What is a Partnership Agreement?
A partnership agreement is a legal document that outlines the terms and conditions of a partnership. In the context of business law, a partnership is defined as a business relationship between two or more individuals. The specific provisions of the contract depend on the specific circumstances as well as state regulations, as partnerships in the United States are governed by state law. Generally, the agreement addresses important issues in relation to the partnership such as the roles, responsibilities and liabilities of each partner as well as the distribution of profits and losses.
- A partnership agreement is a legal document that outlines the terms and conditions of a business partnership.
- The specific laws regarding requirements and limitations of partnership agreements vary from state to state.
- There are three main types of partnership agreements: general partnerships, limited partnerships and limited liability partnerships.
What Are the Main Types of Partnership Agreements
Partnership agreements can take on a number of different forms. The three main types of partnerships in the United States are defined as follows:
- General Partnership: In a general partnership, two or more parties work together to manage and operate a business. Each partner in a general partnership is personally responsible for the business’s debts and obligations.
- Limited Partnership: This business structure involves one or more partners, referred to as "general partners," managing and operating the business, while one or more other partners, known as "limited partners," do not actively participate in the management of the business.
- Limited Liability Partnership (LLP): Limited liability partnerships occur when all partners involved have limited liability for the debts and obligations of the partnership. In other words, each partner’s personal assets are protected in the event that the partnership incurs debt or is sued.
What Should Be Included in a Partnership Agreement?
State regulations typically dictate what must be included in a partnership agreement. Nonetheless, these are a few of the most common elements that are generally included in these agreements:
- Basic Information: Some of the key basic elements that should be featured in a partnership agreement include the names and addresses of the partners, the purpose of the partnership and the contributions of each partner to the partnership.
- Division of Profit and Loss: In certain partnerships, partners may agree to share profits and losses in line with their percentage of ownership of a company. In order to avoid future legal disputes, it is important to clearly detail the terms of the division of profits and losses in the contract.
- Length of the Partnership: Partnerships may be ongoing or temporary in nature. In some cases, a partnership may have a specific duration or end date. Even if the time frame is unspecified, this information should be explicitly stipulated in the contract.
- Dispute Resolution Guidelines: Disputes and conflicts may occur during the course of a partnership. Partnership agreement should always include instructions on how to resolve disputes between the partners. Alternative dispute resolution (ADR) is a common means of resolving conflicts between parties.
It is highly advised to seek legal assistance when drafting a partnership agreement to ensure that the contract is legally enforceable and protects the interests of all the partners involved. Get in touch with a top business lawyer today at Attorney at Law.