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(e.g. XYZ Partnership)


Frequently Asked Questions
What is a Partnership?A partnership is a form of business organization in which two or more individuals (partners) manage and operate the business with a view to making a profit. Each partner shares a fixed proportion of the partnership profits and losses.What is the difference between a General Partnership and other types of partnerships?A General Partnership is a business model consisting of two or more persons (general partners) where each partner is personally liable for all debts and obligations of the partnership (joint and several liability). Each partner is responsible for the outcome of any legal action (lawsuit) regardless of whether the partner was personally involved in the actions that led to the lawsuit. www.legalcontracts.ca's Partnership Agreement is designed for use with a General Partnership.

A Limited Partnership consists of at least one General Partner as well as one or more Limited Partners. Similar to a General Partnership, the General Partners are jointly and severally liable for the debts and obligations of the partnership. The liability of a Limited Partner is limited to the amount of capital they contributed to the partnership.

In a Limited-Liability Partnership , each partner is only liable for their own actions (and the acts of employees under their direct supervision) and not for the negligent acts of other partners. Limited-Liability Partnerships are commonly used by accounting firms and law firms.What is a Partnership Agreement?A partnership agreement is an agreement between two or more persons (partners) setting out the terms and conditions under which they will operate a for-profit business partnership. The partnership agreement will describe the cash contribution requirements for each partner, the distribution of profits and losses between partners, as well as other duties and obligations. The general partnership agreement does not have to be filed or registered.What partnership name should I use?The name of the Partnership should be distinguishable from the name of any other existing business entity (corporation, partnership, LLC, etc.).

If you pick a name that is too similar to an existing business you may be asked to change it. A corporate name search is recommended.

Governing Law

Ohio



Ohio

This Partnership Agreement will be tailored to meet the laws of the State of Ohio.


Frequently Asked Questions
Why is Governing Law important?The laws of the state you select will be used to enforce this agreement and will be used to help resolve any disputes.

Select the state in which the Partnership will primarily do business.

Partnership Information

(e.g. 11011-12 Street, Chicago, IL 80120)

Describe a purpose that relates to the normal course of business for the Partnership. Try to be as specific as possible.
(e.g. Construction and sale of condominiums)



USD United States Dollars





Frequently Asked Questions
Why do I need to select a currency?All monetary amounts will be in the designated currency. Select the currency type: USD (US Dollars), CAD (Canadian Dollars) etc.What is a Fixed Term Partnership?A fixed term partnership is sometimes used where there is a clear end date for the partnership.

Partner Information

2

First Partner's Information

(e.g. Samuel Johnson)

(e.g. 11011-12 Street, Chicago, IL 80120)


Capital Contributions

(e.g. This Partner will provide cash; This Partner will contribute 2,000 square feet of suitable office space described as: 11011-12 Street, Chicago, IL 80120; This Partner will provide all engineering services necessary to bring the ABC widget to market.)

Provide a single cash valuation representing all capital contributions made by this Partner. This valuation should be the total value for all cash, property and services provided to the Company.
(e.g. 10000, 250000)


Second Partner's Information

(e.g. Samuel Johnson)

(e.g. 11011-12 Street, Chicago, IL 80120)


Capital Contributions

(e.g. This Partner will provide cash; This Partner will contribute 2,000 square feet of suitable office space described as: 11011-12 Street, Chicago, IL 80120; This Partner will provide all engineering services necessary to bring the ABC widget to market.)

Provide a single cash valuation representing all capital contributions made by this Partner. This valuation should be the total value for all cash, property and services provided to the Company.
(e.g. 10000, 250000)




Frequently Asked Questions
Who can be a Partner?A Partner can be an actual person or it could be a business entity such as a corporation, an LLC or even another partnership.What are capital contributions?Capital Contributions are the assets that this Partner will contribute to the Company including cash, property and services. One Partner may provide cash while another Partner may provide engineering services. Or each Partner may contribute a combination of assets.

To help avoid confusion in the future you should describe these contributions thoroughly now. Be specific about quantities and amounts.

Admitting New Partners





Frequently Asked Questions
Why are there so many rules around admitting new Partners?In admitting new Partners it is important that the rights of all existing Partners are protected. Adding a new Partner can significantly shift the balance of power in an organization, causing the company to move in a direction that was not intended in the original vision of the company, possibly bringing more risk than some Partners can afford. You may wish to ensure that all Partners have a veto on any new Partners.

Profit and Loss Distribution



Fixed Profit Distribution

Indicate the percentage of the Company's profit or loss that each Partner will receive:
%
 (e.g. 25, 49, 51)


%
 (e.g. 25, 49, 51)




Total:

0 %


Remember: The profit and loss distribution for Partners must total 100.00%



Frequently Asked Questions
What is a distribution?A distribution is an amount paid to each Partner usually out of the profits of the company. Distributions are paid in proportions that are agreed to by all Partners.How can profits and losses be distributed?Profits and losses can be distributed:
  • as a fixed percentage of profits (or losses) for each Partner; or
  • as an equal share of profits (or losses) for each Partner; or
  • in proportion to the capital contributions of each Partner.

Note that this distribution is specific to ongoing profits and losses and may be different from the method of asset distribution used later on liquidation.

Accounting and Annual Reports

Accounting

January
1





Annual Reports

The annual report to the Partners will include a copy of the Partnership's Federal Income Tax filing. Select any additional reports required:






Frequently Asked Questions
What is the fiscal year?The fiscal year is a 12-month accounting period of business operations beginning at any date. A company can schedule their fiscal year-end to coincide with a less busy time of the business year. A retail company that is very busy during the holiday season may elect to have a non-calendar fiscal year-end during a less busy period. That way they will have time to count inventories and prepare financial statements with minimal interference from the busy holiday season.What is the difference between Cash method and Accrual method of accounting?Cash: A method of recording earnings and expenses only upon receipt or payment without regard to when they occurred or were incurred.

Accrual: A method of recording earnings and expenses as they occur or are incurred, without regard to the actual date of collection or payment.What is Goodwill?Goodwill is the value of a business beyond the market value of its assets. It is a reflection of the Company's competitive advantage through reputation, location, brand name, and good customer service. Goodwill may include other intangible assets such as patents or proprietary technology. Goodwill is usually determined by generally accepted accounting methods.What is a Tax Matters Partner?The Tax Matters Partner is the Partner selected by the Partnership to represent the company to the Internal Revenue Service and to make decisions on behalf of the Partnership concerning taxation issues. The Internal Revenue Code requires that the company designate a Partner for this purpose.

The Tax Matters Partner prepares and submits all tax returns and reports as required by the taxation legislation.Why does the annual report always include the federal income tax report?The annual report will always include the federal income tax report because each Partner will need that information to file their personal income tax.

The Partnership itself does not usually pay income tax. Partnership income passes un-taxed to the Partners in the form of a distribution or dividend which is then taxed as personal income.

Management



(e.g. monthly, as required, etc.)




Frequently Asked Questions
How can the Partnership be managed?The day-to-day management of the company can be performed by an individual Managing Partner or through the equitable participation of all Partners through majority votes where necessary. Note that where there is a Managing Partner, many substantial issues will still be resolved by a vote of all Partners.What is a managing partner?A partnership may have a managing partner who is responsible for managing the business. The managing partner will make all the day-to-day decisions of the partnership. All partners in a general partnership will have the right to participate in the management and control of the partnership unless the management obligations are delegated to one or more managing partners in the partnership agreement.What is meant by binding the Partnership in contract?In general, each Partner is deemed to be an agent of the company and each Partner is therefore able to commit the company to business contracts that are within the normal business activities of the company.

In general, it is good practice to specify who has authority to bind the company in contract and then to ensure that all customers and suppliers have knowledge of who has authority and who does not.

Voting



%
 (eg. 51, 100, etc.)

%
 (eg. 51, 100, etc.)

%
 (eg. 51, 100, etc.)


Frequently Asked Questions
Why require minimum voting levels?The rights of all Partners, including minority Partners, need to be respected. Some business decisions can substantially change the nature of the business, possibly greatly increasing the risk to individual Partners. In general, all Partners should have a voice in any decisions that could substantially affect their business interests.What are the voting methods?On issues where Partners are required to vote, voting may be proportional to each Partner's relative Capital Contribution or proportional to each Partner's relative profit entitlement or there may be an equal vote where each Partner gets one vote.

Even though the Partnership will be managed day-to-day by a Managing Partner there will still be substantial issues that require a vote of the Partners.

Actions Requiring Unanimous Consent

Select the issues that require the unanimous consent of all Partners:

All Partners are jointly and severally liable for the debts and obligations of the Partnership. Where expansion of the Partnership requires a significant financial investment involving a large debt load, the interests of all Partners must be considered before proceeding with that additional risk.

All Partners are jointly and severally liable for the debts and obligations of the Partnership. To protect the interests of all Partners, the unanimous consent of all Partners may be required when making substantial purchases.

Sale of significant Partnership assets should require the unanimous consent of all Partners so that the interests of all Partners are protected. An individual Partner should not be permitted to sell or otherwise dispose of Partnership property. An individual Partner should also not be allowed to use Partnership property as collateral for a loan (either a personal loan or a Partnership loan).



Where the Partnership has a claim against another person or business entity or where a debt is owed to the Partnership, it is in the best interest of the Partnership and the individual Partners if these obligations owed to the Partnership are paid in full. If an obligation is to be released for less than full consideration it is important that the interests of all Partners are considered.

Individual Partners do not have property rights in Partnership property. In order to protect the interests of all Partners from unauthorized behavior involving Partnership property, the Partners may want to have more control over the use, lending and sale of Partnership property.

Individual Partners do not have property rights in Partnership property. The interests of all Partners must be considered where Partnership assets are put at risk either by loaning to a third party or placing the asset in an environment where the asset is subjected to theft or loss.



Frequently Asked Questions
Why require unanimous consent?In general, business decisions will be resolved by a majority vote of the Partners. However where the impact on individual Partners will be significant, the Partnership may wish to resolve these decisions through a unanimous vote in order to protect the interests of all Partners.What is meant by "Incurring liabilities or expenditures over a fixed amount"?Where normal operations or an extraordinary expansion of the Partnership requires a significant financial investment involving additional expenses or a large debt load, the interests of all Partners must be respected and the unanimous consent of all Partners may be required before proceeding with that risk.

Undertaking modest expenses may be resolved with a simple majority vote however, incurring expenses over a certain amount should require a unanimous vote. You will be asked to enter an amount. Any expenditures over that amount will require the unanimous consent of all Partners.

Withdrawal of a Partner, and
Dissolving the Partnership

Voluntary Withdrawal of a Partner

Three Months

Three Months
The notice period should be reasonable and is intended to reduce the harm caused by the early withdrawal. A reasonable notice period may be different depending on the industry.




Dissolution of the Partnership

%
(eg. 25, 50, 100, etc.)







Frequently Asked Questions
Why have a period of prohibition on withdrawal?Partners in a Partnership have a duty to act in the best interest of the Partnership and each other. By enforcing a prohibition on withdrawal, individuals will be motivated to take their responsibility as a Partner seriously and commit to at least a minimum period with the Partnership. The other Partners can then feel comfortable relying on the commitment of their fellow Partners to the purpose and goals of the Partnership.

Where a Partner withdraws prior to the end of the initial period of prohibition, that Partner may be subject to penalties that reasonably reflect the damages done to the Partnership by that early withdrawal including, but not limited to, lost Partnership earnings.How does a partnership end?The Partnership can end by agreement of the Partners or the Partners can expressly agree that the Partnership will end at a specified date, or upon completion of certain tasks. In some jurisdictions the Partnership may end on the death or bankruptcy of a Partner unless the Partnership Agreement expressly states otherwise.How does a partner leave?Where there is no Partnership Agreement, the Partners can make a written submission to the other Partners to withdraw from the Partnership. A Partnership Agreement should protect the Partnership and the remaining Partners from the unexpected withdrawal of an essential Partner. If the voluntary withdrawal of a Partner offends a term of the Partnership Agreement, then the withdrawing Partner may be liable for any damages suffered by the Partnership or the remaining Partners.Can a partner transfer their interest?Yes, a Partner can transfer their interest in the Partnership, if the Partnership agreement does not restrict a transfer. If an individual Partner becomes bankrupt then a third party may have a claim against that Partner's interest in the Partnership.

However, depending on the terms of the Partnership Agreement, the recipient of a transferred interest may not be given any power to vote or to participate in decision-making. The rights and obligations of a recipient of a Partnership interest may be limited to the profits and losses of the Partnership. This is to ensure that the remaining Partners are not affected by the extravagance or incompatible notions of an unexpected new Partner.How can assets be distributed on dissolution?When a Partnership is dissolved, the proceeds from the sale of the assets may be distributed among the Partners either in proportion to their respective capital contributions or in proportion to the designated profit/loss sharing ratios.

Note: The distribution method on dissolution may be different from the method used for ongoing profit and loss distribution. For example, to get the Partnership started, one Partner may provide technical expertise while another Partner provides cash. They may share ongoing profits on a 50/50 basis but in the event of the dissolution of the company the cash investor may expect to get back 100% of his cash investment.

Duty of Loyalty



Three Months


Frequently Asked Questions
What is the Duty of Loyalty?Partners owe each other, and the Partnership, a fiduciary duty. Unless permitted in the Partnership Agreement, a Partner cannot compete with the Partnership by participating in a similar business in the same geographical area, and cannot take opportunities for themself that the Partnership may want to pursue, nor act either willfully or recklessly in a manner that will harm the Partnership. After leaving, why can't a partner compete?Where the Partner or manager leaves for any reason and the Partnership survives the dissociation, it will be in the best interest of the Partnership to prevent dissociated Partners or managers from participating in competing ventures. It is presumed that a Partner or manager has had access to confidential information while working at the Partnership. It would be unfair to use that information to participate in a competing venture.

Additional Clauses

0
No additional clauses are needed for most people.



Frequently Asked Questions
Do not use several names or words to refer to the same person or thing as it could cause confusion and ambiguity by appearing to introduce new or different people or items.

Certain words were capitalized and defined already in this agreement. For example, a partner is called the "Partner". Use the same predefined terms in your additional clauses.

Do not use pronouns such as: they, us, we, our, you, or me. Pronouns may be ambiguous and can cause confusion. e.g.:
  • Wrong: If a Partner's ownership interest becomes available for sale, we have a right to first purchase:
  • Right: If a Partner's ownership interest becomes available for sale, the remaining Partners have a right to first purchase.
Plain English means language that is simple and conveys ideas with the greatest possible clarity and avoids using legalese.

Legalistic StylePlain English
at the present time now
due to the fact that because; since
during such time aswhile
for the duration ofduring
inasmuch asbecause; since
in the event thatif
notwithstanding the fact that although; even if
prior to before
pursuant to under; in accordance with
subsequent toafter
that certaina
with reference toabout

Do not abbreviate words.

Use numerals, not words, to denote amounts.

Try not to repeat or contradict what has already been stated in the Partnership Agreement.

Only put one paragraph per additional clause.

Order your additional clauses in a logical sequence.

Make sure your meaning is clear.

Spell-check your clause.

Signing Details


Unsure



Frequently Asked Questions
Do I need witnesses?It is a good idea to have your signatures witnessed even though most documents and contracts do not require a witness for them to be legally valid.

Many banks and other institutions have their own internal policies about signing requirements, and may refuse to accept documents that are not witnessed regardless of the fact that the documents are legally valid. If you want to avoid bureaucratic hold-ups, it may be a good idea to have your document witnessed.Who can be a witness?Generally, the person you choose to witness a document should have no financial or other interest in the agreement. A neutral third party is the best choice. A neutral third party is someone not related to either party and who does not benefit from the contract.

Ideally a witness will observe the parties signing the document and then the witness will sign the document as proof that they witnessed the parties signing. The witness is not usually required to know or understand the contents of the document.How do I file my Partnership Agreement?You do not file your general partnership agreement. The general partnership agreement is simply an agreement between the partners. Only where there is limited liability for the owners, such as LLP, LLC, and corporations, are companies required to register. The partners in a general partnership have unlimited liability for the debts and obligations of the partnership.


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