If you buy a business with anyone else, you need a written partnership or operating agreement. Most acquisitions are done through an LLC, so this is usually an operating agreement. It answers the questions that break partnerships: who owns what, who put in what money, who decides what, who gets paid, and what happens when a partner wants out or the two of you disagree. The time to agree these terms is while everyone's still friendly.
When you use this outline
Use it the moment you decide to buy with a partner or raise money from an investor, before you sign the LOI, and well before closing. If an investor is putting in capital, coordinate this with how you structure the raise; our raising investor money guide covers the trade-offs. The agreement itself must be drafted by an attorney; this outline makes sure you've decided every term before you're paying for that draft.
The 50/50 trap
An even ownership split with no tie-breaker means any disagreement can freeze the business. If you go 50/50, you must have a deadlock mechanism (Section 6). Many partnerships instead pick an odd split, or give one partner a casting vote on operating decisions.
The partnership / operating agreement outline
1. The parties & the entity
- Legal names of each owner (member) and the entity being formed (e.g., "[Newco] LLC")
- State of formation and registered agent
- Purpose of the entity, to acquire and operate [Business Name]
- Effective date and term (usually perpetual)
2. Ownership split
- Each owner's percentage of membership interest (e.g., 60% / 40%)
- The basis for the split, capital contributed, work performed, deal sourced
- Whether ownership % matches profit-sharing % (they don't have to)
- How new owners or investors can be admitted later, and dilution rules
3. Capital contributions
- What each owner contributes at closing, cash, guarantees, sweat equity
- Who signs the SBA personal guarantee (typically any owner with 20%+ must)
- Whether and how future capital calls work if the business needs more money
- What happens if an owner can't or won't fund a capital call (dilution, loan)
SBA guarantee reality
On an SBA 7(a) loan, every owner of 20% or more generally must personally guarantee the loan. If your partner owns 20%+, they're on the hook too, make sure the agreement reflects who carries that risk and how it's shared.
4. Roles & decision rights
- Who runs the business day to day (managing member) vs. who's passive
- Each owner's title, responsibilities, and time commitment
- Which decisions a single manager can make alone
- Which "major decisions" require unanimous or supermajority consent, e.g., taking on debt, selling the business, hiring/firing key staff, spending above $[X], changing owner pay
5. Profit distribution & compensation
- Salaries or guaranteed payments for owners who work in the business
- How profits (distributions) are split among owners
- Distribution timing, and a policy for tax distributions to cover owners' tax on pass-through income
- How much profit is retained in the business vs. distributed
6. Deadlock resolution
- What happens when owners can't agree on a major decision
- Escalation: negotiation → mediation → the mechanism below
- Buy-sell / shotgun clause: one owner names a price; the other must either buy at that price or sell at it
- Casting vote or a neutral tie-breaker for operating deadlocks
7. Buy-sell provisions
The rules for one owner buying out another. Define the trigger, the price, and the funding:
| Trigger | What should happen |
|---|---|
| Voluntary exit | Right of first refusal to remaining owners before any outside sale |
| Death | Entity or owners buy the deceased's interest, often funded by life insurance |
| Disability | Buyout after a defined period of incapacity |
| Divorce / bankruptcy | Interest can't pass to an ex-spouse or creditor; forced buyback |
| Deadlock | Shotgun / buy-sell mechanism from Section 6 |
| Termination for cause | Buyout, often at a discount, if an owner is removed for cause |
- Valuation method: fixed formula, agreed multiple of SDE/EBITDA, or independent appraisal
- Payment terms: lump sum vs. an installment note over [X] years
- Funding: life/disability insurance for death and disability triggers
8. Vesting
- Whether a working partner's ownership vests over time (e.g., 4 years) so they earn it by staying
- What happens to unvested interest if that partner leaves early
- Cliff and acceleration terms, if any
9. Transfer restrictions
- No owner can sell or pledge their interest without consent / right of first refusal
- Tag-along and drag-along rights if the business is sold
- Restrictions required by the SBA lender while the loan is outstanding
10. Exit & dissolution
- How the business gets sold and proceeds are split
- Waterfall: repay debt, return capital, then split profits by ownership %
- Non-compete and confidentiality obligations of a departing owner
- How the entity is wound down if the owners choose to dissolve
How to use this outline
- Have the hard conversations now. Every awkward "what if" you skip becomes a fight later. Decide ownership, money, and exits while you still like each other.
- Separate ownership from pay from control. These are three different levers. A partner can own 40%, take a salary for running it, and share control 50/50, design each on purpose.
- Always include a deadlock and buy-sell mechanism. The most important sections are the ones you hope you never use.
- Coordinate with the SBA loan. Guarantees, ownership thresholds, and transfer restrictions all interact with your lender's requirements.
- Get it drafted by an attorney. This is an outline of decisions, not the legal document itself.
This outline is educational and not legal or tax advice. Partnership and LLC law, and the tax treatment of distributions and guaranteed payments, vary by state and situation. Have a qualified attorney draft your operating agreement and a CPA advise on the tax structure.
Frequently asked questions
Yes, always. If you buy with anyone else you need a written agreement (usually an LLC operating agreement) covering ownership, money, decisions, and exits. Skipping it is the most common way partnerships fall apart.
It sets the rules for one owner buying out the other, on death, disability, a dispute, or a voluntary exit. It defines how the price is set, who can buy, and how it's funded, so an exit doesn't force a fire sale or a lawsuit.
There's no single right answer. Base it on who contributes capital, who runs the business, and who sourced the deal. A partner funding the cash and a partner running it full time for a salary might reasonably split differently than 50/50, and ownership doesn't have to equal profit share.
Generally, any owner of 20% or more must personally guarantee an SBA 7(a) loan. Structure ownership knowing that, and make sure the agreement addresses how that shared personal risk is handled.
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Last updated: July 2026 · Reviewed by the Acquisition Ace team