Provisions of a Partnership Agreement
Although it is not required to have a formal written agreement to form a general partnership, having one is highly recommended, not only because it can be very difficult to prove the existence of and enforce informal oral arrangements, but also because the “default” statutory laws a court will apply in the absence of an agreement may not ensure an equitable result.
Before creating any partnership, the parties should work with an attorney to create a formal, written partnership agreement that outlines exactly how management control, profits, and losses will be divided. The following are typical partnership agreement provisions and should help those who are considering a partnership begin to think about the issues to be addressed at the outset.
Partner and Partnership Information
Each agreement should contain the most basic information, including the name, purpose, and location of the partnership. It should also spell out partner names and how much capital (or other investment) each partner contributed, and/or agrees in the future to contribute.
Sharing Profits and Losses
An agreement should state the percentage of partnership profits and losses that each partner will bear and how the percentage is derived.
Management and Voting Information
To prevent future disputes about partnership control or obligations, establish who is going to manage the partnership, who has authority to sign checks and contracts, and whether partners will receive salaries or other benefits for their services to the partnership. The agreement should also include a provision establishing partner voting rights.
Plans for Winding Up
In case of partnership dissolution, an agreement should include provisions for winding up. This will be an anticipated exit strategy detailing the circumstances under which partners can withdraw, how much notice they must provide, and how partnership assets will be distributed. The agreement should also address how to handle partner retirement, bankruptcy, disability, and death.
Dispute Resolution Preference
The partners can and should agree to bring disputes to mediation or arbitration prior to or as an alternative to filing a lawsuit.
Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with any business dispute concerns you may have.