ensure long-term resilience
Types of Partnership Agreements
Different types of partnership agreements require different drafting approaches. However, the basic terms are usually the same. Depending on the organization’s need, the board will decide between these types of agreements:
General Partnership (GP)
This is the most straightforward form of a partnership. According to the agreement, two or more parties share equal rights, responsibilities, and liability.
The main benefit of the general partnership is bringing together resources and expertise. However, both general partners carry full responsibility for the partnership’s debts and each other’s actions.
GP is easy to set up. Its simplicity makes this partnership highly common.
Limited Partnership (LP)
In an LP, at least one General Partner manages the business and bears full liability, while one or more Limited Partners invest capital but stay out of day-to-day operations. The limited partners’ liability stays capped at their investment.
This structure is ideal for short-term projects or investments. However, it requires formal registration and compliance.
The lack of liability makes this an attractive option for limited partners. However, since partners have different responsibilities, drafting an agreement is highly complex and often costly.
Limited Liability Partnership (LLP)
An LLP can be one of the most flexible options for business partners. It works similarly to a limited liability company. All partners enjoy limited personal liability (even against the negligence or misconduct of other partners) while retaining management rights. This type of partnership often works for personal practices like law firms or accounting groups.
While limited liability is a major advantage, LLP operations demand strict adherence to regulatory standards. Administrative complexity is one of the main downsides of such a partnership.
Joint Venture (JV)
This is a partnership for a specific goal or project. Two or more parties pool their assets to enter new markets or launch a product.
Often, the JV is structured as a separate legal entity. Once the project’s done, the JV typically dissolves. The agreement for such a partnership must define:
- Scope of the project
- Funding
- Responsibilities
- Profit share
- Duration
- Exit terms
While highly flexible, JVs carry several risks. The key challenge is the potential for disputes between partners. These may drive disagreements over key management decisions.
Strategic Alliance
A strategic alliance is a flexible, contractual relationship. Partners work together to achieve shared goals that they may not be able to achieve independently. For example, they may share certain technologies.
Such alliances help organizations meet their objectives faster without going through something more complex, like a merger. The main challenge of this partnership is shared control that may lead to disputes.
How to Write a Partnership Agreement
Board members need to invest a significant amount of effort into writing a partnership agreement, as each element can have a significant impact on the partnership in the future.
Define Partnership Structure
The first step is to identify the type of partnership. At this point, the board must understand which type of partnership works best, depending on the project and goals
The structure determines many elements, including:
- Liability
- Management authority
- Profit sharing
The complexity of the structure also defines the costs of drafting an agreement and maintaining regulatory compliance.
Outline Capital Contributions and Ownership
The agreement must state exactly what each partner contributes to the partnership. Contributions may include:
- Cash
- Property
- Intellectual property
- Professional expertise
These inputs often determine ownership percentages, which in turn influence voting power and profit allocations. For example, if one partner contributes more capital but another contributes specialized knowledge, the agreement should balance these contributions fairly.
Detail Profit, Loss, and Distribution Arrangements
Financial clarity is the most important part of the agreement, especially for preventing disputes. The agreement should state:
- How profits and losses are divided
- When distributions are made
- Whether earnings will be reinvested into the partnership
For example, partners might agree to distribute profits quarterly or retain earnings until they reach a specific milestone.
Set Decision-Making and Management Protocols
The agreement should specify who makes decisions, how voting works, and how disagreements are resolved.
Some organizations grant equal voting rights, while others tie voting power to ownership percentages. To avoid deadlocks, the agreement may establish tie-breaking procedures and arbitration. Some may outline the use of committees for dealing with sensitive issues.
Plan for Changes and Contingencies
No partnership stays the same forever. Partners may retire, sell their shares, or bring in new investors. The agreement should outline procedures for:
- Admitting new partners
- Handling partner withdrawals or deaths
- Addressing mergers, acquisitions, or dissolution
Such planning reduces risk while reassuring stakeholders the organization is prepared for unexpected developments.
Include Legal Provisions and Finalize the Agreement
A strong agreement must include legal protections. These range from identifying the governing jurisdiction to outlining dispute resolution processes. Similar to articles of incorporation, this document should also address:
- Confidentiality
- Non-compete clauses
- Compliance with industry regulations.
Once you draft these provisions, legal counsel should review the document to ensure enforceability. Signing and dating the final agreement formalizes the partnership and provides all parties with legal protection.
Partnership Agreement Template
Board administrators can leverage this partnership agreement template and customize it for their specific needs.
This Partnership Agreement (“Agreement”) is made and entered into on [Date], by and between:
- [Partner 1 Name / Company] (“Partner 1”), with a principal place of business at [Address]
- [Partner 2 Name / Company] (“Partner 2”), with a principal place of business at [Address]
(Each a “Partner” and collectively the “Partners.”)
- Purpose
The partners agree to enter into this Agreement to [state purpose – e.g., collaborate on marketing, share resources, co-develop a product].
- Term
This Agreement will begin on [Start Date] and continue until [End Date / terminated by either party with X days’ written notice].
- Roles and Responsibilities
- Partner 1: [List contributions, deliverables, responsibilities].
- Partner 2: [List contributions, deliverables, responsibilities].
- Joint Responsibilities [e.g. periodic reporting, joint decision-making].
- Financial Arrangements
- Revenue Sharing: Profits/losses will be divided as follows: [percentage split].
- Expenses: Each Partner will be responsible for [specific allocation].
- Payments: Payments will be made [monthly/quarterly] within [X] days of invoicing
- Intellectual Property
- Each Partner keeps ownership of anything they created before this Agreement.
- Any materials, products, or content created together will be jointly owned, unless the Partners agree otherwise in writing.
- Partners may use each other’s names, logos, or other intellectual property only for the purposes of this partnership, and only with prior approval.
- Confidentiality
- Partners agree to keep any non-public information shared during this partnership private.
- This obligation continues for [X years] after the Agreement ends.
- Governance & Decision-Making
- The Partners will make key decisions [together/by majority vote].
- Regular check-in meetings will be held [monthly/quarterly] to review progress and financial matters.
- Each Partner will keep clear records of their contributions and share them if requested.
- Dispute Resolution
- The Partners will first try to resolve disagreements through open discussion.
- If that fails, they will seek help from a mediator agreed upon by both sides.
- If mediation does not resolve the issue, the matter will be decided by [arbitration/court] in [location].
- Termination
- Any Partner can end this Agreement with [X days’] written notice.
- Any Partner can also end it immediately if another Partner breaks the Agreement and does not fix the issue within [30] days.
- After termination, any outstanding payments must still be made, and confidentiality obligations will continue.
Streamline Board Management and Decision-Making
Drafting a successful partnership requires a significant investment of time and effort on behalf of the board. Everyone involved in the process demands a full understanding of the organization’s needs related to the upcoming partnership. This calls for close collaboration and clear insights for decision-making.
That’s where OnBoard steps in.
The board management platform centralizes critical information related to board decision-making and provides AI-driven insights. It becomes an irreplaceable assistant at board meetings and maximizes collaboration efficiency.
OnBoard’s key board management software features that can help with drafting a partnership agreement include:
- Agenda Builder: Set clear discussion points for governance, finances, and other agreement terms.
- Book Builder: Distribute organized meeting materials to keep partners aligned.
- Minutes AI: Capture accurate records of decisions during drafting sessions.
- Voting: Collect formal approvals quickly through secure digital votes.
- eSignatures: Finalize agreements without delays or paperwork.
- Task Management: Assign follow-up actions and monitor progress to completion.
Ready to see how OnBoard can transform governance for your organization? Contact us to start a trial today.
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About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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