Partnership Agreement Requirements
Partnerships are easily formed and simple to maintain if set up with an effective partnership agreement. Two or more individuals or businesses working together can form a partnership, which makes it one of the easiest businesses to form. Partnership agreements act as contracts that outline partnership specifics.
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The Facts
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Partnership agreements are legal documents used in the formation or modification of a partnership. There is no existing requirement for the content or structure, although you will find most are similar because everyone wants protection. You are not required to have a partnership agreement to form your business, although the agreement limits potential legal issues. The agreement binds partners to procedures and practices in addition to legal obligations mutually agreed upon by all partners.
Function
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Partnership agreements protect partners from the business, and the business from its partners. Without a partnership agreement, default state or federal law applies, and you will be at the mercy of your state's generic interpretation of partnerships. Your partnership agreement determines the tax treatment of the partners and the portion of your partnership. The document also creates sets of rules that all partners agree upon, limiting internal issues.
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Features
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There are no exact requirements for a partnership agreement, but there are fundamental items that should always be included. Primary elements of a partnership agreement include the date, partners, business name, business start and end date, business purpose and management. Partners can change as can end date, business purpose and management if agreed upon by the partners. In addition, your partnership agreement should always include information about how to share profits and losses, salaries and all other forms of payment to partners and capital, which includes initial funding of the partnership as well as maintenance of each partner's capital account. You can purchase templates and outlines of partnership agreements with these features from Nolo.
Considerations
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Partnership agreements can change the legal treatment of specific circumstances and situations if structured properly, although state statute and federal may law supersede your partnership agreement in some situations. Termination, death and arbitration are topics that you should address in your partnership agreement; however, you can elect to treat these matters with a variety of methods. Make sure all partners understand the implications of what's addressed in your partnership agreements.
Expert Insight
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Review your individual state statutes governing partnerships. All states, except Louisiana, have varying statutes, requiring additional research before executing your partnership agreement. States make an effort to provide fair treatment to all partnerships; however, you may prefer to use your partnership agreement to override generic statutes making specific changes to your benefit. For example, you can use your partnership agreement to determine partnership percentages of profits, losses and distributions, rather than using the state defaults. Use your partnership agreement to mold your business to your industry, market and partners. For additional legal advice on your specific situation, contact a local business attorney through Lawyer.com.
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