Food Service Business Partnership: Contract Terms for Co-Owners

Starting a restaurant, café, ghost kitchen, catering company, or food truck with a partner can be a smart way to share costs, split responsibilities, and move faster. It can also be the fastest way to create conflict if the partnership terms are vague.

A well-drafted food service business partnership agreement turns “we’re on the same page” into a written operating plan. It clarifies who owns what, who does what, who gets paid when, and what happens when things go sideways (because in food service, something always does).

This guide breaks down the most important contract terms to include in a restaurant partnership agreement (also commonly called a food business partnership contract or restaurant partner contract) from the perspective of you—the co-owner signing it and relying on it to protect your money, time, and reputation.

Note: This article is educational and not legal advice. For your specific situation, consult a licensed attorney in your jurisdiction.

---

Why a partnership contract matters more in food service

Food service partnerships fail for predictable reasons:

• One partner works 60 hours/week; the other disappears after the launch
• Cash handling and inventory aren’t controlled, and losses add up
• Equipment purchases and vendor accounts become “he said, she said”
• A partner wants out right before peak season
• An unexpected health department issue or lawsuit hits, and no one agreed how to handle it

A strong restaurant partnership agreement is a risk management tool that should address:

1. Ownership and money (equity, capital, distributions)
2. Operations and decision-making (authority, roles, budgets)
3. Conflict and exit planning (deadlock, buyouts, dissolution)

---

Step 1: Identify the parties and the business clearly

Even basic definitions prevent confusion later. Your food business partnership contract should clearly state:

• Legal names and addresses of each partner (and entities if applicable)
• The business name (“doing business as” name) and principal location
• The purpose/scope of business (e.g., “quick-service taco restaurant and catering”)
• Whether future concepts/locations are included (or excluded)

Practical tip: If you’re planning multiple locations or a food truck + brick-and-mortar later, specify whether the partnership covers only the first unit or all future expansions.

---

Step 2: Ownership split and capital contributions (cash, equipment, sweat)

Equity percentages

Define each co-owner’s percentage ownership. Don’t rely on “50/50” unless you also define deadlock solutions (more on that below).

Capital contributions

In food service, contributions often include:

• Cash for buildout, deposits, permits, initial payroll
• Equipment (ovens, refrigerators, POS terminals)
• Recipes, brand assets, or IP
• “Sweat equity” (labor instead of money)

Your restaurant partner contract should specify:

• Who contributes what (amount, due date, whether it’s refundable)
• Whether contributions are capital (equity) or loans (repayable)
• What happens if someone doesn’t fund their share (dilution, default, repayment, interest, loss of voting rights)

Handling “sweat equity” fairly

If one partner contributes labor in place of cash, define:

• Expected hours per week and core responsibilities
• What counts as “creditable” work (admin, prep, management shifts)
• Whether sweat equity vests over time (recommended)
• What happens if the partner stops working—do they keep equity?

Common solution: Use vesting (e.g., equity earned monthly over 2–4 years) so ownership matches ongoing contribution.

---

Step 3: Roles, responsibilities, and management authority

A successful food service business partnership contract reads like a job description plus escalation rules.

Define who runs what

Specify areas such as:

• Kitchen operations (menu execution, food safety compliance)
• Front-of-house management (service standards, scheduling)
• Purchasing and vendor relationships
• Marketing and social media
• Bookkeeping, payroll, and tax coordination

Day-to-day authority vs. major decisions

In restaurants, decisions happen fast. Give one person authority for routine choices while requiring joint approval for major actions.

Examples of major decisions that should require both partners (or a defined voting threshold):

• Signing a lease, renewal, or personal guarantee
• Taking on debt/financing or buying expensive equipment
• Changing the concept, brand, or menu direction materially
• Hiring/firing key management (GM, head chef)
• Entering franchising, licensing, or selling IP
• Opening a new location
• Distributions outside normal policy

Pro tip: Set clear dollar thresholds (e.g., “Either partner may approve expenses up to $1,000; above that requires approval of both partners.”).

---

Step 4: Compensation: salary, guaranteed payments, and profit distributions

Partners often confuse “profits” with “cash.” In food service, cash flow can be tight even when the business is profitable on paper.

Your restaurant partnership agreement should separate:

1) Partner compensation for labor

If a partner is working in the business (chef-operator, GM-operator), consider:

• A set wage/salary, or
• “Guaranteed payments” (common in partnership taxation contexts)

Spell out:

• Amount and frequency
• Eligibility (active partner vs. passive partner)
• Whether pay changes after milestones (e.g., after break-even)

2) Distributions of profits

Define a distribution policy tied to financial health, such as:

• Maintain a minimum cash reserve (e.g., one month of operating expenses)
• Pay taxes first (or set aside tax distributions)
• Then distribute profits quarterly based on ownership

Also clarify whether profits are distributed:

• Strictly by ownership percentage, or
• By ownership after repayment of partner loans or preferred returns

Key protection for buyers/clients: Require regular reporting (P&L, balance sheet, cash flow) before distributions.

---

Step 5: Banking, accounting, and financial controls (where most disputes live)

Restaurants handle high-volume transactions, tips, refunds, and inventory shrink. Your food business partnership contract should include internal controls.

Bank accounts and signing authority

• Require a dedicated business bank account (no commingling)
• Define who can sign checks or initiate transfers
• Set dual-approval for large transfers

Books and records

Include:

• Accounting method (cash vs. accrual)
• Fiscal year
• Who maintains books (partner, bookkeeper, CPA)
• Monthly reporting deadlines (e.g., within 15 days of month-end)

Expense policies and reimbursements

• Define what expenses are reimbursable
• Require receipts and timeframes
• Limit personal use of business cards

Inventory and cash handling procedures

Consider embedding operational policies or attaching an exhibit:

• Cash drawer reconciliation rules
• Tip pooling/credit card tip payout timing
• Inventory counts and variance review
• Void/refund approval controls

These aren’t just “operations”—they’re contract terms that prevent accusations of theft or mismanagement.

---

Step 6: Lease, permits, and compliance responsibilities

Food businesses are regulation-heavy. Assign responsibility for:

• Health department permits and inspections
• Food handler certifications and training
• Liquor license (if applicable): who qualifies, who manages compliance
• ADA compliance, signage permits, grease traps, fire suppression
• Employment law compliance (wage & hour, tip rules, minors, breaks)

Also address who signs the lease and whether there are:

• Personal guarantees
• Security deposits funded by partners
• Rights if one partner’s credit is used (and compensation for that risk)

---

Step 7: Intellectual property: brand, recipes, and customer lists

Food service value often lives in intangible assets:

• Business name, logo, trademarks
• Recipes, spice blends, prep methods
• Website, domain name, social media accounts
• Mailing lists and catering client relationships

Your restaurant partner contract should state:

• Whether IP is owned by the business entity or contributed/retained by a partner
• Whether partners can use recipes or branding if they leave
• Non-disparagement and brand protection expectations
• Who controls social accounts and admin access

Avoid a painful scenario: One partner registers the trademark personally and holds the business hostage later.

---

Step 8: Non-compete, non-solicit, and confidentiality (with realistic limits)

Food service is local and relationship-driven. But overreaching restrictions can be unenforceable, depending on your state/country.

Common clauses include:

• Confidentiality (recipes, vendor pricing, margins, marketing plans)
• Non-solicitation (employees, catering clients, vendors)
• Non-compete (limited geography, limited time, limited concept type)

If you include these, keep them reasonable and tailored:

• 6–24 months is common depending on jurisdiction
• Define “competitive business” precisely
• Include carve-outs for passive investments or pre-existing businesses

---

Step 9: Deadlock resolution (especially for 50/50 partnerships)

A 50/50 partnership is fair—until you disagree. Your restaurant partnership agreement should include a deadlock mechanism, such as:

• Mediation → arbitration (or court) sequence
• Tie-breaker advisor (trusted industry expert or board member)
• Rotating “managing partner” authority for certain categories
• Buy-sell provisions (see next section)
• “Texas shootout” or “Russian roulette” buy-sell (powerful but risky—use carefully)

Buyer-focused takeaway: If you’re entering a 50/50 food service business partnership, a deadlock clause is not optional. It’s the difference between a solvable disagreement and a shutdown.

---

Step 10: Buyouts, exits, and what happens if a partner leaves

Most partnership disputes end with someone wanting out. Plan for it upfront.

Triggering events

Define what triggers a buyout or separation process:

• Voluntary withdrawal/resignation
• Material breach of duties
• Misconduct (fraud, harassment, intoxication at work)
• Disability or death
• Divorce or creditor issues impacting ownership
• Failure to meet capital calls

Valuation method

Set a clear valuation mechanism, such as:

• Agreed formula (multiple of EBITDA, revenue, or seller’s discretionary earnings)
• Independent appraisal (and how appraisers are selected)
• Fixed price updated annually (simple, often overlooked)
• Hybrid approach (appraisal with floor/ceiling)

Payment terms

Restaurants often can’t pay a lump sum. Terms should cover:

• Down payment percentage
• Installment schedule (e.g., 24–60 months)
• Interest rate
• Security (lien on assets, membership interest pledge)
• What happens if the business misses payments

Right of first refusal (ROFR)

Prevent your partner from selling to a stranger by requiring:

• Written notice of intent to sell
• Your right to match terms before a third-party sale

---

Step 11: Partner loans and capital calls (when the fryer breaks mid-service)

Even well-funded openings face surprises. Your food business partnership contract should specify:

• Whether partners must contribute additional funds (“capital calls”)
• How much notice is required
• What happens if a partner can’t pay (dilution, loan, default interest)
• Whether a contributing partner can fund the shortfall as a loan and on what terms

This clause prevents resentment when one partner constantly “bails out” the business.

---

Step 12: Disputes, remedies, and attorney’s fees

When conflict happens, you want a clear, cost-effective path.

Include:

• Choice of law and venue (which state/county rules apply)
• Mediation requirement before litigation (often saves money)
• Arbitration (optional; can be faster but not always cheaper)
• Injunctive relief for IP theft or misuse of brand accounts
• Attorney’s fees clause (who pays if someone breaches)

---

Step 13: Insurance, liability, and indemnification

Food service has unique exposure: slip-and-falls, foodborne illness claims, liquor liability, and employment claims.

Address:

• Required insurance types (general liability, product liability, workers’ comp, cyber/POS, liquor liability)
• Coverage minimums
• Who is named insured/additional insured (especially with leases)
• Indemnification: if a partner’s misconduct causes a claim, who bears the cost?

If one partner is the “operator,” consider requiring compliance with safety policies as a contractual duty.

---

Step 14: Dissolution and wind-down (if the concept doesn’t work)

Not every concept survives the first year. Plan the exit:

• Voting threshold to dissolve
• Order of payment: payroll/taxes → vendors → loans → capital → remaining profits
• Who can keep the brand/recipes (if anyone)
• How equipment is sold or distributed
• Handling gift cards, deposits, and catering obligations
• Record retention and final accounting

A dissolution clause reduces chaos when emotions are high.

---

Restaurant vs. food truck vs. ghost kitchen: terms to customize

While a restaurant partner contract can be adapted across concepts, certain issues differ:

Food trucks

• Vehicle title ownership and registration
• Commissary agreements and parking/storage
• Route/event booking authority
• Equipment maintenance responsibilities

Ghost kitchens

• Platform relationships (DoorDash/Uber Eats) and account ownership
• Data access, customer info, and rating/reputation management
• Packaging standards and brand consistency across delivery

Catering

• Contracting authority for large events
• Deposit handling and cancellation policies
• Liability allocation for venue-related issues

If your concept touches multiple channels, your food service business partnership agreement should explicitly cover each channel’s revenue and responsibilities.

---

A practical checklist: what to review before signing

Use this as your quick due diligence list:

• [ ] Ownership percentages and vesting (if any)
• [ ] Capital contributions: cash, equipment, IP—documented and valued
• [ ] Clear roles, schedules, and performance expectations
• [ ] Decision-making thresholds and spending limits
• [ ] Compensation vs. distributions spelled out
• [ ] Banking controls, reporting, and audit rights
• [ ] Lease and personal guarantee responsibilities
• [ ] IP ownership (brand, recipes, socials) assigned to the business
• [ ] Deadlock mechanism for 50/50 partnerships
• [ ] Buyout triggers, valuation method, and payment terms
• [ ] Capital calls and partner loans rules
• [ ] Dispute resolution, attorney’s fees, and injunctive relief
• [ ] Insurance requirements and indemnification
• [ ] Dissolution plan and wind-down steps

If multiple items are “TBD,” pause and finalize them before money starts moving.

---

Frequently asked questions (and other questions to keep learning)

What’s the difference between a restaurant partnership agreement and an LLC operating agreement?

Many restaurant co-owners operate through an LLC. In that case, the “partnership” terms are often written into the LLC operating agreement. The concepts are similar—ownership, management, distributions, exits—but the document name and legal framework differ.

Should we do 50/50 ownership?

It can work, but it increases deadlock risk. If you do 50/50, include a strong deadlock and buy-sell process and define who has final authority for day-to-day operations.

How do we protect ourselves if one partner stops showing up?

Require minimum work commitments, define “cause” for removal, and use vesting for sweat equity. Also include buyout rights or dilution consequences tied to non-performance.

Who owns the recipes and brand if we split?

Decide early. The cleanest approach is to assign IP to the business and limit post-exit use by departing partners—unless a partner is licensing pre-existing recipes/branding, in which case define licensing fees and termination rights.

What if one partner personally guarantees the lease?

Address it in writing. Common options include higher equity for the guarantor, guaranteed payments, indemnification by the business, or a plan to replace the guarantee after a financial milestone.

Other questions you may ask next:

• What clauses should be in a vendor agreement for food suppliers?
• How should a restaurant handle tip pooling and service charges in contracts and policies?
• What are the best contract terms for a chef partnership (chef-owner vs. investor-owner)?
• How do you structure profit sharing for multiple restaurant locations?
• What should be included in a food truck commissary agreement?
• When should a restaurant use arbitration vs. court litigation?
• How do liquor license rules affect co-owner agreements in my state?

---

Final thoughts: put it in writing before you open the doors

In a food service business partnership, your contract is as important as your menu. It’s the playbook that keeps a stressful, fast-moving operation from turning into a personal financial disaster. A clear restaurant partnership agreement or food business partnership contract helps align expectations, protect your investment, and preserve the relationship when pressure hits.

If you want a faster way to draft and customize a restaurant partner contract with the key terms covered, you can generate a strong first draft using Contractable, an AI-powered contract generator, at https://www.contractable.ai.