Going into business is a daring step for anyone. If you decide to go into business with partners, it can be even more daunting because each partner is an owner with rights. A written agreement beforehand can help everybody involved understand their obligations and responsibilities. Using a good 50/50 business partnership agreement template can help you with the preparation of a contract that you can rely on, and that you can be certain will protect every partner’s interest in the business.
What is a 50/50 Business Partnership Agreement?
A 50/50 partnership is an agreement between two or more individuals to jointly operate a business. The partners equally share the costs and profits as well as the risks and liabilities. The partners also share the responsibilities equally, have equal decision-making power, and, unless the agreement specifies otherwise, any single partner can bind the business to a contract with a third-party without the consent or even the knowledge of the other partner.
When to Use a 50/50 Business Partnership Agreement
If two individuals know each other well, and trust the ability and judgment of one another, a 50/50 partnership agreement can be a simple, powerful form of organization that will enable both to build a thriving business. The partners must constantly stay in touch with one another to make certain that their understanding of the goals and strategy of the business remains unified.
How to Make a 50/50 Business Partnership Agreement
Making a 50 50 partnership agreement is easy if you use the 50 50 partnership agreement template, and follow the steps listed below:
Step 1 – Partnership Information
a) List the state where the partnership will do business, or have its main office; the date of the agreement, and the names and mailing addresses of each partner joining the agreement.
Step 2 – Partnership Details
a) Give the name of the partnership organization in full. Check with your state to make sure the name you want to use is available. Check to make sure the business name doesn’t infringe on any trademark. If you aren’t starting operations right away, you may want to reserve the business name by filing with the state.
b) Describe your business’ purpose and the business activities the partnership will pursue.
c) List the physical address where the partnership will do business, and use for state registration. Don’t list only a P.O. Box. A fully online business could use a personal address.
d) List the date that the partnership goes into effect. You could also agree that the partnership will end upon certain conditions, described later in the agreement, or go on for an indefinite period.
Step 3 – Capital Contributions
a) List the capital contributions the partners make. You might list a deadline for receiving contributions.
b) List the contributions that each partner will invest. Investments are usually made on an equal basis, but the investments could be in the form of cash, property, labor or expertise. Each contribution, of whatever kind, in a 50/50 partnership agreement will give the partner an equal share of the profits and the decision-making roles.
Step 4 – Capital Accounts, Profits, Losses and Income Accounts.
a) Capital accounts may or may not pay interest, depending on the needs, goals, and operations of your business. In a 50-50 partnership agreement, each partner should receive equal treatment if capital accounts pay interest.
b) Profits and losses should be dealt with in the agreement. In a 50-50 partnership agreement, each partner should receive equal shares of profit and allocation of loss.
c) Each partner has an income account, where the share of profit and loss is credited or debited. You should also decide whether the income accounts will pay interest to the partners.
Step 5 – Partnership Salary and Draw, and Partnership Bank Accounts
a) Decide whether the partners will have a salary. The IRS considers partners to be employees only if they provide services other than their capacity as a partner. This determination can determine how both the partners and the partnership are taxed.
b) If no salary will be provided to any partner then choose this option.
c) Decide how partners can withdraw profits from income accounts. Withdrawals could be anytime, periodical (monthly, quarterly, biannually, or annually), or may require the consent of the other partner to withdraw.
d) List the financial institution that will hold the partnership account. List who can withdraw and sign on behalf of the partnership on this account. In a 50/50 partnership, traditionally, all partners have access to the partnership assets.
Step 6 – Partnership Books and Records
a) List the address where the partnership books and records will be kept. This might be the business location, or with the partnership’s accountant or lawyer.
b) List who can inspect books and records, and when. Each partner should have equal rights to examine the books and records, but you can specify other individuals acting on behalf of the partner as well.
c) Most businesses follow a calendar year, but if the partnership follows a fiscal year, state that fact.
d) List the date that statements of profit and loss and the balance sheet will be prepared. This can be any date, but usually happens within a couple of months after the end of the year. Be aware of state and federal tax and reporting deadlines in selecting the date.
Step 7 – Management and Voluntary Dissolution
a) In a 50/50 business partnership, each partner usually has equal authority to make decisions for the partnership or to bind it to contracts. This can sometimes create confusion and strife in a partnership. If you want to limit this authority, you can describe which decisions are shared equally, and which require the consent of the partners.
b) The partnership can be dissolved by unanimous consent, or upon specific events. When a partnership dissolves, the business is usually wound up and the assets liquidated or distributed. It might go on as a sole proprietorship, though, if one partner buys out the other.
Step 8 – Partner Withdrawal, Retirement and Death
a) Decide when partners can leave the partnership, whether at any time, after a certain period of time, or only with the consent of the remaining partner or partners. In a 50/50 partnership involving only two individuals, the withdrawal of one partner effectively ends the partnership. You may wish to consider how this will affect business operations.
b) Decide how the partnership will handle the death or retirement of one of the partners. If there are only two, the partnership must either wind up and distribute, or be bought out and go on as a sole proprietorship.
c) Describe how any buyout price is to be calculated. This is the price the remaining partner will pay for the interest of the partner who leaves, in lieu of completely winding up the business.
Step 9 – New Partners and Arbitration
a) Describe the terms and conditions upon which new partners can be admitted to the partnership, if any.
b) In a 50/50 partnership, disagreement effectively means the paralysis of the business. The partners can decide to have their disputes mediated or arbitrated. Describe any dispute resolution terms here.
Step 10 – Signatures
a) The partners or their representatives sign and print their full names.
Pros and Cons of a 50/50 Business Partnership Agreement
A 50/50 partnership agreement can be a strong tool for organizing a business start-up quickly and inexpensively. But any partnership agreement has some limitations and a 50/50 split may not be for everyone. Some of the advantages and disadvantages of a 50/50 partnership agreement are listed below, and can help you decide if this form of organization is right for you.
50/50 Business Partnership Agreement Sample
If a partnership seems like the right form of organization for your business, you can find use our 50/50 partnership agreement template: