7 Essential Clauses to Include in a Business Partnership Agreement

When entering into a business partnership, you need to have a well-defined partnership agreement. This legal document sets the foundation for the partnership’s operation and management. Having a comprehensive partnership agreement helps prevent disputes between partners and ensures a clear path for decision-making processes. 

Working with an experienced attorney will help you write a partnership agreement that does two important things: 

• Protects your business’s long-term success
• Establishes a framework that will allow you to work together with your partner or partners
• Prevents disputes and offers clear pathways for dispute resolution

The stakes are high. Harvard Business Review cites some illuminating statistics: 

• 20 percent of businesses fail within the first two years
• 45 percent fail within the first five years
• 65 percent of startups fail due to conflicts between founders,

This means that in 2026, protecting your partnership through a comprehensive agreement is more important than ever.

Our DuPage County business law attorney, Denice Gierach, has the experience and wisdom to help you think through how to set up your business partnership. She has over 30 years of experience and is a small business owner herself. Call us at 630-756-1160 today. 

Why Do Business Partnerships Fail Without Proper Agreements?

Without a clear partnership agreement, even minor disagreements can escalate into major conflicts that threaten the business. The most common causes include:

• Disagreements over profit distribution
• Unclear roles and responsibilities
• Misaligned business goals
• Poor communication
• Decision-making deadlocks, especially when ownership is split equally 

Financial disagreements are among the most common partnership conflicts. Without documented terms for capital contributions and profit sharing, resentment can quickly destroy the working relationship. 

Illinois law recognizes these challenges. Under the Illinois Uniform Partnership Act at 805 ILCS 206, partnerships are governed by specific legal requirements. However, the statute allows partners to customize many aspects of a partnership agreement. This gives business owners significantly better protection than relying solely on default statutory provisions.

What Are the Seven Essential Clauses Every Partnership Agreement Should Include?

Your partnership agreement serves as a safeguard for all parties involved in your business. A strong agreement outlines rights, responsibilities, and procedures that govern the company’s operations. Here are the seven most critical clauses that should be included in every partnership agreement.

Capital Contributions

Your agreement should specify how much each partner will contribute to starting the business and address any future needs. Detail the amount of money, assets, or other resources each partner brings into the business. Consider including provisions for additional capital calls if the business needs more funding. What happens if one partner cannot contribute their share? You can and should answer this ahead of time. 

Distribution of Profits and Losses

Define how profits will be shared among the partners and how losses will be allocated. Typically, distributions are proportional to each partner’s initial investment. Specify the timing and method of distributions and what percentage of profits will be retained for growth.

Decision-Making Powers and Duties

Your agreement should explain how decisions will be made, including day-to-day management and larger strategic decisions. Include details about voting rights and the necessary quorum for decisions. Consider creating different categories of decisions with different voting requirements.

Management and Authority

Understand who will manage different aspects of the business and what powers they will hold. By assigning roles for administrative tasks, financial decisions, and operational responsibilities, you can avoid uncertainty. Include specific details about who has authority to sign contracts, hire employees, and represent the business.

Non-Compete and Confidentiality Agreements

These terms protect proprietary information while preventing partners from competing against the business during and after their involvement. Specify what information is confidential and what limits apply to each partner. Under Illinois law, non-compete agreements must be reasonable in scope, duration, and geographic area to be enforceable.

Withdrawal or Death of a Partner

The agreement should outline what should happen if a partner wishes to leave the partnership. Include buyout provisions, methods for valuation, and mechanisms for transferring shares. Under Illinois law, partnerships can dissolve automatically when a partner withdraws or dies unless the partnership agreement provides otherwise.

Dispute Resolution

Outline procedures for resolving disputes and avoiding problems that could affect the business. Avoiding litigation keeps internal business matters private while ensuring the company can continue operating. Establish a step-by-step process starting with direct negotiation, then mediation, and finally binding arbitration if necessary.

What Happens If You Do Not Have a Partnership Agreement?

Operating a partnership without a written agreement is risky. While Illinois law provides default rules, these statutory provisions may not align with what you really want. For example, under default partnership law, profits and losses are typically shared equally among partners regardless of their contributions.

Without an agreement addressing decision-making authority, all partners have equal rights to participate in management under Illinois law. This can lead to deadlock situations where the business cannot move forward. The absence of a partnership agreement also creates significant problems when a partner wants to leave or dies, potentially forcing the partnership to dissolve entirely.

Perhaps most concerning, operating without an agreement leaves you vulnerable if disputes arise. Without clear procedures for resolving conflicts, partners often end up in expensive and time-consuming litigation.

Get in Touch With a Naperville, IL Business Partnership Agreement Attorney

When forming a business partnership, consult with a local DuPage County business law attorney who can provide guidance on how to protect yourself and your company. Investing in a comprehensive partnership agreement now can save you from devastating consequences later. 

Our business contracts lawyer is ready to draft a comprehensive partnership agreement for you. Set up a consultation by contacting the Gierach Law Firm at 630-756-1160 and take steps to ensure that your partnership is positioned for success in 2026.