Permanent Partnership Agreements

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State laws don’t require business partnerships to have a formal partnership agreement. Despite this, the U.S. Small Business Administration recommends creating a permanent agreement as one of the first steps business partners should take. While general and limited partnerships -- two of the three basic types of partnerships -- are especially suited to a permanent agreement, a short-term joint venture with even a remote possibility of extending into a long-term arrangement can benefit from having a permanent partnership agreement.

State Laws vs. Partnership Agreements

Most states have uniform partnership acts or statutes that in the absence of a formal agreement govern and control business partnerships. Although these laws vary according to the state, all are for the most part general regulations that may or may not be helpful depending on the specific situation. For this reason, it’s far better to consider a variety of situations and decide in advance how the partners will handle or deal with starting and operating the business and eventually either converting or dissolving the partnership.

Partnership Agreement Inclusions

The SBA recommends that a permanent partnership agreement fully address a number of crucial concerns. First, the agreement should include the business name, organizational structure and information about each partner. It also should include a description of the operations and types of activities the business will conduct. An outline or template that describes how the partners will make business decisions as well as a listing of the duties and responsibilities of each partner is essential. Another section of the agreement should focus on financials, including current or future financial contributions and a determination of how the partnerships will handle profits or losses. Finally, the agreement should include a detailed dissolution or exit strategy.

General vs. Limited Partnership Agreements

A permanent partnership agreement is even more important when duties and responsibilities aren’t shared equally, such as in a silent partnership or a partnership with limited liability. Although a silent partnership is a less formal arrangement, both types are significantly more complex than a general partnership. In a silent partnership, one or more partners voluntarily relinquish rights to manage, control or make decisions for the business. A silent partner does, however, contribute financially, shares in business profits and losses and remains responsible for business debts or legal actions taken against the business, while in a limited liability partnership, the limited partners also enjoy varying degrees of limited financial and legal responsibilities most often directly related to the amount of the limited partner’s financial investment.

Legal Considerations

The significance of a permanent partnership agreement lies in that the agreement is a legally binding document. It can, however, be as simple or complex as the type of partnership and agreements between the partners allows. While using the services of an attorney to draft the agreement isn’t required, the more complex the agreement the better each partner will be able to protect his interests by having legal representation. In addition, there is no standard format that a permanent partnership agreement must follow. Partners can create a custom agreement, download a template from the Internet or purchase a blank agreement at an office supply store.


About the Author

Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.

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