Legal Question in Business Law in California

You need a partnership agreement that would define the terms of the partnership and how revenues and expenses are shared and distributed. Partners are legally liable to third parties for their partner's debts and actions, so your choice of legal entity is important and should be analyzed depending on the business and the potential liabilities -- so, you may be better of with an LLC or an S-corp.

A partnership is created whenever two or more persons join together to operate a business with the intent of sharing profits. They do not "need" an agreement nor is an intention to create a partnership necessary. Partnerships result from the conduct and dealings of the partners, not from a piece of paper or a form filed with the government.

Having said that, there are two very, very important practical considerations to add:

First, partnerships should have written agreements between the partners, outlining their rights, powers, authority, duties, capital contributions, salaries if any, and on and on. There are books on how to create and manage partnerships that even contain fill-in-the-blanks partnership agreement forms. I would not recommend using the forms as fill-ins, but they may have some value as checklists when drafting your agreement from scratch.

Also, many lawyers (including myself) believe that doing business as a general partnership is almost never justified. There is usually a better form of business organization for every business. The chief drawback of partnerships is the personal liability for partnership debts. The advantages of partnerships (no double taxation of income, for example) are now also available through limited-liability companies and corporations electing the "S" tax treatment.

Sign a partnership agreement that covers all the terms and conditions. However, I never allow my clients to enter partnerships because of all the risks and liability for all the other partners' actions. If you are seriously interested in forming a corporation to avoid all those problems, feel free to contact me.