Limited Company Partnership Agreement
A limited company partnership agreement is the agreement between partners that defines the terms and business details of the business venture.3 min read
2. What Is Included in a Limited Company Partnership Agreement?
3. Clauses to Include in a Limited Company Partnership Agreement
4. Who Qualifies for a Business Partnership?
Updated November 24, 2020:
A limited company partnership agreement is the agreement between partners that defines the terms and business details of the business venture. It also details terms set for the partnership. This agreement can help protect the partners and protect the success of the business. The agreement will also help define the goals of the company and clarify the company's objectives.
A limited company partnership agreement may also be referred to by several other names:
- Partnership contract
- General partnership agreement
- Articles of partnership
- Business partnership agreement
- 50/50 partnership agreement
Why Should a Limited Company Partnership Agreement Be Used?
This type of agreement should be used under several circumstances.
- If you are preparing to form a limited partnership
- If you have already formed a limited partnership with a partner, but have not yet formalized the details you agreed on
Creating a partnership agreement before starting a company will help prevent issues and confusion for the partners. Creating a written partnership agreement is a way of showing the intent to create a formal partnership. If a partnership agreement is not prepared for the company, the default partnership of the state will be applied. By creating the partnership agreement, the partners can decide on different details than what the state automatically applies. There may be liabilities that arise unexpectedly if a partnership agreement is not created. This comes into play when considering profits, losses, and taxes for the company.
What Is Included in a Limited Company Partnership Agreement?
A limited company partnership agreement includes the following:
- Business name, address, and purpose
- The contact details of each partner
- Details of how decisions will be made
- Voting rights for business decisions
- The roles and responsibilities of each partner
- The obligations of each partner
- Percentage of ownership for each partner
- How the partnership may be dissolved
Some partnership agreements may also define the management roles of each of the partners, if necessary. Ownership interests of the partners and buy-out options may also be included.
Clauses to Include in a Limited Company Partnership Agreement
Certain clauses should be included in a limited company partnership agreement to help the partners establish governing rules.
- A funding and capital contribution clause should contain details of the amount of money each partner is expected to bring to the table at the start of the business. It should also outline terms for collecting additional capital from the partners if deemed necessary.
- A salary or payment clause outlines how the partners will be paid and how profits will be divided. This clause should also detail how and when partners will be repaid for their initial investment in the company.
- A decision-making clause should summarize how decisions will be made. This clause should stipulate what happens when trying to agree on an outcome to address a difficult decision.
- A death or disability clause should specify how things like trusts, wills, and insurance are expected to be handled in unfortunate circumstances. It should also describe the beneficiaries' rights and decision-making abilities in the company.
- A dissolution of partnership clause is necessary to detail what happens if the partnership fails to continue. This should include verbiage related to outcomes if a single partner decides to leave the partnership or if everyone involved decides to cancel the partnership.
Who Qualifies for a Business Partnership?
A partnership can be formed with two or more partners. Any number of partners can be permitted, but it may become difficult to manage if too many partners are involved in the business. If a business decides to have a large number of partners, it is important to create a detailed, lengthy partnership agreement to ensure all the bases are covered.
If you are performing work with another person and do not want to be considered partners, it is crucial to create and have both parties sign an agreement stating that the work is not a partnership. It's important to make it very clear that the partnership does not exist, and maintain records to back that decision. Otherwise, there can be liability risks if an issue arises.
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