What Should Essentially Embody a Partnership Agreement
A partnership agreement is simply an agreement between two or more persons to build a business partnership for profit. Although the law does not require any written form to create partnership, it has become a common practice to reduce the agreement into writing.
There is no federal law that specifically governs partnership. Each state has its own set of statutory and common laws intended to govern partnerships in their territory. However, many have adopted the Uniform Partnership Act and Uniform Limited Partnership Act as their law on partnership.
The State of California, in particular, has adopted the uniform act to govern partnerships within the state’s cities and counties.
A partnership agreement in this state must essentially contain the following provisions:
Formation of the partnership. It states whether the partners are establishing a general or a limited partnership.
It is a general partnership if all the partners are considered general partners. Meaning, they are all owners of the business and each can be held responsible for the partnership debts and liabilities.
It is a limited partnership if there is at least one general partner and one limited partner. In contrast to general partner, a limited partner is liable to the partnership’s creditors only up to the amount of his investment.
Name of the partnership. It is a statement of a name by which the partnership will be called. For limited partnership, the name usually contains the word “Limited” or “Ltd.”.
Purpose. It declares what kind of business the partnership will be engaged to. The statement is generally followed by words “and to conduct other activities as may be necessary or incidental to or desirable in connection with the” main purpose.
Principal Place of Business and Office of the Partnership. This contains the location of the business.
The partners may determine other place or places of business or office of the partnership other than what is stated in the partnership agreement.
Term. A statement which tells when will the partnership start and when it will end.
The partnership will start or end according to the agreement of the parties unless there are grounds which will cause earlier dissolution and termination of the partnership.
Capital contributions. This portion can be subdivided into two. One may contain initial capital contributions while the other may contain future capital contributions.
Both state the amount each partner will contribute to the partnership as capital, including the date when the same shall be paid. With respect to future capital contributions, the same is conditioned in the event the partnerships needs additional capital.
The general partners, generally, have no right to withdraw what was already contributed. However, they may do so in cases of dissolution and termination of the partnership as provided in the agreement.
Return of capital. There is no agreement for the return of the capital. Such shall be done only upon the dissolution or termination of the partnership.
A written instrument is preferred to formally create partnership nowadays. A basic partnership agreement, which contains the foregoing provisions, will suffice to protect and establish the rights, duties, responsibilities and obligations of the partners. It is the law between and among them – a law that must be complied with utmost good faith.
Our experienced Los Angeles business and corporate attorneys are familiar with business laws that govern partnership agreement. You can log on to our website to avail of our free case analysis.
What Should Essentially Embody a Partnership Agreement / Author: Mesriani Law Group
