Long-Term Partnership Agreements

by George Lawrence

Often, two minds are greater than one. That is true in both personal life and in business. Any business that hasn’t formally filed as a corporate entity (such as a corporation or limited liability company) and that has two or more individuals working together is a common law partnership. Partnerships are governed by state partnership laws and by contracts known as partnership agreements. Long-term partnerships present several issues that should be addressed in the partnership agreement.

Partnership Solidarity

One of the keys to a long and successful partnership is solidarity between each of the partners. Businesses, like personal relationships, grow over time and are often strengthened when the individuals respect and appreciate each other. But adding a new partner to the mix can disrupt trust and potentially derail momentum that has been built up over time. Long-term partnership agreements often contain provisions that require consent from the other partners before a new partner is added -- largely to ensure that the original solidarity and energy remains intact.


In a similar vein to provisions that protect the solidarity of the original partnership, many long-term partnership agreements contain provisions that enable the partners to preserve the original makeup of the partnership to the greatest extent possible should a partner decide to leave the partnership. These provisions typically require that the partner seeking to withdraw from the partnership first offer his ownership interests in the business to the other partners prior to leaving. This accomplishes at least two things: it prevents the partnership from dissolving (something that would trigger at common law, as the partnership would end even if one partner left) and it allows the other partners to absorb the owner’s interest and continue on before deciding whether to allow another partner to join on.

Capital Calls

Just as humans need food and water to survive, businesses need money. The initial investment between the partners is often enough to stave off starvation during the first few years, but long-term partnerships may require additional capital. If the partnership agreement does not spell out instances whereby the business may ask the partners to provide additional capital contributions, disputes can easily arise. Long-term partnerships should describe the circumstances under which the partners may be required to contribute more capital and the consequences of failing to do so.

General Provisions

Above all else, the partners should not lose sight of the fact that the partnership agreement is a binding contract between each of the entrepreneurs. General provisions applicable to other partnership agreements should be in place, such as the provisions addressing management, division of the profits and how to handle disputes should they arise.

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