A partnership is a business entity made up of two or more individuals who all have equal control over their business. The Uniform Partnership Act -- which has been adopted in some form by every state other than Louisiana -- has created a number of provisions regarding how partnerships should be run. These provisions are deemed "gap fillers," and set the rules for a partnership when the partnership agreement is silent. However, partners are free to draft any provision into their partnership agreement, and can create almost any business relationship.
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Select a business name for your partnership. The name can be fictitious, or can be a combination of a few of or all of the names of the partners. If you select a fictitious name, make sure no other company in your state is operating under that name. Your Secretary of State or Secretary of Commerce will have this information available.
Determine the initial contribution each partner will make to the partnership. Contributions may be in the form of cash, property or services, but the contributions must, in totality, provide the partnership enough capital to reasonably operate. Your agreement should contain express provisions outlining each partner's initial contribution.
Agree to a specific allocation of profits and losses among partners. The Uniform Partnership Act will presume that each partner is jointly and severally liable for the partnership debts -- that is, each partner is individually liable for the entire partnership debt -- but you may outline in your partnership agreement how profits and losses will be distributed.
Divide authority among each partner. While each partner must have access to the partnership's financial and operating records, the scope of each partner's authority can be defined and limited in the partnership agreement.
Outline the steps that must be followed for a new partner to be added and for a current partner to withdraw. Some partnerships may allow a departing partner to withdraw his share of the partnership's finances, while others limit the financial ownership of each partner.
Create a program for dispute resolution. Disagreement among partners can result in a partnership dissolution unless specific guidelines are described in the partnership agreement for how to resolve disputes.
Tips and warnings
- Your partnership agreement is essentially a contract each partner signs to signify his agreement to the terms of the partnership. It, like a contract, can be used in court to require that partners follow the rules they have agreed to.
- While a partnership agreement can be drafted with any provisions and in any form the partners choose and still be legally enforceable, partnerships should seek the assistance of an experienced business attorney before drafting an agreement.
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