Drafting a Limited Partnership Agreement
A limited partnership (LP) consists of two or more people who go into business together. An LP must have one or more general partners, and one or more limited partners. Just like a regular partnership, an LP needs a partnership agreement to spell out the rights and responsibilities of the company's partners. An LP agreement can be written with or without legal assistance, although it may be advisable to hire an attorney depending on the complexity of the LP.
Other People Are Reading
-
Significance
-
Having a written LP agreement helps the partners of the company avoid disputes about the finances and management of the business. Furthermore, if an LP does not have an LP agreement, the company has to use the "state of formation's" default rules to govern the business. A written LP agreement includes information such as how the company will allocate profits among partners, and the process of buying out a partner who decides to retire or withdraw from the company.
Financial Concerns
-
LP agreements should include the name of each partner and his financial contribution to the business. The company's LP agreement must state the total amount of capital invested in the company. Rules on withdrawal of partnership funds must appear in the limited partnership agreement. The LP agreement also should state the manner used to divide profits and losses among the partners of the company. The date of profit distributions should be contained in the LP agreement, as well.
-
Management and Duties
-
The LP agreement needs to outline the management duties of the company's partners. Limited partners have no involvement in the company's affairs, but general partners of the business have full control over the company's activities. The LP agreement needs to state the duties, responsibilities and powers of the company's general partners in managing the company's day-to-day activities. The LP agreement must have language on the restricted role that limited partners play in the company's management.
Considerations
-
The LP agreement must have provisions on what happens when a partner dies or decides to leave the business. The buy-sell portion of the LP agreement needs to state the compensation a departing partner receives and when the partner will receive it. The LP agreement also should provide measures for continuing the business after a partner's withdrawal and the criteria for accepting new partners into the company.
-
