Under the Uniform Partnership Act, a partnership agreement may be written, oral or implied. Although there is no legal requirement for a partnership to be formed by written agreement, business attorneys typically recommend that persons looking to form a business partnership have a formal written agreement.
What is the Purpose of a Business Partnership Contract?
In her book Business Organizations for Paralegals, author Deborah E. Bouchoux explains that a formal written partnership agreement may accomplish the following goals:
- To minimize misunderstandings among the partners by fully setting forth each partner's rights, duties and liabilities.
- To provide guidance on what to do in the event of a dispute among the partners.
- To provide the sort of clarity and stability that investors and bankers prefer.
What Provisions Should the Articles of Partnership Include?
As Bouchoux points out, partners are free to agree to any terms they like, provided the terms are not illegal or contrary to public policy. With that in mind, however, the author recommends that a business partnership agreement include provisions relating to the following:
- Name of the partnership. The partnership may operate under the names of some or all of the partners or under a fictitious name.
- Names and addresses of all the partners.
- A recitals clause stating that it is the intent of the parties to enter into an agreement forming a business partnership.
- A provision stating the purpose of the partnership. Bouchoux cautions that the partnership purpose clause should be neither overly broad nor unduly limiting. Ideally, it should state the purpose of the business and allow for the reasonable expansion of the business.
- The address of the principle place of the partnership's business.
- The term or duration of the partnership. The partners may specify that the partnership will terminate upon their mutual agreement, for example, or upon the occurrence of a specific event, such as the accomplishment of its purpose.
- Financial provisions, such as the initial contributions of the partners to the business and the circumstances under which additional capital should be contributed.
- Each partner's share of the partnership profits, and the losses to be borne by each partner.
- Management and control, including each partner's voting power and management authority.
- Circumstances under which new partners may be admitted and provisions for the withdrawal of partners.
- A clause dealing with dissolution of the partnership, specifying the actions that may trigger dissolution and providing for the process of dissolving the partnership and winding up its affairs.
- Finally, the partnership agreement should be signed and dated by all partners.
Miscellaneous Terms to Include in the Partnership Agreement
Miscellaneous provisions may be included in the business partnership agreement, depending upon the nature of the business and the wishes of the partners. For example, the partners may consider adding a non-compete clause to prevent withdrawing partners from taking unfair advantage of the partnership. The partners may also consider adding provisions for resolving disputes among partners and for methods of partnership accounting and record keeping.
Business Attorneys
As Bouchoux notes, partners are generally free to manage and conduct their partnership any way they see fit, so long as they do not violate the law. Nevertheless, because of the complexities involved in drafting a business partnership agreement, entrepreneurs wishing to form a business partnership would be wise to seek the assistance of an experienced business lawyer.
Source: Bouchoux, Deborah E. Business Organizations for Paralegals, 4th ed. N.Y.: Aspen, 2007.
Additional Resources: Forming a Business Partnership; Disadvantages of a Business Partnership; How to Hire an Attorney
Disclaimer: This article is in no way intended as legal advice. For help with specific legal issues, one should contact a licensed attorney in one's local area.
Jessie Vanwinkle - Jessie Vanwinkle is an attorney in practice since 1998. View her full profile for more information.
