8 Inclusive Components Of Partnership Agreements

The partnership agreement is the foundation of the formation; it is the document that spells out the individual rights and responsibilities of the partnership. 

If the partners do not construct a partnership agreement, state laws will govern the distribution of profit, liability issues and other critical aspects of the formation. 

The Partnership Agreement is regulated under the Uniform Partnership Act. This legislation states that each state (with the exception of one state or the other) possesses its own regulations governing partnerships. 

These statutes construct the basic legal regulations that apply to the formations and will control several aspects of the partnership’s life unless a partner or owner establishes different rules in their particular partnership agreement.

What is Included in the Partnership Agreement?

Below is a list of the primary section of a partnership agreement. Partners should consider the following issues when constructing the partnership agreement:

1. Name of the Partnership: One of the first thing listed on the agreement should be the name of the partnership. Partners can use their own names or can adopt and register a fictitious name. If the partners agree on a fictitious title, they must make sure that the name is not already in use or trademarked—the partners must file their fictitious name statement with their county clerk’s office. 

2. Contributions: It is essential that the partners agree and record who is going to contribute cash, property and other assets to the partnership before it opens. It is also essential that the partners also agree on the ownership percentage awarded to each partner. 

3. Allocate Profits and Losses: Partners must agree on how the profits and losses of the formation will be divided. Will the profits and losses be allocated in relation to the partner’s percentage interest in the formation? Or will each partner be given a regular draw? Will the profits be distributed at the end of the quarter or at the end of the year? The partners, who will have different ideas and financial needs, must agree on how the funds will be divided and transferred. 

4. Authority Issues: Without constructing a partnership agreement, a partner may bind the formation to a contract without the consent of the other partners. If the partners wish to have one or more partners obtain the others’ consent before obligating the formation, they must elucidate this aspect in their agreement.

5. Decision Making: This portion of the partnership agreement should illuminate the process for engaging in fundamental business activities. The partnership, may for example, wish to engage in a vote before a business maneuver can be engaged. The partnership agreement will have to elucidate on what constitutes a major or minor maneuver. 

6. Management Duties: This portion of the partnership agreement illuminates on the individual partner’s specific duties and responsibilities. Who will manage the formation’s books? Who is responsible for dealing with customers? Who negotiates with suppliers? And who supervises employees?

7. New Employees: If the partnership needs to expand, the agreement must outline the process for bringing in new partners. The partners will need to agree on a procedure for admitting new partners. 

8. Withdrawals: If a partner passes away or withdrawals from the business, the partners must establish rules and a process regarding buyouts and transitions. In addition to the withdrawal aspect, the partners must agree on a procedure to resolve any disputes or conflicts that may arise.  Stay tuned for more and have a nice day.