Business Partnership Agreement (US)
General business partnership agreement for US jurisdictions with comprehensive governance and tax provisions
BUSINESS PARTNERSHIP AGREEMENT
This Business Partnership Agreement (this "Agreement") is made and entered into on [effective date] (the "Effective Date") by and among:
(a) [legal name of partner 1], an individual residing at [address of partner 1];
(b) [legal name of partner 2], an individual residing at [address of partner 2]; and
(c) any additional persons admitted as partners and listed in Exhibit A (Key Commercial Terms),
each individually a "Partner" and collectively the "Partners".
RECITALS
WHEREAS, the Partners wish to associate as co-owners to carry on the business described in Section 3 for profit, and to govern that association by a written agreement;
WHEREAS, the Partners intend to form a general partnership under the laws of [governing law state] and to be classified as a partnership for US federal income tax purposes under Subchapter K of the Internal Revenue Code; and
WHEREAS, the Partners wish to set out their respective contributions, ownership interests, profit shares, management rights, and obligations in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Partners agree as follows:
1. DEFINITIONS
1.1 In this Agreement, the following capitalized terms have the meanings set forth below. Other capitalized terms are defined where they first appear.
(a) "Affiliate" means, with respect to any person, any other person that directly or indirectly controls, is controlled by, or is under common control with that person.
(b) "Capital Account" means the capital account maintained for each Partner in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv).
(c) "Confidential Information" has the meaning given in Section 9.1.
(d) "Governing Law State" means [governing law state], as identified in Exhibit A.
(e) "Major Decision" has the meaning given in Section 7.3.
(f) "Partnership" means the general partnership formed under this Agreement and operating under the name [partnership name].
(g) "Partnership Interest" means a Partner's entire economic and management interest in the Partnership, including its share of profits, losses, capital, and voting rights.
(h) "Work Product" has the meaning given in Section 10.1.
2. FORMATION, NAME, TERM, AND PLACE OF BUSINESS
2.1 Formation. The Partners form a general partnership under the laws of the Governing Law State, effective as of the Effective Date. The Partnership is intended to be a partnership for all purposes, including for US federal and state income tax purposes.
2.2 Name. The Partnership will operate under the name [partnership name], or any other name the Partners agree in writing.
2.3 Principal Place of Business. The Partnership's principal place of business is [principal address of the partnership], or another address the Partners agree in writing.
2.4 Term. The Partnership begins on the Effective Date and continues until terminated under Section 13.
2.5 Filings. The Partners will execute and file all documents required to operate the Partnership in the Governing Law State, including any required certificate of partnership, statement of partnership authority, fictitious business name (DBA) registration, and tax registrations.
Note: A general partnership exists when two or more people associate to carry on a business for profit, even without a written agreement. Most states have adopted the Revised Uniform Partnership Act (RUPA), which fills in default rules where this Agreement is silent. Filing a statement of partnership authority is optional in most states but can help limit a Partner's apparent authority to bind the Partnership to third parties (RUPA Section 303). Louisiana follows its own civil-law partnership rules and is not a RUPA state — if Louisiana law governs, you may want to take state-specific advice before signing.
3. PURPOSE AND AUTHORITY
3.1 Business Purpose. The purpose of the Partnership is [description of partnership business purpose], together with all activities reasonably related or incidental to that purpose.
3.2 Authority of Partners. Each Partner is an agent of the Partnership for the purpose of its business. A Partner may bind the Partnership by an act apparently for the carrying on of the Partnership business in the ordinary course, except where the Partner has no actual authority and the third party knew or had received notification of that lack of authority.
3.3 Acts Outside Authority. No Partner may take any action that is a Major Decision, or any action outside the ordinary course of the Partnership's business, without the approval required by Section 7. Any act taken in breach of this Section 3.3 is the sole responsibility of the acting Partner, and that Partner will indemnify the other Partners and the Partnership against losses arising from it.
4. CAPITAL CONTRIBUTIONS, OWNERSHIP, AND PROFIT SHARES
4.1 Initial Contributions. Each Partner will contribute the cash, property, services, or other value listed for that Partner in Exhibit A (the "Initial Contributions"). Initial Contributions must be made by [initial contribution deadline].
4.2 No Obligation to Contribute More. No Partner is obligated to make additional contributions unless all Partners agree in writing.
4.3 Ownership and Profit Shares. The Partners' ownership interests, profit shares, and loss shares are set out in Exhibit A. Unless Exhibit A states otherwise, profits and losses are allocated in proportion to ownership interests.
4.4 Valuation of Non-Cash Contributions. If a Partner contributes property, services, or other non-cash value, the Partners must agree in writing on its fair market value at the time of contribution and on whether the Partnership owns the contributed item outright or holds it under a license.
4.5 Capital Accounts. The Partnership will maintain a Capital Account for each Partner in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv). Capital Accounts will be increased by additional contributions and allocated profits, and decreased by distributions, draws, and allocated losses.
4.6 No Interest on Contributions. No Partner is entitled to interest on, or the return of, any contribution except as expressly provided in this Agreement.
Note: Capital Accounts are how the Partnership tracks who has put what in and taken what out. Most US partnerships maintain Capital Accounts under Treasury Regulations Section 1.704-1(b) so that allocations of profit and loss have substantial economic effect for tax purposes. Talk to a tax adviser before agreeing on special allocations or non-pro-rata profit shares — the rules are technical, and getting them wrong can cause the IRS to reallocate income.
Note: Commercial benchmark — initial contributions: For founder-led service partnerships, initial cash is often modest ($1,000 to $25,000 per Partner) plus contributed services or IP. For asset-heavy partnerships (real estate, equipment-based businesses), contributions track ownership shares closely. Recording values clearly avoids disputes on dissolution.
5. BANK ACCOUNT, BOOKS, TAX FILINGS, AND PARTNERSHIP REPRESENTATIVE
5.1 Bank Account. The Partnership will maintain one or more bank accounts in the Partnership's name. Partnership funds must not be commingled with the personal funds of any Partner.
5.2 Books and Records. The Partnership will keep accurate records of income, expenses, assets, liabilities, Capital Accounts, and Partner activity at its principal place of business. Records will be kept for at least [records retention period (e.g., 7 years)].
5.3 Inspection Rights. Each Partner may inspect and copy the Partnership's books and records on reasonable notice and during normal business hours, at the Partner's own expense.
5.4 Tax Classification. The Partnership is intended to be classified as a partnership for US federal income tax purposes under Subchapter K of the Internal Revenue Code (Sections 701 et seq.) and not as an association taxable as a corporation. The Partnership will file IRS Form 1065 and issue Schedule K-1 (and, where required, Schedule K-3) to each Partner.
5.5 Partnership Representative. The Partners designate [name of partnership representative] as the Partnership Representative under Internal Revenue Code Section 6223 for purposes of the centralized partnership audit regime added by the Bipartisan Budget Act of 2015. The Partnership Representative is authorized to act on behalf of the Partnership in any IRS examination, including making the push-out election under Section 6226. The Partnership Representative will keep the Partners reasonably informed of any audit and will not settle any audit without the approval required for a Major Decision.
5.6 Tax Returns and Information. The Partnership will deliver each Partner's Schedule K-1 (and any Schedule K-3) by [annual k-1 delivery deadline (e.g., march 15)] each year, or as soon as reasonably practicable thereafter, and will provide such other tax information as Partners reasonably need for their personal returns.
Note: A general partnership is a pass-through entity: the Partnership itself does not pay federal income tax. Instead, profits and losses flow through to each Partner's individual return on the basis of the Schedule K-1 they receive. Partners pay self-employment tax (SECA) on their distributive share of trade or business income (Internal Revenue Code Section 1402), and typically need to make quarterly estimated tax payments. Plan for tax distributions in Section 6 so Partners are not stuck owing tax on income they have not actually received.
Note: The Partnership Representative is a single person (or entity with a designated individual) who speaks for the Partnership in any IRS audit under the centralized regime. The Partnership Representative has broad authority — Partners are bound by what the Partnership Representative agrees to in an audit — so it is worth picking carefully and limiting their authority in this Agreement (e.g., requiring Partner approval to settle).
6. COMPENSATION, DRAWS, AND DISTRIBUTIONS
6.1 No Salary; Distributions in Lieu. Unless Exhibit A provides otherwise (for example, a guaranteed payment under Internal Revenue Code Section 707(c)), Partners are not employees of the Partnership and are not entitled to a salary. Partners receive draws and distributions in accordance with this Section 6.
6.2 Draws. Subject to available cash and reasonable reserves, the Partnership may permit periodic draws as set out in Exhibit A. Draws reduce the receiving Partner's Capital Account.
6.3 Distributions. Distributions (other than tax distributions under Section 6.4) will be made [distribution frequency (e.g., monthly / quarterly / annually)], after reserving reasonable amounts for: (a) taxes; (b) operating expenses; (c) anticipated capital expenditures; and (d) contingent liabilities. Distributions are allocated in proportion to the profit shares set out in Exhibit A unless the Partners agree otherwise in writing.
6.4 Tax Distributions. To the extent the Partnership has available cash and consistent with prudent reserves, the Partnership will distribute to each Partner, on a quarterly basis, an amount sufficient to fund estimated US federal, state, and local income tax (and self-employment tax) on that Partner's allocated share of taxable income, calculated using the highest combined marginal rate reasonably applicable to any Partner. Tax distributions are advances against, and reduce, future distributions under Section 6.3.
6.5 Distributions on Liquidation. On dissolution, distributions will be made in accordance with Section 13.6.
Note: Tax distributions matter because Partners are taxed on their share of Partnership income whether or not it is actually distributed ("phantom income"). Without a tax distribution provision, a Partner may receive a Schedule K-1 showing significant taxable income but no cash to pay the tax. The cleanest approach is to commit to quarterly tax distributions sized to cover the tax bill at a reasonable assumed rate.
7. MANAGEMENT, VOTING, AND MAJOR DECISIONS
7.1 Day-to-Day Management. Day-to-day management of the Partnership business will be conducted as follows. Use Option A, Option B, or Option C.
Note: Use Option A if any Partner can run the day-to-day business within agreed limits. Use Option B if you want one Partner (the Managing Partner) to handle daily operations. Use Option C if every operational decision needs all Partners to agree — this is the safest but the slowest, and works best for very small partnerships.
Option A (Any Partner within budget): Each Partner may take ordinary-course actions on behalf of the Partnership within the budget approved by the Partners and within the spending limit set out in Exhibit A. Actions outside that budget or limit require approval under Section 7.2.
Option B (Managing Partner): The Managing Partner identified in Exhibit A is responsible for day-to-day management within the budget and limits set out in Exhibit A. The Managing Partner will provide a written operations report to the other Partners [reporting frequency (e.g., monthly)].
Option C (Unanimous management): All operational decisions of the Partnership require the unanimous agreement of the Partners.
7.2 Voting Standard. Except where this Agreement requires unanimous or supermajority approval, decisions of the Partners require approval of Partners holding at least [ordinary decision approval threshold % (e.g., 51%)] of the aggregate ownership interests.
7.3 Major Decisions. Each of the following actions is a "Major Decision" and requires the approval of Partners holding at least [major decision approval threshold % (e.g., 75% or unanimous)] of the aggregate ownership interests:
(a) borrowing money or guaranteeing a debt of any person in an amount over [borrowing approval threshold (usd)];
(b) admitting a new Partner or transferring any Partnership Interest;
(c) changing the profit shares, ownership interests, or Capital Account allocation methodology;
(d) selling, licensing, leasing, or otherwise transferring any material part of the Partnership's assets outside the ordinary course;
(e) entering into a contract with a value above [contract value approval threshold (usd)] or a duration longer than [contract duration approval threshold];
(f) starting or settling any litigation or arbitration involving an amount in controversy above [litigation approval threshold (usd)];
(g) any merger, conversion, incorporation, recapitalization, or sale of all or substantially all of the Partnership's assets;
(h) amending this Agreement;
(i) dissolving the Partnership (subject to Section 13);
(j) approving the annual budget or any material variance from the approved budget; and
(k) any related-party transaction described in Section 8.3.
7.4 Meetings and Written Consent. Partner decisions may be made at a meeting (in person, by phone, or by video) or by written consent (including email) signed or confirmed by the required percentage of Partners. Meetings require at least [meeting notice period (e.g., 5 business days)] advance notice unless waived.
7.5 Deadlock. If the Partners cannot reach the required approval on a Major Decision after good-faith discussion for [deadlock discussion period (e.g., 30 days)], any Partner may invoke the dispute resolution procedure in Section 14 or, in the case of irreconcilable deadlock, propose a buy-sell offer in accordance with Exhibit A.
Note: Setting voting thresholds is one of the most important decisions in a partnership. Equal partners (50/50) often default to unanimous on Major Decisions, which can cause deadlock. A common compromise is a tie-break mechanism (rotating chair, neutral mediator, or a buy-sell shotgun clause). Think about whether your governance can survive a serious disagreement before signing.
8. DUTIES, TIME COMMITMENT, CONFLICTS, AND EXPENSES
8.1 Time and Effort. Each Partner will devote the time and effort to the Partnership described for that Partner in Exhibit A. If Exhibit A is silent, each Partner will devote commercially reasonable time and effort consistent with the Partner's role and ownership interest.
8.2 Duties of Loyalty and Care. Each Partner owes the Partnership and the other Partners the duties of loyalty and care provided by the partnership statute of the Governing Law State (typically Sections 404 and 405 of the Revised Uniform Partnership Act). The duty of loyalty includes accounting to the Partnership for any property, profit, or benefit derived by the Partner from a use of Partnership property or from the conduct or winding up of the Partnership business, and refraining from competing with the Partnership in the conduct of its business before dissolution.
8.3 Conflicts and Related-Party Transactions. A Partner must disclose in writing any actual or potential conflict of interest or any proposed transaction between the Partnership and the Partner (or an Affiliate or family member of the Partner) before the Partnership enters into the transaction. The Partnership may proceed with the transaction only if it is approved as a Major Decision under Section 7.3, with the conflicted Partner abstaining.
8.4 Outside Activities. Subject to Section 8.2 and Sections 11 and 12, a Partner may engage in outside business activities that are not competitive with the Partnership, provided they do not interfere with the Partner's obligations under this Agreement and have been disclosed in writing to the other Partners.
8.5 Expenses. Reasonable, documented business expenses incurred on behalf of the Partnership will be reimbursed if approved in accordance with [expense approval process] and supported by receipts.
Note: Most state partnership statutes (based on RUPA) impose default duties of loyalty and care on Partners. The duty of loyalty is generally narrowed by statute and cannot be eliminated entirely, but it can be tightened or relaxed (within limits) by agreement. Be cautious about waiving conflicts in advance — many states require disclosure and informed consent for each specific conflict.
9. CONFIDENTIALITY AND DTSA IMMUNITY NOTICE
9.1 Confidential Information. "Confidential Information" means any non-public information of the Partnership or any of its customers, suppliers, or counterparties, in any form (written, oral, electronic, or visual), including: business plans, strategies, financials, pricing, customer and supplier lists, software, source code, know-how, methods, designs, and information disclosed under an obligation of confidence, but excluding information that: (a) is or becomes publicly available through no breach of this Agreement; (b) was known to the receiving Partner without confidentiality obligation before disclosure by the Partnership; (c) is independently developed without use of Partnership Confidential Information; or (d) is rightfully received from a third party without breach of any duty.
9.2 Obligations. Each Partner will: (a) use Confidential Information solely for the benefit of the Partnership; (b) not disclose Confidential Information to any third party except as expressly permitted; (c) protect Confidential Information using at least the same degree of care that the Partner uses for its own confidential information of similar sensitivity, and not less than reasonable care; and (d) limit access to Confidential Information to those of its representatives who need access for the Partnership's business and who are bound by equivalent obligations of confidentiality.
9.3 Permitted Disclosures. A Partner may disclose Confidential Information: (a) to its professional advisers (lawyers, accountants, tax advisers) who are bound by professional duties of confidentiality; (b) as required by applicable law or by a court or regulator of competent jurisdiction, in which case the Partner will, where permitted, give the other Partners prompt written notice and limit disclosure to what is required; and (c) to enforce or interpret this Agreement, subject to court protective orders where appropriate.
9.4 Survival. The obligations in this Section 9 survive termination of a Partner's involvement with the Partnership and the dissolution of the Partnership and continue: (a) for trade secrets, for as long as the information remains a trade secret under applicable law; and (b) for other Confidential Information, for [confidentiality survival period (e.g., 5 years)] after termination.
9.5 DTSA Immunity Notice. Pursuant to the federal Defend Trade Secrets Act, 18 U.S.C. Section 1833(b), each Partner is hereby notified that:
(a) An individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
(b) An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual: (i) files any document containing the trade secret under seal; and (ii) does not disclose the trade secret, except pursuant to court order.
Note: The DTSA notice in Section 9.5 must remain in the operative text. Under 18 U.S.C. Section 1833(b)(3)(C), if the notice is missing, the Partnership cannot recover exemplary (double) damages or attorney's fees against an individual under the DTSA. The notice must appear in any agreement governing trade secrets that is signed by an individual performing work for the entity, including Partners. Do not delete this Section.
Note: Confidentiality is reinforced by both federal law (Defend Trade Secrets Act, 18 U.S.C. Section 1836) and state trade secret law. 49 states plus DC have adopted the Uniform Trade Secrets Act (UTSA); New York is the sole holdout and protects trade secrets under common law instead. If New York law governs, you may want to expand the operative confidentiality language because the UTSA's statutory damages and remedies are not directly available.
Note: Commercial benchmark — confidentiality survival: 3 to 5 years after termination is standard for non-trade-secret Confidential Information; trade secrets survive indefinitely while they remain trade secrets. Language benchmark: "for a period of [3-5] years following termination, or indefinitely for trade secrets."
10. INTELLECTUAL PROPERTY AND WORK PRODUCT
10.1 Definition. "Work Product" means any inventions, discoveries, improvements, designs, works of authorship, software, source code, content, documents, processes, business methods, data, trademarks, logos, domain names, and other materials, in any form and whether or not patentable or copyrightable, that are conceived, created, developed, or first reduced to practice by a Partner, alone or with others, in connection with the Partnership business.
10.2 Assignment. Each Partner hereby irrevocably assigns to the Partnership all right, title, and interest, worldwide, in and to the Work Product, including all patent, copyright, trademark, trade secret, and other intellectual property rights. Use the option below that matches the Governing Law State.
Note: Use Option A if California law governs or any Partner is based in or primarily performs work in California — California Labor Code Section 2870 limits how broadly a business can require an individual to assign inventions. Use Option B if New York law governs. Use Option C for any other state, but verify whether that state has its own carve-out (Delaware, Illinois, Kansas, Minnesota, North Carolina, Utah, and Washington each have invention-assignment statutes similar to California's).
Option A (California): Subject to California Labor Code Section 2870, the assignment in Section 10.2 does not apply to any invention that the Partner developed entirely on the Partner's own time, without using the Partnership's equipment, supplies, facilities, or trade secret information, except for inventions that either: (i) relate at the time of conception or reduction to practice to the Partnership's business or to actual or demonstrably anticipated research or development of the Partnership; or (ii) result from any work performed by the Partner for the Partnership. The Partnership will, at the time this Agreement is signed, provide each Partner with the written notification required by California Labor Code Section 2872 (attached as Exhibit B (California Labor Code Section 2872 Notice)).
Option B (New York): Each Partner irrevocably assigns to the Partnership all rights in the Work Product, including all improvements and derivative works. The Partner will execute and deliver any documents reasonably needed to evidence and protect the Partnership's rights. New York does not have an analog to California Labor Code Section 2870, but the Partner is not required to assign inventions developed entirely on the Partner's own time, without using Partnership resources, and unrelated to the Partnership's business or this Partner's work for the Partnership.
Option C (All Other States): Each Partner irrevocably assigns to the Partnership all rights in the Work Product. To the extent applicable state law (for example, in Delaware, Illinois, Kansas, Minnesota, North Carolina, Utah, or Washington) restricts the assignment of inventions developed entirely on the Partner's own time, without Partnership resources, and unrelated to the Partnership's business or actual or demonstrably anticipated research, this assignment applies only to the maximum extent permitted by that state's law.
10.3 Pre-Existing Materials. If a Partner brings pre-existing materials into the Partnership (for example, code, templates, designs, trademarks, or know-how), the Partner must list them in Exhibit A and specify whether each item is Assigned to Partnership, Licensed to Partnership (with license scope), or Excluded. To the extent any pre-existing material is incorporated into the Work Product without being assigned, the Partner grants the Partnership a perpetual, worldwide, royalty-free, sublicensable license to use, modify, and distribute that material as part of the Work Product.
10.4 Further Assurances. Each Partner will, on request and at the Partnership's reasonable expense, sign and deliver further documents (including specific copyright assignments, patent assignments, and inventor declarations) and take other actions reasonably necessary to perfect, evidence, register, and enforce the Partnership's rights in the Work Product. Each Partner irrevocably appoints the Partnership as the Partner's attorney-in-fact, coupled with an interest, to execute and file such documents if the Partner does not do so within 15 business days of a written request.
10.5 Moral Rights. To the maximum extent permitted by applicable law, each Partner waives any moral rights, rights of attribution, and rights of integrity in the Work Product, and agrees not to assert any such rights against the Partnership or any party authorized by the Partnership.
Note: A transfer of copyright is not valid under US law unless it is in writing and signed by the owner (17 U.S.C. Section 204(a)). The "hereby irrevocably assigns" language in Section 10.2 satisfies that requirement. Work-made-for-hire under 17 U.S.C. Sections 101 and 201(b) is a separate concept that applies by default only to employees acting within the scope of employment; a Partner is not an employee, so the belt-and-braces approach is the express assignment plus a written work-for-hire designation where applicable.
Note: Commercial benchmark — IP ownership: Full assignment of work product to the entity is standard for partnerships and founder-led businesses. License-back arrangements (where a Partner retains ownership but grants the Partnership a license) are common for general-purpose tools, frameworks, or content the Partner uses across multiple ventures. Language benchmark: "hereby irrevocably assigns... all right, title and interest."
11. NON-COMPETE
11.1 Application. This Section 11 applies to each Partner during the term of that Partner's involvement with the Partnership and for the period after exit specified below. Use the option that matches the Governing Law State.
Note: Use Option A if California law governs or any Partner is based in California. Use Option B if Texas law governs. Use Option C for any other state. The enforceability of post-exit non-competes varies dramatically by state, and several states (including California, Minnesota, North Dakota, and Oklahoma) ban most employment-context non-competes outright. If you are in a state with strict rules, focus your protection on confidentiality and customer non-solicitation instead.
Option A (California): During the term of a Partner's involvement with the Partnership, the Partner will not, without the prior written consent of the other Partners, engage in any business that competes with the Partnership. After exit, no post-termination non-compete applies in the employment context, except to the extent permitted by California Business and Professions Code Section 16601 in connection with the sale of the Partner's ownership interest, or by Section 16602.5 in connection with dissolution of, or dissociation of an owner from, the Partnership. The Partnership instead relies on the confidentiality obligations in Section 9 and the trade secret protections in California's Uniform Trade Secrets Act.
Option B (Texas): During the term of a Partner's involvement with the Partnership, the Partner will not engage in any competing business. For [non-compete period (e.g., 12, 18, or 24 months)] after the Partner's exit, the Partner will not directly or indirectly engage in a business that competes with the Partnership in [non-compete geographic area], limited to the line of business the Partnership conducts as of the exit date. This restriction is ancillary to the Partner's confidentiality obligations and to the goodwill of the Partnership built up during the Partner's tenure (Texas Business and Commerce Code Section 15.50). If a court finds the duration, geography, or scope unreasonable, the court is authorized to reform the restriction to the maximum extent that is enforceable under Section 15.51.
Option C (All Other States): During the term of a Partner's involvement with the Partnership, the Partner will not engage in any competing business. For [non-compete period (e.g., 12, 18, or 24 months)] after the Partner's exit, the Partner will not directly or indirectly engage in a business that competes with the Partnership in [non-compete geographic area], limited to the line of business the Partnership conducts as of the exit date. This restriction applies only to the maximum extent enforceable under applicable law, and any unenforceable element will be modified or severed under Section 11.2.
11.2 Reasonableness and Reformation. Each Partner agrees that the restrictions in this Section 11 are reasonable to protect the Partnership's legitimate interests in its trade secrets, Confidential Information, customer relationships, and goodwill. If any restriction is found to be overly broad as to duration, geography, or scope, the court is authorized to modify it to the minimum extent necessary to make it enforceable.
Note: California Business and Professions Code Section 16600 voids non-competes in the employment context. Section 16600.5 (added by SB 699, effective January 1, 2024) makes void contracts unenforceable regardless of where or when signed. Section 16600.1 (added by AB 1076, effective January 1, 2024) makes inclusion of a void non-compete in an employment contract unlawful and required employers to provide individualized written notice by February 14, 2024 to current and former California employees employed after January 1, 2022 that any such clause is void.
Note: Sections 16601 and 16602.5 provide narrow exceptions for non-competes executed in connection with (a) the sale of the goodwill of a business or substantially all of its operating assets, (b) the sale of an ownership interest in a business entity, or (c) the dissolution of, or dissociation of an owner from, a partnership or LLC. A Partner who later sells their interest may validly be bound by a sale-linked non-compete under these exceptions; the Section 16600 ban applies to employment-context non-competes only.
Note: The Federal Trade Commission's Non-Compete Rule, adopted in April 2024, was set aside nationwide by the Northern District of Texas in August 2024 and was withdrawn by the FTC in September 2025. The rule was removed from the Code of Federal Regulations effective February 2026. As a result, there is no federal non-compete ban in force; non-compete enforceability is governed by state law. Several states have enacted or amended non-compete restrictions in recent years (for example, Minnesota's near-total ban effective July 2023, Massachusetts General Laws c. 149 Section 24L which sets out four mandatory drafting elements, and Colorado's wage-threshold rules). If your Governing Law State is not one of the three listed in Options A through C, take state-specific advice on what is enforceable.
12. NON-SOLICITATION
12.1 Application. Use the option that matches the Governing Law State.
Note: Use Option A if New York law governs. Use Option B if California law governs. Use Option C for any other state. Customer non-solicits drafted too broadly may be reclassified by courts as non-competes — keep them tied to customers the Partner had material contact with.
Option A (New York): For [non-solicitation period (e.g., 12, 18, or 24 months)] after a Partner's exit, the Partner will not, directly or indirectly, solicit any Partnership customer or prospective customer with whom the Partner had material business contact during the 12 months immediately preceding exit, for the purpose of providing goods or services that compete with the Partnership.
Option B (California): No post-exit customer or employee non-solicitation applies, except to the extent permitted by applicable law (including Section 16601 or 16602.5 in connection with a sale or dissolution). The Partnership relies on the confidentiality obligations in Section 9 and on California's trade secret protections under the Uniform Trade Secrets Act (California Civil Code Section 3426 et seq.).
Option C (All Other States): For [non-solicitation period (e.g., 12, 18, or 24 months)] after a Partner's exit, the Partner will not, directly or indirectly: (a) solicit any Partnership customer or prospective customer with whom the Partner had material business contact during the 12 months immediately preceding exit, for the purpose of providing competing goods or services; or (b) solicit any employee, contractor, or other Partner of the Partnership to leave their engagement with the Partnership. This Section applies only to the maximum extent enforceable under applicable law.
13. WITHDRAWAL, REMOVAL, DEATH OR INCAPACITY, BUYOUT, AND DISSOLUTION
13.1 Voluntary Withdrawal. A Partner may voluntarily withdraw from the Partnership by giving [voluntary withdrawal notice period (e.g., 60 days)] prior written notice to the other Partners.
13.2 Removal for Cause. A Partner may be removed for cause by approval of the other Partners as a Major Decision under Section 7.3 (with the affected Partner's vote excluded). "Cause" means: (a) fraud, embezzlement, theft, or intentional misconduct that materially harms the Partnership; (b) material breach of this Agreement that is not cured within [cure period (e.g., 30 days)] after written notice; (c) conviction of, or plea of nolo contendere to, a felony or any offense involving dishonesty, fraud, or moral turpitude; (d) any act that subjects the Partnership to material legal or reputational harm; or (e) loss of any license, registration, or qualification necessary to perform the Partner's role.
13.3 Death or Incapacity. If a Partner dies or becomes legally incapacitated for more than [incapacity threshold period (e.g., 90 consecutive days)], the Partnership will continue with the remaining Partners and the affected Partner (or the Partner's estate or legal representative) will be deemed to have exited on the date of death or the end of the incapacity period, with the buyout in Section 13.4 applying.
13.4 Buyout on Exit. When a Partner exits (voluntarily, for cause, or by death or incapacity), the Partnership (or, at the Partnership's election, the remaining Partners pro rata) will purchase the exiting Partner's Partnership Interest in accordance with the buyout terms in Exhibit A, including the buyout valuation method, payment terms, and payment timeline. The buyout price will be reduced by any amounts the exiting Partner owes the Partnership and by any documented losses caused by a removal for cause.
13.5 Transition Support. An exiting Partner will: (a) promptly return all Partnership property, Confidential Information, and records; (b) cooperate in transitioning customer and supplier relationships, IP filings, and operational responsibilities for [transition support period (e.g., 4 weeks)]; and (c) refrain from making disparaging public statements about the Partnership or the other Partners.
13.6 Dissolution. The Partnership will dissolve and wind up its business on: (a) approval of dissolution as a Major Decision under Section 7.3; (b) the entry of a judicial decree of dissolution; or (c) the occurrence of any event that under the Governing Law State's partnership statute requires dissolution. On dissolution, the Partnership will: (i) cease ordinary business; (ii) collect receivables and liquidate non-cash assets; (iii) pay or provide for liabilities to non-Partner creditors; (iv) repay loans owed to Partners; and (v) distribute any remaining assets to the Partners in accordance with positive Capital Account balances after all allocations under Section 4.
13.7 Continuation of Business. Notwithstanding Section 13.6, if a Partner exits but a majority in interest of the remaining Partners elects in writing within [continuation election period (e.g., 60 days)] to continue the Partnership business, the Partnership will continue and only the exiting Partner's Partnership Interest will be subject to buyout under Section 13.4.
Note: Most state partnership statutes (RUPA Sections 601–603 and 801) distinguish between dissociation (a Partner exits) and dissolution (the Partnership winds up). By default, the Partnership does not necessarily dissolve when a Partner leaves — the remaining Partners can buy out the exiting Partner and continue. This Agreement reflects that pattern. Make sure your buyout valuation method in Exhibit A is specific (for example, agreed-value adjusted annually, or independent appraisal) — vague buyout clauses cause the most expensive disputes.
14. DISPUTE RESOLUTION AND FORUM SELECTION
14.1 Good-Faith Negotiation. If any dispute arises out of or relating to this Agreement or the Partnership, the Partners will first try in good faith to resolve it through written notice and discussion among the Partners' principals for at least [negotiation period (e.g., 14 or 30 days)] before commencing any proceeding.
14.2 Mediation. If negotiation fails, the Partners will, before commencing litigation, attempt mediation administered by [mediation provider (e.g., aaa, jams)] under that provider's commercial mediation rules. Each Partner will bear its own costs and share the mediator's fees equally.
14.3 Forum Selection. Use the option that matches the Governing Law State.
Note: Use Option A if New York law governs. Use Option B if Delaware law governs and the Partnership's structure or related entities are tied to Delaware. Use Option C if you want the forum to track wherever the Partnership operates.
Option A (New York): Each Partner consents to the exclusive jurisdiction and venue of the state and federal courts located in New York County, New York.
Option B (Delaware): Each Partner consents to the exclusive jurisdiction and venue of the state and federal courts located in Wilmington, Delaware (and, where appropriate, the Court of Chancery of the State of Delaware).
Option C (All Other States): Each Partner consents to the exclusive jurisdiction and venue of the state and federal courts located in [forum county and state].
14.4 Jury Trial Waiver. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTNER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PARTNERSHIP.
14.5 Carve-Outs from Pre-Dispute Arbitration. Notwithstanding any other dispute resolution provision, under 9 U.S.C. Section 402 (the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021), no pre-dispute arbitration agreement and no pre-dispute joint-action waiver is enforceable, at the election of the person alleging the conduct, with respect to a case relating to a sexual assault or sexual harassment dispute. Whether this carve-out applies is determined by the court, not by an arbitrator.
Note: Jury trial waivers are enforceable in most states but disfavored or invalid in some, including California (Grafton Partners L.P. v. Superior Court, 36 Cal. 4th 944 (2005)) and Georgia, where pre-dispute jury waivers in commercial contracts are generally unenforceable as against public policy. If California or Georgia law governs, treat the jury waiver in Section 14.4 as a soft preference and expect to litigate disputes before a jury.
Note: Many SMEs prefer courts to arbitration for partnership disputes because court orders are easier to enforce against assets and judgments are appealable. If you do want arbitration, consult an attorney about how to draft a binding arbitration clause that complies with the Federal Arbitration Act, 9 U.S.C. Section 2.
15. LIMITATION OF LIABILITY AND INDEMNIFICATION
15.1 Non-Waivable Duties. Nothing in this Agreement limits a Partner's liability or obligations to the extent that those duties cannot be limited or waived under applicable law (for example, the duties of loyalty and care under the Governing Law State's partnership statute may be tightened or relaxed by agreement only within the limits set by statute).
15.2 Standard Limitation. To the maximum extent permitted by applicable law, no Partner will be liable to another Partner or to the Partnership for indirect, special, incidental, punitive, exemplary, or consequential damages (including lost profits) arising out of the Partnership relationship, except for liability arising from: (a) fraud or intentional misconduct; (b) willful breach of the duty of loyalty; or (c) breach of Section 9 (Confidentiality).
15.3 Indemnification. The Partnership will indemnify each Partner against losses, claims, damages, liabilities, and reasonable expenses (including attorneys' fees) incurred by the Partner in connection with acts taken in good faith on behalf of the Partnership and within the scope of the Partner's authority under this Agreement, except to the extent the loss arises from the Partner's: (a) gross negligence; (b) willful misconduct; (c) fraud; (d) breach of Section 9; or (e) act outside the scope of authority. The Partnership may advance reasonable expenses subject to a written undertaking to repay if the Partner is ultimately found not to be entitled to indemnification.
15.4 Insurance. The Partnership will maintain commercial general liability insurance and any other insurance required by law or reasonably necessary for the business, in coverage amounts approved as part of the annual budget.
Note: Commercial benchmark — limitation of liability: SME partnerships typically exclude indirect, special, and consequential damages, with carve-outs for fraud, willful misconduct, and confidentiality breach. A monetary cap is less common between Partners (because the relationship is fiduciary) than in arm's-length B2B contracts. Language benchmark: "no Partner will be liable to another Partner for indirect, special, incidental, punitive, or consequential damages, except for fraud, willful misconduct, or breach of confidentiality."
16. NOTICES
16.1 Method. Any notice under this Agreement must be in writing and delivered by: (a) personal delivery; (b) overnight courier; (c) certified or registered US mail (return receipt requested); or (d) email, to the address listed for the recipient Partner in Exhibit A or as updated by notice.
16.2 Effectiveness. Notices are effective: (a) on actual delivery for personal delivery and overnight courier; (b) three business days after dispatch for certified or registered mail; and (c) on the business day sent for email, provided the sender does not receive a non-delivery notice and provided that any notice of breach, termination, or dispute sent by email must also be sent by one other method in this Section.
17. ELECTRONIC SIGNATURES AND COUNTERPARTS
17.1 This Agreement may be signed in counterparts, each of which is an original and all of which together constitute one instrument. Signatures delivered by electronic means (including PDF and electronic signature platforms) have the same legal effect as original signatures. The Partners agree, under the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. Section 7001) and the applicable state Uniform Electronic Transactions Act (or, in New York, Article III of the State Technology Law), that this Agreement may be executed and retained electronically.
18. GOVERNING LAW
18.1 Governing Law. Use the option that matches the Governing Law State.
Note: Choose the law of the state with the most meaningful connection to the Partnership — typically where the Partnership has its principal place of business, where the Partners reside, or where most of the work is performed. A governing-law choice with no real connection may be challenged.
Option A (New York): This Agreement is governed by and construed in accordance with the laws of the State of New York, without regard to its conflict-of-laws rules.
Option B (Delaware): This Agreement is governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflict-of-laws rules.
Option C (All Other States): This Agreement is governed by and construed in accordance with the laws of [governing law state], without regard to its conflict-of-laws rules.
19. ENTIRE AGREEMENT AND MISCELLANEOUS
19.1 Entire Agreement. This Agreement (including its Exhibits) is the entire agreement between the Partners about the Partnership and supersedes all prior or contemporaneous agreements, communications, and understandings, written or oral, on the same subject.
19.2 Amendments. Any amendment of this Agreement must be in writing and signed by the percentage of Partners required for a Major Decision under Section 7.3.
19.3 Assignment. No Partner may assign or transfer any Partnership Interest, in whole or in part, except as expressly permitted under Section 13 and on approval as a Major Decision.
19.4 Severability. If any provision of this Agreement is held invalid or unenforceable, the rest remains in effect, and the invalid provision will be modified to the minimum extent necessary to make it enforceable while preserving the original commercial intent.
19.5 No Waiver. A failure or delay by any Partner to enforce any right under this Agreement is not a waiver of that right.
19.6 No Third-Party Beneficiaries. This Agreement is for the benefit of the Partners and the Partnership only, and creates no rights for any other person.
19.7 Headings. Headings in this Agreement are for convenience only and do not affect its interpretation.
20. SIGNATURES
By signing below, each Partner agrees to be bound by this Agreement.
Partner 1
Signature:
Printed Name:
Title:
Date:
Address:
Email:
Partner 2
Signature:
Printed Name:
Title:
Date:
Address:
Email:
Note: For US tax purposes, each Partner should provide a completed IRS Form W-9 (US persons) or W-8 (non-US persons) to the Partnership before any draw or distribution is made. Do not include SSN or EIN in this Agreement.
Note: Add additional signature blocks as needed for any further Partners admitted under Exhibit A. Each Partner should sign their own block.
EXHIBIT A — KEY COMMERCIAL TERMS
Note: Complete this Exhibit before execution. In case of conflict between this Exhibit and the Standard Terms in Sections 1 to 20, this Exhibit prevails.
1. Partnership Identity
Partnership Name: [partnership name]
Effective Date: [effective date]
Principal Address: [principal address of the partnership]
Governing Law State: [governing law state]
Business Purpose: [description of partnership business purpose]
2. Partners (repeat for each Partner)
Partner Legal Name: [legal name of partner [n]
Partner Address: [address of partner [n]
Partner Email for Notices: [email for notices to partner [n]
Ownership Percentage: [ownership % of partner [n]
Profit / Loss Share Percentage: [profit and loss % of partner [n]
Initial Contribution: [initial contribution of partner [n] (Cash USD / Property / Services / Other)]
Role and Responsibilities: [role and responsibilities of partner [n]
Time Commitment: [time commitment of partner [n]
Draw Policy: [draw policy for partner [n]
Guaranteed Payment (if any): [guaranteed payment for partner [n] (USD per period, or None)]
3. Governance and Authority
Day-to-Day Management Option Selected: [section 7.1 option a / b / c]
Managing Partner (if Option B): [name of managing partner]
Operations Reporting Frequency: [reporting frequency (e.g., monthly)]
Ordinary Decision Approval Threshold: [ordinary decision approval threshold % (e.g., 51%)]
Major Decision Approval Threshold: [major decision approval threshold % (e.g., 75% or unanimous)]
Borrowing Approval Threshold: [borrowing approval threshold (usd)]
Contract Value Approval Threshold: [contract value approval threshold (usd)]
Contract Duration Approval Threshold: [contract duration approval threshold]
Litigation Approval Threshold: [litigation approval threshold (usd)]
Meeting Notice Period: [meeting notice period (e.g., 5 business days)]
Deadlock Discussion Period: [deadlock discussion period (e.g., 30 days)]
4. Financial and Tax
Distribution Frequency: [distribution frequency (e.g., monthly / quarterly / annually)]
Initial Contribution Deadline: [initial contribution deadline]
Records Retention Period: [records retention period (e.g., 7 years)]
Annual K-1 Delivery Deadline: [annual k-1 delivery deadline (e.g., march 15)]
Partnership Representative (IRC Section 6223): [name of partnership representative]
Expense Approval Process: [expense approval process]
5. Confidentiality, IP, and Pre-Existing Materials
Confidentiality Survival Period: [confidentiality survival period (e.g., 5 years)]
Section 10.2 IP Option Selected: [section 10.2 option a / b / c]
Pre-Existing Material — Partner: [partner bringing pre-existing material]
Pre-Existing Material — Item: [description of pre-existing material]
Pre-Existing Material — Treatment: [assigned / licensed / excluded]
Pre-Existing Material — License Scope (if Licensed): [license scope for pre-existing material]
6. Restrictive Covenants
Section 11 Non-Compete Option Selected: [section 11 option a / b / c]
Non-Compete Period: [non-compete period (e.g., 12, 18, or 24 months)]
Non-Compete Geographic Area: [non-compete geographic area]
Section 12 Non-Solicitation Option Selected: [section 12 option a / b / c]
Non-Solicitation Period: [non-solicitation period (e.g., 12, 18, or 24 months)]
7. Exit, Buyout, and Dissolution
Voluntary Withdrawal Notice Period: [voluntary withdrawal notice period (e.g., 60 days)]
Cure Period for Material Breach: [cure period (e.g., 30 days)]
Incapacity Threshold Period: [incapacity threshold period (e.g., 90 consecutive days)]
Buyout Valuation Method: [buyout valuation method (e.g., agreed annual value, ebitda multiple, independent appraisal)]
Buyout Payment Terms: [buyout payment terms (lump sum / installments / promissory note)]
Buyout Payment Timeline: [buyout payment timeline (e.g., 12 / 24 / 36 months)]
Transition Support Period: [transition support period (e.g., 4 weeks)]
Continuation Election Period: [continuation election period (e.g., 60 days)]
8. Dispute Resolution and Forum
Section 14.3 Forum Option Selected: [section 14.3 option a / b / c]
Forum County and State (if Option C): [forum county and state]
Mediation Provider: [mediation provider (e.g., aaa, jams)]
Negotiation Period: [negotiation period (e.g., 14 or 30 days)]
Section 18 Governing Law Option Selected: [section 18 option a / b / c]
EXHIBIT B — NOTICE TO PARTNERS PURSUANT TO CALIFORNIA LABOR CODE SECTION 2872
Note: Include this Exhibit only if Section 10.2 Option A (California) is selected. Delete this Exhibit if California law does not apply.
This is the written notification required by California Labor Code Section 2872. The intellectual property assignment in Section 10.2 of the Business Partnership Agreement does not require a Partner to assign, or offer to assign, any right in an invention that the Partner developed entirely on the Partner's own time without using the Partnership's equipment, supplies, facilities, or trade secret information, except for inventions that either:
(a) relate at the time of conception or reduction to practice of the invention to the Partnership's business or to actual or demonstrably anticipated research or development of the Partnership; or
(b) result from any work performed by the Partner for the Partnership.
To the extent a provision in any agreement between a Partner and the Partnership purports to require assignment of any of the Partner's rights in an invention to the Partnership, the provision is unenforceable against any invention that qualifies fully under California Labor Code Section 2870.
Each Partner acknowledges receipt of this notification on the Effective Date by signing the Business Partnership Agreement.
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