REQUIREMENT IN PARTNERSHIP

The Facts
1. 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
2. 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.
Features
3. 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
3. 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
4.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.