Partnership agreement: what it is, how it works and how to make it
Starting a business in partnership can be a very rewarding, but also challenging, experience. In addition to pooling efforts and resources to bring an idea to fruition, partners need to establish clear rules for managing the company, sharing profits, responsibilities, and, most importantly, for dealing with potential conflicts. It’s in this context that the partnership agreement emerges: a fundamental legal instrument for ensuring security and harmony in the business relationship.
In this article, you will understand what a partnership agreement is, how it works, how it differs from a by law, how to draft this type of agreement, and you will also see a basic template for reference.
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What is a partnership agreement?
A partnership agreement, also known as a partnership agreement, is a private document that establishes the rules and guidelines governing the relationship between a company’s partners. It serves as a supplement to the articles of association, detailing strategic and corporate matters that are often not addressed or cannot be fully described in the articles of association registered with the Board of Trade.
Unlike the articles of association, which are binding on third parties and public agencies, the partnership agreement is effective only between the signatory partners. This means that it governs internal aspects of the company confidentially, without the need for registration with the Board of Trade.
Among the most common points addressed in a partnership agreement are:
- Division of responsibilities and administrative functions;
- Criteria for distribution of profits and losses;
- Rights of first refusal in the purchase and sale of shares;
- Rules for the entry and exit of partners;
- Non-competition clauses;
- Defining procedures in the event of a stalemate or corporate dissolution;
- Penalties for breach of contract.
This is, therefore, a strategic tool to ensure good corporate governance and avoid future conflicts.
How does a partnership agreement work?
The partnership agreement functions as a private agreement between the partners of a business corporation, aiming to establish internal rules for management and corporate coexistence. This document allows for anticipated solutions to sensitive situations or disagreements that may arise during the course of business activity.
Although it does not have the same publicity and registration requirements as the articles of association, the partnership agreement has legal validity and is binding between the parties who sign it. If any clause is breached, the affected partners can resort to the courts to demand compliance with the contractual provisions or seek damages.
Main aspects regulated by the partnership agreement:
- Each partner’s shareholding in the share capital;
- Management roles and responsibilities;
- Rules for deliberation and approval quorum;
- Profit distribution criteria;
- Right of first refusal in the purchase of shares;
- Prohibition of competition;
- Confidentiality clauses;
- Conditions for excluding partners;
- Conditions for admitting new partners;
- Procedures for dissolving or liquidating the company.
This flexibility is one of the key advantages of the partnership agreement, allowing it to be tailored to the specific needs of the company and the interests of its members.
What’s the difference between a partnership agreement and an article of association?
Although both are contractual instruments related to the formation and management of business entities, articles of association and a partnership agreement have distinct purposes, characteristics, and requirements.
| Articles of Incorporation | Partnership Agreement |
|---|---|
| Official and mandatory document for the incorporation of the company | Optional and supplementary instrument |
| Must be registered with the Board of Trade | Does not require registration with the Board of Trade |
| Regulates formal aspects of the company, such as name, address, purpose, share capital, and quota distribution | Regulates strategic matters and internal relations among shareholders |
| Produces effects towards third parties and public authorities | Produces effects only among the signing shareholders |
| Mandatory publicity | Private and confidential document |
In short, the articles of association create the company under the law, while the partnership agreement establishes the specific rules among the partners to manage the company in the most organized manner possible.
How to draw up a partnership agreement?
Drafting a partnership agreement should be done carefully, clearly, and with an eye toward future scenarios. It is even recommended to consult a lawyer specializing in corporate law to adapt the clauses to the specifics of the business and ensure legal certainty for all involved.
See the basic step-by-step guide to drafting a partnership agreement:
- Identification of the parties: indicate the name, nationality, marital status, profession, CPF (Individual Taxpayer Registry), and ID number of the partners;
- Object of the agreement: describe the purpose and economic activity of the company;
- Shareholder interest: specify the percentage of shares held by each partner;
- Roles and responsibilities: define the assignment of administrative and management functions;
- Rules of deliberation: establish quorums and procedures for decision-making;
- Profit Distribution: Specify the frequency and criteria for profit distribution;
- Preemptive Rights: Define whether partners will have priority in purchasing shares in the event of a sale;
- Non-Compete Clause: Establish restrictions on partners engaging in competing activities;
- Confidentiality: Include confidentiality obligations regarding the company’s strategic information;
- Conditions for Exclusion or Exit of Partners: Establish the criteria and procedures;
- Dispute Resolution Method: Provide how disagreements will be resolved (mediation, arbitration, or legal proceedings).
Sample Partnership Agreement
Below is a basic example of a partnership agreement to illustrate the document’s structure:
MEMBERSHIP AGREEMENT
By this private instrument, the undersigned:
[Full name of partner 1], Brazilian, married, entrepreneur, CPF no. […], ID no. […];
[Full name of partner 2], Brazilian, single, administrator, CPF no. […], ID no. […];
Resolve to enter into this Partnership Agreement, subject to the following clauses:
Clause 1 – Purpose: This agreement governs the corporate relationship between the parties in the company [Company Name], registered with the CNPJ under no. […], headquartered at [full address];
Clause 2 – Share Capital: The shares will be distributed as follows: Partner 1 – 60% and Partner 2 – 40%;
Clause 3 – Management: Management will be exercised by Partner 1, with powers to perform all management acts, except those requiring joint resolution;
Clause 4 – Profits and Losses: Profits and losses will be shared in proportion to each partner’s shares;
Clause 5 – Right of First Refusal: In the event of a sale of shares, the remaining partner will have the right of first refusal;
Clause 6 – Non-Competition: Partners are prohibited from engaging in competing activities during the term of this agreement and for a period of two years after their departure;
Clause 7 – Dispute Resolution: The parties elect the jurisdiction of the district of [city] to resolve any disputes arising from this agreement.
And in agreement and agreement, they execute this instrument in duplicate.
[Place], [Date]
[Partners’ Signatures]
This is a basic template and should be adapted to the specific circumstances and needs of each company.
Conclusion
The partnership agreement is an indispensable instrument for companies established by more than one partner. Although not required by law, it is essential to ensure good relations, organize management, prevent conflicts, and protect the interests of all involved.
Unlike the articles of association, which formalize the company’s creation before the government, the partnership agreement regulates internal and strategic aspects of the company, and is binding between the signatories. Drafting this document allows you to anticipate future situations and define clear rules for sensitive issues, such as partner exits, profit sharing, and dispute resolution.
Therefore, if you are considering forming a partnership or are already in one and do not yet have a formal agreement, it is highly recommended that you prepare a partnership agreement, preferably with the assistance of a specialized attorney.
If you would like legal assistance from our team, please send us a message on WhatsApp.
