How to create a partnership agreement

You and a partner have decided to start a business together. You want a simple structure, a low administrative burden and to get going quickly. A general partnership (interessentskab, I/S) is one option, but an I/S without a solid written agreement is a recipe for conflict.

This guide takes you through the concrete steps to create a partnership agreement: what you decide, what to include, and what not to forget.

Step 1: understand what you are signing

Before you write anything, it is crucial to understand what a partnership is, and especially what it means for your personal finances.

What is a partnership?

A general partnership (I/S) arises when two or more people (the partners) run a business together. An I/S has a degree of independent legal capacity: it can enter into agreements and own assets in its own name.

The key difference from an ApS: unlimited, joint liability

In an ApS, your personal liability is limited to your capital contribution. In an I/S you are liable personally and without limit for all the partnership's obligations, and jointly, meaning a creditor can demand the whole debt from one partner alone.

Example: your I/S owes a supplier DKK 400,000. The supplier can choose to demand the whole amount from you, even though your partner is internally liable for half. You can then seek recourse from your partner, but towards the creditor you are fully liable.

Joint liability is the I/S form's primary risk. Understand it fully before you continue.

When is an I/S the right choice?

An I/S is best suited when:

• You are two or more partners who know and fully trust each other
• The business has a limited risk of large debt
• You want maximum flexibility and a minimal administrative burden
• Personal taxation (for example via the business tax scheme) suits your situation

If you are considering an activity with a high debt risk, or you want to raise external capital, you should seriously consider an ApS instead.

Step 2: decide the key terms

Before writing the agreement, clarify a number of basic questions:

Ownership shares: do you own 50/50, or is there another split? The shares affect profit sharing, votes and the valuation on exit.

Contributions: what does each partner contribute? Cash, machinery, know-how, customer contacts? And what is the value of a contribution in kind?

Profit sharing: is the profit shared by ownership shares, or are there other considerations, for example different amounts of work?

Decision-making authority: is unanimity required for all decisions, or does one partner have day-to-day management with independent authority?

Leaving: what happens if one wants out? At what price, on what terms and with what notice?

Dissolution: under what circumstances is the I/S dissolved?

The answers to these questions are the very content of the partnership agreement.

Step 3: write the agreement

A partnership agreement does not require a particular format, but the following structure is recommended:

Section 1: the parties and the business's identity

All partners' full names, addresses and CPR or CVR numbers, and the partnership's name and purpose.

"The partnership operates under the name [Name] I/S and has the purpose of [describe the activity]."

Section 2: registration

State the CVR number and any production-unit number.

Section 3: contributions and ownership shares

Describe each partner's contribution and the resulting ownership share. Be specific about contributions in kind, including the value and whether there is agreement on it.

"Partner A contributes DKK 200,000 in cash. Partner B contributes a customer portfolio with an agreed value of DKK 200,000. Both partners own 50% of the partnership."

Section 4: sharing profit and loss

State the sharing key and the payout period. When is the profit shared?

Section 5: management and authority to bind

Who runs the day-to-day operations, and who can bind the partnership towards third parties? Typical models:

• Joint authority: all partners must sign (safe but slow)
• Individual authority: any partner can act within agreed amount limits
• Manager: one partner is appointed to day-to-day management

State thresholds, for example that dispositions over DKK 50,000 require both partners' consent.

Section 6: decision-making

Describe which decisions require unanimity. Decisions that typically require unanimity include admitting a new partner, changing the profit split, taking out a loan above a certain limit, transferring the business and dissolution.

Section 7: remuneration to the partners

Do the partners receive salary or a fee beyond their profit share? State the amount, adjustment and payment procedure.

Section 8: non-compete and side activities

Should the partners refrain from running a competing business during the I/S's life, and what applies after an exit? State clearly what is allowed, and keep clauses within the limits of the law.

Section 9: confidentiality

An obligation not to pass on the partnership's business information to third parties, either during or after the collaboration.

Section 10: leaving

This section is one of the most important and most often neglected. Describe:

Voluntary exit: the notice period (for example 6 months), the price for the leaving partner's share (market value, book value or an agreed model) and who can buy the share (the others typically have pre-emption).

Compulsory exit: can a partner be excluded, and under what circumstances (for example serious breach or insolvency)?

Transfer of a share: can a partner transfer their share to a third party, and is unanimity required?

Without clear exit terms, one wish to leave can paralyse the whole business and end up in court.

Section 11: death and loss of capacity

What happens if a partner dies or permanently loses the ability to act? Can the heirs take over the share, must the others buy it out, and at what price, and is insurance in place as cover? Many skip this point, and it can create chaos for the survivors.

Section 12: dissolution

Under what circumstances is the I/S dissolved (for example a unanimous decision, all partners leaving, or insolvency)? Describe how the assets are distributed.

Section 13: choice of law, venue and dispute resolution

State that Danish law applies and at which district court disputes are brought, or whether the parties undertake to try mediation before a court case.

Step 4: register the partnership

An I/S with commercial activity must have a CVR number. Registration is done via virk.dk, is free and typically takes a few days. The partnership agreement itself is not submitted; it is an internal document.

Step 5: sign the agreement

The partnership agreement is binding from signing. In Denmark, contracts can be signed digitally with MitID, which is legally equivalent to a handwritten signature. Make sure all partners sign, that the date is clear, and that all parties get a signed copy.

The most common mistakes in creating an I/S

No written agreement. An I/S can exist without a written agreement, but without a contract disputes are almost impossible to resolve without a long and expensive process.

A vague exit section. "We'll work it out if one of us wants out" is not an exit term. Specify the price, notice and process.

No provision for death. It is uncomfortable to discuss but far more uncomfortable to handle without clear rules.

Forgotten non-compete clauses. What happens if one partner leaves the I/S and starts a competing business? Clarify it before signing.

Disagreement about the value of a contribution in kind. If one partner contributes know-how, a customer base or a brand, there should be agreement on the value, and it should be in the agreement.

Partnership vs. ApS: a quick decision guide

	Partnership (I/S)	ApS
Personal liability	Yes, unlimited and joint	No, limited to the capital contributed
Minimum capital	None	DKK 20,000
Administrative burden	Low	Moderate (annual report, general meeting and more)
Tax	Taxed personally with the partners	Corporation tax and then dividend tax
Suited to	Low-risk activities and close partner relationships	Businesses with debt risk or external financing

Frequently asked questions about partnership agreements

Is a partnership agreement required by law?

No. An I/S arises and is valid without a written agreement; it is just unclear on what terms it was set up. A written agreement is always strongly recommended.

Can the partners have very different ownership shares?

Yes. The split is free to agree, for example 70/30 or 60/20/20 with three partners. It should always appear clearly in the agreement.

Can an I/S have only one partner?

No. A partnership requires at least two partners. With only one person you instead set up a sole proprietorship.

Can we add a partner after formation?

Yes, with all existing partners' consent. The admission should be documented in writing and typically involves a new agreement on shares and contributions.

What does it cost to set up a partnership?

The setup itself is free apart from any cost of drawing up the agreement. Registration with the Danish Business Authority is free via virk.dk.

Conclusion

A partnership agreement is the foundation of a successful business collaboration. The clear agreement on ownership shares, decision-making and, most importantly, what happens if the collaboration ends, is what separates a durable business relationship from one that ends in court.

Use these steps as a checklist, and make sure all the key points are addressed before you sign.

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The content of this article is for guidance only and does not constitute legal advice. Consult a commercial lawyer or accountant for advice on your specific situation, especially on the tax choices in selecting a business form.