Updated November 25, 2020:

LLC Business Partnership Agreements

To start an LLC with partners, you will first need to develop a partnership agreement for your limited liability company (LLC). Your partnership agreement will outline your LLC's management and structure and describe partner responsibilities. When forming an LLC, the owners of your company will get the benefits of owning a corporation without the tax drawbacks of the corporate structure. The main purpose of a business partnership agreement is to reduce the likelihood of disagreements by clearly outlining the LLC owners' responsibilities. 

Why Do You Need One?

To prevent future problems, every partnership should develop a strong partnership agreement that all LLC members agree to. Your partnership agreement will function much like a corporation's Articles of Incorporation, and every party will be legally bound by the agreement. It's a good idea to write your partnership agreement before you open your business instead of after operations have begun. 

What Does it Do?

A partnership agreement will clearly define the rules of the business partnership and make sure every partner understands important issues related to the company.

It's important to take your time when developing a partnership agreement. This process requires LLC members to closely examine their roles within the company, as well as consider what would happen if one of them passes away unexpectedly. With a formal agreement, partners will also be protected from each other, meaning one partner won't be able to take advantage of another. 

The Scope of the Agreement

When writing your LLC partnership agreement, you will start with some facts about your company, including:

  • Your LLC's name and address.
  • Your company's purpose.
  • Information stating that your company will be an LLC.

Your agreement should also list every partner's obligations, which will usually be based on what they have contributed to the company. Your partnership agreement will also outline the partners' rights. You might want to include rules for how company decisions will be made and how partner disputes will be resolved. It's important that your partnership agreement include steps for dissolving the company, including how to dispose of assets and distribute remaining money to the partners. 

Benefits to the Partners

Partnership agreements grant rights to the LLC partners, including to profits and ownership stakes. A partner's ownership stake is a representation of how much power they have in the company. While many partnerships provide equal ownership stakes, others give managing partners higher stakes and consultants or investors lower shares. You can distribute company profits by ownership stake or through another method agreed to by all partners. 

Responsibilities of the Partners

When starting an LLC with partners, you need to take into account the amount of capital each founding partner will contribute. Your LLC partners can contribute buildings, cash, land, or other assets. After defining each partner's contributions, you must decide how you want to distribute operational responsibilities. Your goal should be to give each partner control of one section of the company. 

Differences Between LLCs and Partnerships

Limited liability companies and partnerships are similar from a legal standpoint. For example, when an LLC pays income taxes, it does so as a partnership. However, LLCs and partnerships differ in important ways that you should consider when choosing a business structure, including: 

  • An LLC's structure allows it to operate similarly to a partnership, but with the personal liability protections of a corporation.
  • Partnership and LLC owners can divide profits and manage the business however they wish. However, owners of a partnership are liable for their business's debts while LLC owners are typically not. 
  • LLCs almost always need to be registered with the state, whereas partnerships usually don't.

When starting a new business, think very carefully about whether you will structure your business as an LLC or a partnership.

If you choose to form your business as a partnership, the two partnership structures are: 

  • General partnerships, in which parties agree to operate their business for-profit. Every partner is responsible for managing the company and will have an equal share of losses and profits.
  • Limited partnerships, which have one general partner who provides funding for the company and handles management responsibilities and multiple limited partners whose only duty is to provide the company with capital.

If you need help forming an LLC with partners, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.