A partnership agreement is a crucial document that outlines the terms and conditions under which two or more parties agree to operate a business together. When profit sharing is involved, it becomes essential to clearly define how profits (and losses) will be distributed among partners. Here are three diverse examples of partnership agreements that include profit-sharing arrangements.
In this example, two friends, Alice and Bob, decide to start a coffee shop together, splitting responsibilities and profits. This type of agreement is suitable for small businesses where partners are closely involved in day-to-day operations.
Alice contributes \(20,000 for initial investment and will manage operations. Bob contributes \)10,000 and handles marketing. They agree to share profits based on their initial contributions while also considering their roles.
The partnership agreement states:
This arrangement incentivizes both partners to work hard and contribute to the success of the coffee shop, as their earnings directly reflect their input.
This example involves two consultants, Sarah and John, who form a consulting firm. They agree to share profits based on the number of clients they bring in and their respective contributions to the firm’s operations.
Sarah brings in 70% of the clients and manages client relations, while John contributes by developing strategies and managing finances. They decide on a profit-sharing model that rewards client acquisition.
The partnership agreement specifies:
This model encourages both partners to actively seek clients while rewarding them for their unique contributions.