Casual Business Partnerships: When Friends Go Into Business

Every day, friends start businesses together. Most of them skip the paperwork because it feels unnecessary—you trust each other, you have a shared vision, and a formal agreement seems like overkill for a side project or startup.

Then the business actually starts making money. Or losing money. Or one person works twice as many hours as the other. Or an opportunity comes up that only benefits one partner. Or someone wants out.

At that point, the lack of a written agreement turns a manageable business disagreement into a friendship-ending catastrophe.

Why Friends-in-Business Need Written Agreements

The friendship and the business are two different relationships with two different sets of rules. Your friendship operates on mutual goodwill, flexibility, and the assumption that things will work out. A business cannot run on those principles alone.

Business requires clarity about money, responsibilities, decision-making, and what happens when things go wrong. The qualities that make someone a great friend—flexibility, generosity, willingness to let things slide—can actually be liabilities in a business context if they lead to vague commitments and avoided conversations.

A casual business partnership agreement separates the business relationship from the friendship. It gives you a framework for business decisions so that every disagreement does not feel like a personal betrayal.

Note: This article covers casual, early-stage partnerships. If your business involves significant capital, employees, or legal liability, you should consult an attorney about a formal partnership agreement or the appropriate business entity structure.

What to Include

1. Business Purpose and Scope

Define what the business actually is:

What product or service are you providing?
What is the initial scope? (This prevents one partner from expanding the business in directions the other did not agree to.)
Is this a side project or a full-time commitment?
Geographic scope—local, online, national?

2. Contributions

Who is putting what into the business?

Financial contributions:

Initial investment from each partner (amount, timing)
How are future capital needs handled? Equal contributions? Proportional? Loans?
What happens if one person cannot make their financial contribution?

Non-financial contributions:

Time commitment from each partner (hours per week)
Specific skills or resources each partner provides
Equipment, tools, existing relationships, or intellectual property contributed by each partner

Be specific. "We'll both work on it equally" is not specific enough. Write the financial terms clearly—and be just as clear about time and effort expectations.

3. Ownership Split

This is where most friend partnerships get stuck. The default assumption is 50/50, but that is only fair if both partners are contributing equally in every dimension—money, time, skills, and risk.

Consider:

Does the ownership split reflect the actual contributions of each partner?
Is it based on financial investment, time investment, or both?
Can the split change over time based on actual contributions?
Does sweat equity (working without pay in the early stages) count toward ownership?

4. Roles and Responsibilities

Who does what? Even in a two-person partnership, role clarity prevents duplication and gaps:

Specific responsibilities for each partner
Decision-making authority for day-to-day operations
Which decisions require both partners' agreement?
What happens when one partner's area of responsibility is not getting done?

5. Finances and Compensation

When and how do partners get paid?
Are partners paid a salary, or do they share profits?
How are profits distributed? (Same as ownership split, or different?)
How are losses handled?
Who manages the books?
What is the process for business expenses? Is there a spending limit that requires both partners' approval?
Separate business bank account (yes—always yes)

6. Decision-Making

For two-person partnerships, every decision is potentially a deadlock. Address this:

Day-to-day decisions: Each partner makes decisions in their area of responsibility
Major decisions: What counts as "major"? (Over a certain dollar amount, new product lines, hiring, taking on debt)
Deadlock resolution: If you disagree on a major decision, what happens? Coin flip? Outside mediator? One partner has final say in specific areas?

7. Intellectual Property

If the business creates anything—designs, software, content, products—who owns it?

IP created for the business belongs to the business
What about IP that one partner created before the business started?
What happens to business IP if the partnership dissolves?
Can partners use business IP for personal projects?

8. Exit Terms

This is the section that saves friendships. Discuss:

Voluntary exit: How does one partner leave? What is the notice period?
Buyout: Can the remaining partner buy the other's share? How is the business valued?
Dissolution: If both partners want to end the business, how are assets and liabilities divided?
Non-compete: Can a departing partner start a competing business? For how long?
Forced exit: Under what circumstances can one partner force the other out? (Inactivity, breach of agreement, illegal behavior)

For more on structuring exit terms, see our guide on writing exit clauses.

9. Dispute Resolution

Try to resolve it between yourselves first
If that fails, agree on a mediation process
Define a timeline for each stage
Last resort: What does escalation look like? (This is where an attorney's input is valuable.)

What People Get Wrong

"We don't need this—we agree on everything." You agree on everything right now, at the beginning, when everything is hypothetical. You will not agree on everything when real money, real time, and real stress are involved.

"50/50 is the fairest split." 50/50 is the laziest split. It avoids the uncomfortable conversation about who is actually contributing more. If contributions are truly equal, great—but verify that rather than assuming it.

"The business is too small for paperwork." Small businesses become big businesses (sometimes), and it is much easier to establish terms when the stakes are low than when there is real money on the table.

"Bringing up an exit clause means I don't believe in the business." Every business eventually ends. Businesses that end with a plan in place end well. Businesses that end without one end in lawsuits and lost friendships.

Protecting the Friendship

Here are specific steps to keep the business from destroying your friendship:

Schedule business-only conversations. Do not let business talk bleed into every social interaction. Have designated times for business discussions and protect your friendship time.
Use the agreement as a reference, not a weapon. When disagreements arise, refer to what you agreed to rather than making it personal. "Our agreement says X" is very different from "you always do Y."
Revisit the agreement regularly. Business conditions change. Update your terms as the business evolves rather than operating on outdated assumptions.
Have an honest conversation every quarter. Not just about the business metrics, but about whether the partnership still works for both of you. Is the workload balanced? Is the compensation fair? Are you both still motivated?
Agree that the friendship comes first. This sounds idealistic, but put it in writing. If the business is damaging the friendship, both partners agree to address that as a priority—up to and including dissolving the business.

The Bottom Line

Going into business with a friend can be wonderful. Having a partner you trust, enjoy spending time with, and communicate easily with is a genuine advantage. But friendship alone is not a business plan, and goodwill alone is not a partnership agreement.

Write it down. Discuss the uncomfortable topics now. Your future selves—and your friendship—will thank you.

Explore more at our Types of Casual Agreements hub, and visit our Writing Your Agreement hub for detailed guidance on structuring any agreement.