Key Takeaways

  • An LLC partnership agreement outlines ownership, profit-sharing, and operational rules between LLC members.
  • It is not always legally required but is strongly recommended to avoid disputes and clarify expectations.
  • Agreements can address capital contributions, profit/loss allocation, management duties, withdrawal procedures, and dissolution terms.
  • Different partnership structures—general, limited, and limited liability partnerships—affect member liability and responsibilities.
  • Additional clauses may include decision-making authority, dispute resolution, transfer of ownership, and procedures for admitting new members.
  • State laws may influence the enforceability and required provisions of an LLC partnership agreement.

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 in the business. Doing so ensures that expectations, liabilities, and responsibilities are clearly understood before any business risks are assumed.

Why an LLC Partnership Agreement Matters

Even when not legally mandated, an LLC partnership agreement is essential for businesses with more than one owner. Without it, state default rules will dictate how your LLC operates, which may not align with your preferences. A well-drafted agreement:

  • Prevents misunderstandings about each member’s rights and obligations.
  • Establishes a clear process for handling profits, losses, and decision-making.
  • Protects the business in the event of disputes, member exits, or ownership changes.
  • Provides legal clarity for banks, investors, and potential buyers.

In multi-member LLCs, especially family- or friend-run ventures, the agreement acts as a safeguard against personal and professional conflicts.

Types of Partnerships

There are several types of partnerships, including:

  1. general partnerships,
  2. limited partnerships, and
  3. limited liability partnerships.

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.

Choosing the Right Partnership Structure for an LLC

When creating an LLC partnership agreement, selecting the correct structure is critical. Consider:

  • General Partnership within an LLC: All members share equal responsibility for management and liabilities unless otherwise stated.
  • Manager-Managed LLC: Members appoint one or more managers to oversee daily operations, often beneficial for larger businesses.
  • Member-Managed LLC: All members participate directly in management decisions, common in smaller or closely held companies.

The structure you choose will influence voting rights, liability exposure, and how profits and responsibilities are allocated.

Sections of the Sample Partnership Agreement

A partnership agreement should provide details about:

  1. Capital contributions expectations
  2. Profit and loss distribution
  3. Management and voting procedures
  4. Partner withdrawal
  5. Business dissolution

Capital Contributions

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 to 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 of 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:

  1. Fixed percentages: Each partner receives a fixed percentage of the profit or loss — the total summing to 100 percent.
  2. 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:

  1. Proportional to Contributions: Each partner receives a percentage vote equal to his or her capital contribution.
  2. Proportional to Profit Share: Each partner receives a percentage vote equal to his or her profit distribution.
  3. Equal Vote: Each partner receives an equal vote.

Withdrawal

If a 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.

Dissolution

Partners may indicate how assets are distributed in the event of dissolution. Potential methods may include:

  1. All partners agree on a specified end date.
  2. All projects have been completed or the purpose of the business has been fulfilled.
  3. The business dissolves upon the death of a partner or member.
  4. The business dissolves when the business or a member/partner declares bankruptcy.
  5. The business dissolves when a partner withdraws.

Additional Clauses to Strengthen Your LLC Partnership Agreement

Beyond capital contributions, profit allocation, and dissolution terms, consider adding:

  1. Decision-Making Procedures – Define voting thresholds for major actions, such as amending the agreement or approving large expenses.
  2. Ownership Transfers – Set rules for selling or transferring membership interests, including rights of first refusal.
  3. Dispute Resolution – Outline whether disputes go to mediation, arbitration, or court to minimize costly litigation.
  4. New Member Admission – Establish a process for bringing in new partners, including approval requirements and updated ownership shares.
  5. Buyout Provisions – Specify how a departing member’s share will be valued and purchased.
  6. Non-Compete and Confidentiality – Protect the LLC’s trade secrets and prevent members from competing against the business.

Including these clauses makes your agreement more adaptable and legally secure.

Frequently Asked Questions

  1. Is an LLC partnership agreement legally required?
    Not always, but it’s highly recommended to prevent state default laws from governing your business by default.
  2. Can I write my own LLC partnership agreement?
    Yes, but working with an attorney ensures the agreement complies with state laws and covers all critical issues.
  3. How are profits divided in an LLC partnership?
    They can be split equally, by ownership percentage, or by a custom formula outlined in the agreement.
  4. What happens if a partner wants to leave the LLC?
    The agreement should define withdrawal procedures, buyout terms, and how ownership is redistributed.
  5. Can new members join the LLC later?
    Yes, but the process and approval requirements should be detailed in the agreement to avoid disputes.

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