A well-drafted Partnership Agreement will:
Information & Benefits:
A partnership is a business with more than one owner that is not a corporation or LLC (limited liability company). The two basic types of partnerships include the general partnership and limited partnership. In a general partnership, partners are personally liable for all business debts and obligations so that if the business itself can't pay, the creditor can legally come after any partner's house, car or other property. In other words, each individual partner can be sued for -- and be required to pay -- the full amount of any business debt. In a limited partnership, there is at least one general partner and at least one limited partner. The general partner assumes all the liability and control while the limited partner cannot participate in management and is only liable for the loss of their investment.
Generally, the IRS considers partnerships as "pass-through" tax entities where the business and partners are seen as one and the same. Meaning that all of the profits and losses of the partnership "pass through" the business to the partners, who pay taxes on their proportionate share (or deduct their share of the losses) on their individual income tax returns. The IRS requires each partner to pay income taxes on his "distributive share." The practical significance of the IRS rule about distributive shares is that even if partners need to leave profits in the partnership -- for instance, to cover future expenses or expand the business -- each partner is liable for income tax on his rightful share of that profit.
The capital of the partnership was contributed in cash: A separate capital amount shall be maintained for each partner.
Profit & Loss
Each partner's share of profits and losses is usually set out in a written partnership agreement. The net profits or losses of the partnership may be divided equally between the partners. The profits and losses of the partnership are usually determined in the manner in which the partnership reports its income and expenses for federal income tax return purposes.
Management, duties, and restrictions
Provide details of each partner's respective rights in the management of the partnership business, and the amount of time expected to be devoted to the conduct of the business.
All banking transactions should be conducted by and/or require the signature of two or more of the partners.
The partnership books and records should be maintained at the principal office of the partnership, and each partner should have access them.
The term of existence for a partnership is not perpetual and is usually determined by the participation of all the partners.
Buy Sell Provision
Upon the departure, disability, death or incapacity of a partner, a partnership might, by law, be dissolved, forcing the remaining partners to divide any assets and profits among each other and decide whether to start a new partnership. A buy-sell provision anticipates this possibility and dictates how the remaining partners will buy, acquire and distribute the departing partner's interest. A buy-sell provision can also dictate who can buy a departing partner's share of the business and what price will be paid for a partner's interest
Admission of Additional Partners
The agreement should detail whether and under what circumstances new partners may be admitted including what kind of capital contribution will be required.
In the event any part, portion or provision or paragraph of this Prenuptial Agreement is declared void or invalid by any legislative act or judicial determination, the remaining portions of this Prenuptial Agreement shall not be affected and thereby it shall remain in full force and effect and be binding upon the parties hereto.
Mediation and Arbitration
Mediation and Arbitration should always specify a location in Client's jurisdiction (preferably, in the same county where they run their business). Mediation is a non-binding way to settle the dispute quickly and amicably. If unable to settle in mediation, arbitration is first option available. Arbitration is the preferred alternative to litigation because of speed, cost, and ability to maintain low profile (no info is publically available).
Always stipulate that the contract will be governed under whatever law the Client ordinarily conducts business. Always make sure that venue and jurisdiction are as convenient to client as possible.
No Modification or Waiver
No modifications except those specifically agreed upon by the parties in writing. Any waiver of a term or provision will not act as a waiver of any other provision.
This agreement constitutes the entire agreement of the parties and may be modified only in a writing executed by both parties.
Notices should always list the current and best addresses where each party may contact the other for whatever reason.
Such restrictive covenants offer the partnership statutory remedies for violation and often prevent a partner from unfairly competing against it or disclosing its confidential business information. As always, ensure any such restrictive covenant is within statutory parameters.
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