Sample Partnership Agreement LLC: Everything You Need to Know
A sample partnership agreement LLC is a legal contract that specifies the rights and responsibilities of each entity (e.g., individual or business) associated with a company.4 min read
What Is a Sample Partnership Agreement LLC?
A sample partnership agreement LLC is a legal contract that specifies the rights and responsibilities of each entity (e.g., individual or business) associated with a company. The partnership agreement should provide clear guidelines for both the daily procedures of running a business and the incidental occurrences associated with a business, such as when a partner withdraws.
The partnership agreement may specify the capital contributions, ownership stakes, management responsibilities, and profit and loss distribution procedures for each partner. Establishing an effective partnership agreement is critical to ensuring the success of a joint venture. It is always recommended to construct the partnership agreement before any time or money is invested into the business. Doing so ensures that expectations, liabilities, and responsibilities are clearly understood before any business risks are assumed.
Types of Partnerships
There are several types of partnerships, including:
First, a general partnership is a for-profit business structure formed between two or more general partners. Each general partner is equally liable for the debts and obligations associated with the business. In addition, each general partner is liable for the actions and business decisions of each of the other general partners.
Second, limited partnerships have two levels of partners: general partners and limited partners. A limited partner is only liability for the debts and obligations associated with his or her portion of the business. Limited partnerships always have at least one general partner.
Finally, in a limited liability partnership, every partner is a limited partner. Accordingly, each partner is only liable for his or her actions and the debts and obligations associated with his or her portion of the business. There are no general partners.
Sections of the Sample Partnership Agreement
A partnership agreement should provide details about:
- Capital contributions expectations
- Profit and loss distribution
- Management and voting procedures
- Partner withdrawal
- Business dissolution
Typically, one or more partners will provide an initial capital contribution to cover the start-up costs of the business. It is important to clearly delineate the investment requirements for the business partners. For example, some partners may make a cash contribution, while others may contribute other types of resources, such as real estate and equipment. Additionally, you should specify a course of action if the initial capital raised does not fully cover the initial costs of business operation until the business starts to generate a profit.
Often, each partner will receive a percentage ownership of the business based on the size of his or her capital contribution. For example, a partner tasked with managing one or more aspects of a business may have a larger ownership stake than other partners, who may have limited expertise, hold positions of lesser responsibility, and/or have limited time or capital to invest in the business.
Profit and Loss Distribution
Profit and losses may be distributed based upon:
- Fixed percentages: Each partner receives a fixed percentage of the profit or loss — the total summing to 100 percent.
- Equal shares: Each partner receives an equal share of the profits or covers an equal share of the losses.
The partnership agreement should indicate the regularity with which distributions are made, as well as a minimum operational balance that the company should retain.
Management and Voting
Partnerships may designate a managing partner and/or may hire a staff to manage day-to-day business operations. The partnership agreement should specify the organizational structure of the business and the roles and responsibilities of each partner and staff member.
In addition, each partner may receive voting privileges:
- Proportional to Contributions: Each partner receives a percentage vote equal to his or her capital contribution.
- Proportional to Profit Share: Each partner receives a percentage vote equal to his or her profit distribution.
- Equal Vote: Each partner receives an equal vote.
If partnership agreement allows for partners to withdraw, then the partnership agreement should outline a procedure for an amicable exit, including a notice period and/or a probation period. In addition, the partnership agreement should detail a process for the reallocation of the partner's ownership stakes and profit and loss distributions.
Partners may indicate how assets are distributed in the event of dissolution. Potential methods may include:
- All partners agree on a specified end date.
- All projects have been completed or the purpose of the business has been fulfilled.
- The business dissolves upon the death of a partner or member.
- The business dissolves when the business or a member/partner declares bankruptcy.
- The business dissolves when a partner withdraws.
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