Explain the contents of a partnership agreement?

Answer 1

A partnership agreement structures the internal operations and interactions between partners of a general, limited or limited liability partnership. Partnerships are flexible business entities, but to take advantage of this flexibility you need a partnership agreement. Most states have enacted either the Uniform Partnership Act or the Revised Uniform Partnership Act, both of which provide a comprehensive set of default rules for partnerships (limited partnerships have their own statutes).

A partnership agreement allows you to make rules differing from the state defaults. For instance, in Virginia, a Uniform Partnership Act state, all partners have an equal vote in management regardless of how much each partner has invested. So if there are 3 partners, A invests 70% of the business' assets, B invests 15%, and C invests 15%, they each have 33.3% of the voting power. B and C could control the partnership even though A invested most of the assets. By default each partner also shares in profits and losses equally. Another default rule is that a new partner may only be admitted with the unanimous vote of the existing partners.

A partnership agreement allows you to change these default rules to something better suited to your specific goals and concerns. Instead of equal voting and equal sharing your partnership agreement could provide for voting based on capital contributions and majority consent to admit new partners.

Some good provisions

for a partnership agreement are: 1) voting; 2) delegation of responsibilities; 3) restrict partners' ability to act alone (for instance, you could make a rule that no partner could enter a contract where the partnership would spend more than $X without majority consent); 4) profit & loss sharing; 5) distributions; 6) indemnity; 7) actions requiring supermajority

consent; 8) business succession plan; and 9) exiting the partnership or ending the partnership. Number 8 will provide for transferring partnership interests or preventing you from ending up a business partner of your partner's family under some circumstance.

Even if you think the state default rules will work for you, you should still write a partnership agreement. It will get all the partners on the same page (no pun intended), reduce finger pointing, and increase efficiency. Also, you and your partners probably don't know all of your state's default rules so the writing the agreement will get you talking about them and understanding them.