The Partnership Agreement
Include these provisions in your partnership papers.
Many partnerships, although financially successful, have failed for the lack of a full agreement among the partners in respect to matters that normally arise in the ordinary course of an operating partnership. The partnership agreement, sometimes called the articles of copartnership, should aim to resolve, at the outset, every possible point of difference. Among the common provisions are the following:
- Names and addresses of all of the partners;
- The name of the firm;
- Nature, purpose, and scope of the partnership business;
- Location of the principal place of business;
- When the partnership is to take effect;
- The duration (life) of the partnership;
- The required capital contributions of each partner, whether it be in the form of cash, property, or services; if cash, amounts to be invested and when payable;
- Procedures to be used when additional capital is needed;
- Interest (and rate), if any, payable on capital or other contributions;
- The duties of each partner;
- How profits and losses are to be shared;
- How profits are to be calculated;
- The amount of drawings that each partner can make, and whether it is to be weekly, monthly, or annually;
- Whether each partner is to get a salary;
- How much time each partner must devote to the business;
- Whether a partner is permitted to engage in any other nonpartnership business, and any limitations on these activities;
- The authority among partners to act on behalf of the partnership;
- Limitations, if any, upon authority of partners to bind the firm by commitments;
- Designation of a bank and who shall have the authority to both sign and countersign checks;
- Where the books and records are to be kept and that each partner shall have equal access to them;
- Right, if any, of a partner to withdraw, under what conditions, and how notice to the other partners is to be given;
- Dissolution: right to continue business upon withdrawal, death, disqualification or incapacity of any partner, with procedures as to the adjustment of such partner's interest;
- What happens to the partnership's name in case of dissolution;
- How goodwill, if any, is to be determined in the event of dissolution;
- Administration of partnership property and affairs upon dissolution and the rights of a partner or partners to conduct the process;
- Provision for arbitration, if any, in case of a dispute among the partners;
- Any other provisions deemed important to the partnership.
Observation: Regardless of the method of accomplishing the task-and the bottom-line concern is money- a partnership can remain vigorous and profitable only by periodically reviewing and addressing the changing financial and personal needs of the partners, the partnership, and its clients and customers.
PARTNERSHIPS STEP-BY-STEP by David Minars, M.B.A., J.D., CPA. Copyright ©1997 by David Minars. Published by arrangement with Barron's Educational Series, Inc.
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