Partnership Agreements FAQ
What is a Partnership Agreement?
A Partnership Agreement is a written agreement between two or more individuals that details their relationships and roles in a for-profit business endeavor. In many states, such partnerships are often registered in order to be recorded, but the Partnership Agreement itself can be immensely useful in spelling out how new businesses will be run under the agreement. Issues ranging from capital contributions to how buy-outs are conducted are all covered under the umbrella of a Partnership Agreement.
These agreements often come in two forms: the short-form agreement and the long-form agreement. Though the two different types of forms are two sides to the same coin, they do have some differences that are worth paying attention to.
Can you explain Long Form and Short Form Partnership Agreements?
In this case, the Long Form and Short Form Partnership Agreements are largely a matter of just how detailed and comprehensive you want your partnership to be. The Long Form Partnership Agreement will cover a range of issues from monetary matters to conflict resolution, while a Short Form Partnership Agreement focuses on the core terms of the partnership such as capital contributions.
Which is better for me, a Long Form or Short Form Partnership Agreement?
It depends on your partnership’s goals. Generally, partners who have been in business together for a long time know exactly how they want to run things and can squeeze a lot more use out of a Long Form Partnership Agreement thanks to its more in-depth addressing of so many underlying business issues. However, Short Form Partnership Agreements are not necessarily a “lesser” document; they simply focus on the core details of a partnership which is often many partnerships ever really need.
Short Form Partnership Agreements are generally better for new partners who want some time to see how they work together before they settle everything down in writing, while Long Form Partnership Agreements are better for more seasoned partners.
What provisions are common to both forms?
Most of what you see in a Short Form Partnership Agreement will also appear in the Long Form Partnership Agreement. Here are the provisions common to Short Form Partnership Agreements:
- Identification: Identifying the partners (of which there may be two or more) for the rest of the contract is typically handled first.
- Partnership Name and Place of Business:This will identify the partnership further and explain your primary place of business.
- Terms of Partnership: Typically, the common issue addressed here is when the partnership begins, which helps establish grounding for any future financial arguments between parties.
- Contributions: Capital contributions and monetary contributions are handled here; oftentimes, this will stipulate that monetary contributions should be equal at all times.
- Operations and Management:This explains the roles and responsibilities of each partner as well as the types of behaviors that will be considered prohibited throughout the partnership.
A Long Form Partnership Agreement, of course, will go into greater detail with added provisions. These provisions include terms for Conflict Resolution, for example.
What other kind of Partnership Agreements are there?
Partnership Agreements are not just limited to the Short and Long Forms. Here are other Partnership Agreements worth researching if you’re not sure which contract would apply to your situation:
- Employee Partnership Agreements: These agreements describe the terms and conditions for allowing an employee into the partnership of a business. Essentially, it is used when an employee is able to buy their way into ownership and becoming a member of a partnership is a necessary next step.
- Limited Liability Partnership Agreements: These agreements allow members of the partnership to enter into partnership with one another but to avoid liability for these partnership debts.
Why would I want to enter into a partnership?
Joining up with other investors as part of a business venture is a regular part of beginning new businesses. Defining the roles of a partnership will be integral to maintaining the structure of these relationships; if the relationships break down over time, then the Partnership Agreement that every party signed at the outset will provide for better resolutions in the future. This is more important for large partnerships where large amounts of money are at stake; for example, when each member of the partnership is not able to drum up enough money for a business venture by themselves, having a Partnership Agreement in place is much more prudent than not having one at all.
When can the partnership be terminated?
Usually, the partnership can be terminated as a result of the language in the Partnership Agreement itself. For example, the Partnership terms may include a period of time after which the partnership will have to be renegotiated and extended or simply dropped. There may be other methods of terminating a partnership contained within the provisions of the partnership agreement you signed; make sure that you understand what these are heading into a new partnership agreement.
When is a Partnership Agreement valid?
Like all contracts, Partnership Agreements are valid as long as they conform to state regulations and laws and each party is fully able to give their consent and signature. Consideration is not a major issue for Partnership Agreements simply because each partner’s income and expenditure are detailed in the contract itself. This means that each party will be entitled to some piece of future profits as outlined in the partnership; if this is not the case, consideration may become an issue for the agreement’s validity.
When is a Partnership Agreement enforceable?
Enforceability comes into play most often when partners disagree with one another; even so, the agreement itself is technically enforceable from the moment it is validly signed by all parties involved. Once this happens, the agreement is only enforceable relating to business that takes place within the term period of the agreement itself (for example, if a partnership agreement expires after two years as per the terms of the agreement, then anything that happens after that will not be enforceable by the agreement unless it retroactively relates directly to the terms.