Informal Business Partnership Agreements Between Friends

Starting a business with a friend is exciting. You've got shared vision, mutual trust, and the kind of shorthand communication that takes strangers years to develop. What could go wrong?

Quite a lot, actually. Friendships and business have different rules, and when they collide without clear agreements, both can suffer. An informal partnership agreement won't replace a formal operating agreement or LLC paperwork, but it's a crucial first step — especially for side hustles, creative projects, and early-stage ventures where formal legal structures feel premature.

Why You Need an Agreement (Even With Your Best Friend)

The most common argument against writing things down is: "We trust each other. We don't need a contract."

Here's the thing: the agreement isn't for when things are going well. It's for when:

One person is doing more work than the other
You disagree about how to spend money
Someone wants to bring in a third partner
The project starts making real money
One person wants out
The friendship hits a rough patch unrelated to the business

Without a written agreement, every one of these situations becomes a potential friendship-ending conflict. With one, you have a reference point for resolving it.

What Your Informal Partnership Agreement Should Cover

1. What the Business or Project Actually Is

Define what you're building together. This sounds obvious, but people often have different visions even when they think they agree.

Include:

The name of the business or project
What it does (product, service, content, etc.)
The target market or audience
Short-term and long-term goals

Example: "This agreement covers our joint podcast, [Name], which produces weekly episodes about [topic]. Our short-term goal is to reach 1,000 regular listeners within six months. Our long-term goal is to generate enough ad revenue to cover production costs."

2. Roles and Responsibilities

Who does what? Be specific. Vague role definitions lead to resentment when one person feels like they're carrying the weight.

Cover:

Day-to-day responsibilities
Decision-making authority for different areas
Expected time commitment (hours per week)
What happens when someone can't fulfill their responsibilities

Example: "Partner A handles content creation, editing, and publishing. Partner B handles marketing, social media, and sponsor outreach. Both partners commit to approximately 10 hours per week. If either partner anticipates being unavailable for more than one week, they'll give the other at least two weeks' notice."

3. Financial Contributions and Split

Money is where friendships go to die if you're not careful. Address it head-on.

Questions to answer:

Who is putting in money upfront?
How are ongoing expenses divided?
How will revenue or profits be split?
When do profits get distributed?
Who manages the finances?
Is either partner drawing a salary?

For a creative project with no revenue yet, this might be simple. For a business that's making money, it needs to be detailed. See writing financial terms clearly for practical tips.

4. Intellectual Property

Who owns what you create together? This gets complicated fast, and it's the area most informal partnerships completely ignore.

Consider:

Is the work product jointly owned?
What happens to the IP if one person leaves?
Can either partner use the brand, content, or products independently?
Who owns the domain name, social media accounts, and other digital assets?

5. Decision-Making Process

How do you make decisions when you disagree? Options include:

Consensus: Both partners must agree (can lead to deadlocks)
Domain authority: Each partner has final say in their area of responsibility
Tiebreaker: A trusted third party breaks deadlocks
Voting shares: Decisions are weighted by equity or contribution

For most two-person partnerships, domain authority with a consensus requirement for major decisions (spending over $X, new partnerships, pivots) works well.

6. Exit Strategy

This is the section nobody wants to write, but everyone needs.

Cover:

How either partner can leave the partnership
How much notice is required (see how much notice before ending)
What happens to the business or project when someone leaves
How the departing partner's share is valued and paid out
Non-compete considerations (can the departing partner start a competing business?)

7. Dispute Resolution

Agree in advance on how you'll handle disagreements.

A common approach:

Direct conversation between partners
Mediation by a mutually agreed-upon third party
If all else fails, formal mediation or arbitration

The goal is to resolve disputes without destroying the friendship. Having a process makes it less personal.

A Basic Template Structure

Here's a framework you can adapt:

INFORMAL PARTNERSHIP AGREEMENT

Date: [Date]
Partners: [Full Name] and [Full Name]

1. PURPOSE
   [Description of the business/project]

2. ROLES AND RESPONSIBILITIES
   Partner A: [Specific duties]
   Partner B: [Specific duties]
   Time commitment: [Hours/week]

3. FINANCIAL TERMS
   Initial contributions: [Who pays what]
   Ongoing expenses: [How they're split]
   Revenue split: [Percentage or formula]
   Profit distribution: [When and how]

4. DECISION-MAKING
   Day-to-day decisions: [Process]
   Major decisions: [Process]
   Dispute resolution: [Process]

5. INTELLECTUAL PROPERTY
   Ownership: [Joint, split, or other]
   If a partner leaves: [What happens to IP]

6. EXIT TERMS
   Notice required: [Timeframe]
   Buyout process: [How it works]
   Non-compete: [Terms, if any]

7. REVIEW SCHEDULE
   This agreement will be reviewed every [timeframe].

Signatures:
[Partner A] __________ Date: __________
[Partner B] __________ Date: __________

Common Mistakes to Avoid

Assuming equal effort will happen naturally. It won't. Define expectations upfront, and build in regular check-ins to address imbalances before they fester.

Splitting everything 50/50 by default. Equal doesn't always mean fair. If one person contributes more capital, more time, or more specialized skills, the split should reflect that.

Ignoring the exit scenario. Starting a partnership without discussing how it ends is like getting on a highway without knowing where the exits are. Read how to write an exit clause for more.

Not putting it in writing. "We talked about it" doesn't count. Memory is unreliable, especially when money and emotions are involved. Even a shared Google Doc is better than nothing. See why verbal agreements fail.

Skipping legal advice for real money. If your partnership starts generating significant revenue, graduate from an informal agreement to a formal one with legal guidance. See when to hire a lawyer.

When to Formalize

An informal agreement is a starting point, not a destination. Consider upgrading to a formal legal structure (LLC, partnership agreement drafted by an attorney, etc.) when:

Revenue exceeds a few thousand dollars per month
You're taking on clients or customers
You're signing contracts with third parties
You're hiring employees or contractors
One partner is investing significant capital

Disclaimer: This article provides general guidance for informal agreements between friends. It is not legal advice. For formal business partnerships, consult a business attorney in your jurisdiction.

For more on different types of casual agreements, visit the types of casual agreements hub.