1. What Is a Partnership Agreement?
2. What Is a Partnership?

What Is a Partnership Agreement?

As a partner in a partnership, it's always smart to have a written and formal agreement with the other partner(s). Although a partnership agreement isn't a legal requirement in the state of Louisiana, using this document provides a framework for all partners' obligations, as well as how any disagreements, conflicts, and other issues that are difficult to resolve will be handled. These issues come up in just about every professional relationship. Having these aspects of how the business will be run in writing helps ensure that your business can succeed on a long-term basis.

Failure to create a partnership agreement will force the business to default to being governed by the Uniform Partnership Act, which is also called the UPA. Each state has a few variations to the UPA, but across the nation, this act outlines the guidelines used by partnerships. Most partnerships involve unique relationships, but the UPA doesn't allow for any flexibility or take these relationships into account. Since the guidelines in the UPA are so inflexible, they may not work well for your organization's specific needs.

For example, your partnership might have a 70-30 split, but the UPA would essentially assume that both partners own an equal share. Without a partnership agreement in place, one partner could be responsible for higher tax liabilities than the percentage of the business they own, or a partner could lose a large portion of the business that they rightfully own. Additionally, if one of the partners passes away or leaves the business, the partnership would be dissolved by default unless the business has some type of written agreement in place that dictates what would happen in such situations.

When you're creating a partnership agreement, your mindset should be that anything that could potentially go wrong in the business will go wrong, so the document should address any of those potential issues or conflicts. Partners can disagree about a number of things as they operate a business together. Power, ego changes, and money can all change the relationship between partners as well, creating friction. The agreement you create with your partner should cover all potential what-ifs and outline how each situation would be resolved. It's always better to be overly cautious when dealing with potential business disagreements.

Many partnerships hire attorneys to help draft partnership agreements. You may choose to draft some of the sections and then have the agreement reviewed by an attorney for:

  • Clarification
  • Modification
  • Finalization

The agreement must adhere to the Louisiana partnership laws, which is why it's so important to have it reviewed by a legal professional. An agreement that doesn't align with the state laws isn't valid.

What Is a Partnership?

In Louisiana, one of the business formation options is a partnership. This entity is created when at least two legal persons enter into an oral or written contract to combine their resources and/or efforts to reach a common commercial benefit or profit. Since an oral contract is valid in Louisiana as a way to form a partnership, the state doesn't require partners to file any formal paperwork. However, the parties involved in the business should still write and file a formal agreement.

Partners typically owe fiduciary duties to one another when operating in a partnership. This means that partners can't maintain control of assets owned by the partnership, including potential business opportunities, for any single partner's personal profit. Additionally, the fiduciary duties restrict partners from acting in any manner that's contrary to what's considered to be in the partnership's best interest.

All partners in a partnership are secondarily liable for their portion of the debts that the business incurs. The exception is if a single partner is sued as an individual. In this case, a partner may be able to plead the case of discussion, which would require the creditor to only seize the assets identified by the partnership to satisfy any outstanding debts before that creditor could come after the other partners' personal assets. Many of the partnerships formed in Louisiana are created as commendam partnerships, or limited partnerships, as this business entity offers more personal liability protection for each individual partner.

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