by Celeste Marchand
A limited partnership is one in which only one or a few of the people who own the business are subject to personal liability for the debts of the business. These people are known as "general partners" and they are responsible for managing the business. The other owners are known as "limited partners" and are more like investors. Their risk is limited to the amount they invest in the business and they do not have any authority to manage the business. In order to operate your business as a limited partnership, you will need a limited partnership agreement. This document spells out the rights and responsibilities of all the parties. Because it is a complex agreement, you will probably want to hire an attorney who practices business law to draft it for you.
The limited partnership agreement will set forth the purpose of and the duration of the existence of the partnership. This may be for a term of years or until the occurrence of a specified event. For example, the partnership may last for "30 years" or "until the completion of the project".
A limited partnership agreement will state the names of the limited partners as well as the names of the general partners. It will also specify each partner's capital contribution. It will set forth whether additional capital contributions may be required of the partners and if so, how that will occur. Depending on how the partnership is structured, some partners may be eager to contribute additional capital, while others may not want this to happen. This is because it could alter the amount of authority some partners have, if authority is tied to the amount invested. This is just one of the concerns that will need to be addressed regarding additional capital contributions.
How profits and losses are distributed is another subject that will be covered by the partnership agreement. It can be structured according to the partner's capital contributions, but it doesn't have to be.
The particular responsibilities and authority of each general partner will be specified in the partnership agreement. If some partners will be responsible for marketing decisions, while others will be responsible for business operations, this is the place to specify who will do what. This will avoid misunderstandings about who has the authority to take certain actions and who is responsible for accomplishing certain tasks.
It is also a good idea to set out the salaries of general partners who will be working in the business. Because job duties and responsibilities vary, it is important to agree in advance about how much each partner will be paid for working in the business.
You will also want to address the circumstances under which a partner will be removed from the partnership. It may seem inconceivable that this could happen at the start of the business arrangement, but you never know what may happen in the future. Even if all partners continue to be satisfied in the partnership, one partner may unexpectedly become incapacitated. You need to be prepared for that possibility, so that that partner's interest can be purchased by the remaining partners or by a new partner and the business can continue without interruption.
This is only a sample of the issues that you should cover in your limited partnership agreement. An attorney who practices business law can help you draft a comprehensive limited partnership agreement.
- The Benefits of a Partnership Agreement If you do not have a written partnership agreement, you will be stuck with the provisions that your state's laws dictate.
- The Difference Between a Partnership and a Limited Liability Partnership It is important to understand the advantages and liabilities of these two business types.
- Important Considerations In Your Limited Partnership Agreement This document spells out the rights and responsibilities of all the parties.
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