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The Story Exchange has profiled numerous business partners, including sisters Ann and Jenny Siner, who started My Sister's Closet. Watch their startup story, above. (Video credit: Sue Williams)

A partnership is an agreement between two (or more) individuals that trust one another and share an interest in starting the same business. These individuals are ready to work together for the startup’s greater good. Together, they may split costs, share profits, make decisions, and lean on each other for support.

Over the decades, there have been many business partners that have teamed up to start a partnership. They used their business savvy and complementary skill sets to turn humble startups into some of the world’s most successful ventures.

  • Henry Wells and William G. Fargo | Wells Fargo
  • Richard and Maurice McDonald | McDonald’s
  • Jenn Hyman and Jenny Fleiss | Rent the Runway
  • Ben Cohen and Jerry Greenfield | Ben & Jerry’s
  • Elizabeth Cutler and Julie Rice | SoulCycle
  • Larry Page and Sergey Brin | Google

[Related: How Do I Add a Partner to My Business?]

Are There Different Kinds of Partnerships?

Yes, entrepreneurs can choose from several types of partnerships. Let’s take a look at the most  common partnerships.

1. General Partnership

Easily the most common of all partnerships, a general partnership is basically an agreement between two (or more) partners running a company. Profits, liabilities, and management duties are divided equally across all partners. The downside to this partnership, while it’s easy to establish, is that a general partnership is considered unincorporated. As such, partners do not have a limit on their personal liability for the debts of the business. If the business incurs debt, for example, the partner would need to use their personal assets to repay that debt as needed. It’s wise for partners to consider forming an LLC or corporation  — or, depending on the industry, an LLP (see No. 4, below).

2. Joint Venture Partnership

A joint venture partnership is, essentially, a general partnership. The greatest difference between the two is that it comes with an expiration date. Joint venture partnerships are designed to be temporary. They are often put in place for when a certain phase of development has been completed or to speed up certain processes, like business expansion. Once the phase ends and specific strategic growth objectives have been met, the joint venture partnership expires.

3. Silent Partnership

Not every partnership is built on the idea that all partners want to be vocally involved in the business. A silent partnership allows one partner to act as the money behind the business and provide capital. This partner typically does not participate in the company’s day-to-day operations. Instead, they let the other partner assume the responsibility.

4. Limited Liability Partnership (LLP)

Forming a limited liability partnership (LLP) is a bit similar to incorporating as an LLC. Each entity protects its owners (partners in the case of an LLP) from unforeseen circumstances like lawsuits. LLCs and LLPs also have a pass-through tax structure, where taxes flow through the partners’ personal tax returns. LLPs are often reserved for professionals in certain professions, such as those licensed by the state like doctors and lawyers. This makes it a bit of a niche partnership, so make sure your business fits the right profession before attempting to incorporate as an LLP.

[Related: Should I Incorporate or Form an LLC?]

What Should Be Included in a Written Partnership Agreement?

Written partnership agreements work to protect your partnership together. These agreements address the daily roles and responsibilities of each partner, and the “what ifs?” in business that may include a partner’s sudden exit or untimely death and how to proceed forward.

Not sure which terms to cover first when working on a written partnership agreement? Start by focusing on these items.

  • Partnership term. When does the partnership officially start? A written agreement should outline these details by including the partnership’s starting month, day, and year. Typically, terms are stated to continue unless there is an event of termination. Outline termination terms in a partnership agreement as well.
  • Roles and responsibilities. Each partner should have a clear understanding of their daily roles and responsibilities within the partnership.
  • Capital. Written agreements should outline the amount of capital contributions provided by each partner. Additionally, you will need more information about the account the money will be kept in, how and when partners are paid, and profit and loss terms for each partner.
  • Rules for admitting new partners. Should your business decide to expand, you will need further instructions noted for how each partner is admitted into the partnership.
  • Partner exits and death of a partner. Take into consideration what terms need to be in place for a partner’s voluntary (as well as involuntary) withdrawal from the partnership. An additional agreement must also be in place in the event of either partner’s passing to outline the surviving partner’s rights with the business.
Why Do Partnerships Need Written Partnership Agreements?

The phrase “it’s not personal, it’s business” rings true to partnerships. Partners are often chosen because they have known one another for a long time. They may have even previously worked together. There’s a certain amount of trust, and friendship, baked into that existing relationship.

The hope is that this relationship can transition easily into starting a business, but for many this is not always the case. Dynamics may begin to shift, impacting the relationship for the worse. A written partnership agreement isn’t exactly a requirement to running a partnership. However, it does set clear expectations for both parties. This helps keep everyone on the same page. Not only do you avoid violating the terms and conditions of the partnership agreement, but you can ensure that little to no bridges are burned in the process. If anything, having a solid written agreement may only strengthen the overall partnership, business, and friendship!

Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.

[Visit our Advice & Tips section for more articles about managing your business.]

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