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Alternate Names:
A Partnership Agreement is also known as:
A Partnership Agreement sets out guidelines and rules for business partners to follow so that they
can avoid disagreements or issues in the future.
Capital Contribution
Each partner receives a percentage of ownership based on his or her capital contribution.
Fixed Percent: This number is a fixed percentage (e.g. 45, 55). The numbers must add up to 100%
between all partners.
Equal Share: Profits and losses are distributed evenly between partners.
In proportion to capital contributions: the share of profits and losses depends on how much the
partner has invested.
Management and Voting
Partnerships can be managed by a designated managing partner, through majority voting, or by
unanimous vote by all partners.
Federal tax audit rules allow the IRS (Internal Revenue Service) to treat partnerships as taxable
entities and audit at a partnership level instead of conducting individual audits of the partners. This
means that depending on the size and structure of the partnership, it is possible for the IRS to audit
the partnership as a whole, rather than auditing each partner individually.
Partnership agreements should address certain tax elections and choose a partner for the role of
partnership representative. The partnership representative serves as the figurehead for the
partnership under the new tax rules.
Law Depot's Partnership Agreement explains the rules clearly and allows you to:
Choose whether the partnership wishes to elect out of the new tax elections, if eligible. If the
partnership chooses to elect out, they must renew this decision annually.
Make the partnership representative answerable to the partners in their dealings with the IRS.
Elect to have each partner individually assessed for their share of the tax liability if an audit
assesses a tax liability at partnership level.
Partnership Withdrawal
If the partnership contract permits withdrawal, a partner may make an amicable exit so long as he
or she is adhering to the notice period, and other terms specified in the agreement. If a partner
wishes to withdraw, they can do so using a Notice of Withdrawal from Partnership form.
Partnership Dissolution
Partners may indicate how assets are distributed between partners in the event of dissolution.
Some of the most common reasons partners may dissolve a partnership include: