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A Partnership Agreement is a contract between two or more business partners. The partners use the agreement to outline their rights responsibilities, and profit and loss distribution. The agreement also sets the general partnership rules, like withdrawals, capital contributions, and financial reporting. LawDepot's template allows you to create a general partnership agreement.
A general partnership involves two or more general partners who have formed a business for profit. Each partner is equally liable for the debts and obligations of the company and the actions of the other partner(s).
Although it's perfectly legal not to have a Partnership Agreement, they come with their advantages. Without an agreement in place, your business is subject to the standard statutes on partnerships in your state. In the United States, 37 states follow the Revised Uniform Partnership Act, and it might have provisions that aren't suitable for your particular partnership or business. By creating your own agreement, you take control of the specifics and customize the applicable law to suit your company perfectly.
For example, a partner leaving the company will cause the dissolution (or end) of the partnership in some states. With a customized Partnership Agreement, you can include clauses to ensure that the default rule doesn't apply to your partnership. Instead, you can make it possible for the remaining partners to buy out the exiting partner's interest in the partnership.
Before selecting a name for your partnership, it's recommended that you perform a business name search to avoid choosing one that sounds similar to another business in your industry. Business name registration laws prohibit businesses from having similar names because it can confuse customers.
Capital contributions are the amount of time, money or assets each partner gives to the business or partnership. The more a partner contributes, the more equity interest they'll have in the company. Each partner receives a percentage of ownership based on their capital contribution.
Specify the monetary value of each contribution in your Partnership Agreement. The capital contributions can come in the form of cash, equipment, time and effort (in place of cash equity) or in some other way (e.g., a free loan of a personal vehicle to partnership).
If you and your partners allow new members, specify how you'll decide on admissions to the partnership. LawDepot's Partnership Agreement template gives you the option of a majority vote or a unanimous vote of the partners.
If the partnership contract permits withdrawal, a partner may make an amicable exit so long as they adhere to the agreement's notice period and other terms specified. If a partner wishes to withdraw, they can do so using a ProductLink code=\"GPRTWT\" text=\"Notice of Withdrawal from Partnership\" form.
Decide if a managing partner will be appointed or if all the partners will participate in managing day-to-day operations. You'll then need to decide if a unanimous or majority vote of the partners can remove the managing partner from their position.
When making decisions with a vote, you can give some partners more power than others. Determine if voting power is based on a partner's proportion of aggregate capital contributions, the proportion of profit shares, or if they'll all have equal voting power (one partner, one vote).
Any person who has the authority to sign contracts on the partnership's behalf can significantly impact your business and the rest of the partners. Decide if the authority to sign contracts will be given to any partner, a managing partner, or subject to a partnership vote.
Business decisions include all actions regarding the management, operation, and control of the partnership and its business. Financial decisions include distribution of profits, allocation of losses, and other financial matters.
The members of a partnership have the option to compensate a partner as they see fit for services rendered to the partnership. The compensation is in addition to the regular personal cash withdrawals that partners can take from the partnership's earnings.
Federal tax audit rules allow the Internal Revenue Service (IRS) to treat partnerships as taxable entities and audit at a partnership level instead of conducting individual audits of the partners. That means that depending on the partnership's size and structure, the IRS can treat the partnership as a taxable entity rather than auditing each partner individually.
Partnerships that have 100 or fewer partners and are not multi-tiered (i.e., which have no partners that are themselves partnerships, LLCs, or trusts) are eligible to elect out of the application of the rules on an annual basis partnership return.
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.
Suppose your partnership isn't eligible to opt-out (or chooses not to opt-out) of the tax audit rules introduced by the Federal Bipartisan Budget Act of 2015. In that case, the IRS can treat the partnership as a single taxable entity and deal with a single \"Partnership Representative\" at audit time.
The Partnership Representative is empowered to make all audit-related decisions on the partnership's behalf in dealings with the IRS. Individual partners no longer have statutory rights to be informed of dealings with the IRS.
Individual partners may no longer negotiate settlements with the IRS or make appeals against any settlement made between the IRS and the Partnership Representative. It's essential your Partnership Agreement clearly defines the role of the Partnership Representative and its accountability to the partners.
The Partnership Representative doesn't have to be one of the partners. Since the role has consequences for all partners, and the IRS doesn't have to notify partners individually, there could be problems if the partner-appointed Partnership Representative isn't available or is hindered.
Some partnerships may choose to appoint a tax attorney or accounting firm to the role to ensure continuity and expertise. Note that any representative you select must have a substantial presence in the United States. 2b1af7f3a8