Starting a business with someone you trust feels straightforward. But without a written agreement, Tennessee law fills in the gaps — and the defaults may not match what you and your partner intended.
What Tennessee law says by default
The Tennessee Revised Uniform Partnership Act governs partnerships that lack a written agreement. Under those default rules, courts and creditors treat your partnership in ways that may surprise you:
- Profit splits: Profits and losses divide equally between partners regardless of who contributed more capital or time.
- Management authority: Every partner has equal rights to manage the business and bind it to contracts.
- Personal liability: Each partner is personally liable for the debts and negligent acts of other partners.
- Automatic dissolution: The partnership may dissolve if one partner dies, goes bankrupt or withdraws.
These rules apply whether you intended them or not.
The risks of skipping a written agreement
Verbal agreements can be legally binding in Tennessee. They are also difficult to prove in court. When a dispute arises over money or operations, both sides rely on memory, and memories differ.
The stakes go beyond one disagreement. A partner who makes a bad business deal can expose your personal assets. A disagreement over company direction with no exit clause may force litigation or full dissolution. Written agreements prevent these outcomes by putting each party’s rights and obligations in a shared document both sides can reference.
Key clauses to put in your agreement
A well-drafted Tennessee partnership agreement should address several core issues before they become problems:
- Capital contributions: What each partner invests and the ownership percentage that reflects it.
- Profit and loss distribution: A custom formula that overrides the state’s equal-split default.
- Management and voting rights: Who decides what and whether major decisions require a unanimous vote.
- Dispute resolution: A required mediation or arbitration step before either party can file suit.
- Buy-sell and exit terms: How a partner’s share is valued if they retire, become disabled or die.
Every clause you leave out is a gap a court may fill against your interests.
Protect your partnership before a dispute starts
A verbal agreement or generic template is rarely enough to protect what you have built. An attorney can review your situation and draft an agreement that reflects your actual business terms. Speaking with a Tennessee business law attorney before you launch is one of the simplest ways to avoid costly disputes later.