A Partnership Amendment is an internal written document detailing any changes to the terms of a partnership that were previously documented in a Partnership Agreement.
A partnership is a business arrangement where two or more individuals share ownership in a company and agree to share in the profits and losses of their company.
Common Provisions
A simple amendment will identify the following essential elements:
- Partners: The name of each person who owns the company
- Partnership Name: The name of the partnership
- Agreement: The date of the original agreement
- Amended Sections: The specific sections of the agreement being changed
When Is a Partnership Amendment Needed?
A Partnership Amendment becomes essential under the following circumstances:
- Evolving Needs of the Partnership: As partnerships evolve over time, their requirements and the dynamics between partners often shift. Recognizing and adapting to these changes is critical for the partnership’s continued success.
- Role Revisions: The roles and responsibilities of partners may evolve or change. This can be due to the changing nature of the business, personal preferences, or the need for specialization. Such changes should be documented to ensure clarity and prevent future disputes.
- Financial Adjustments: Partners might make additional investments into the business. These capital contributions, whether in terms of money or assets, can change the capital structure of the partnership and, therefore, need to be recorded.
- Refinement of Provisions: As the partnership matures, partners might realize the need for more detailed or new provisions to govern their relationship and business operations better. This can include clarifications on profit-sharing, decision-making processes, or dispute-resolution methods.
In essence, whenever there’s a significant change or realization that the original partnership agreement no longer fully encapsulates the nature or terms of the partnership, an amendment should be considered to ensure all parties are on the same page.
Consequences of Not Using a Partnership Amendment
Without a written Partnership Amendment, either the original Agreement or your state’s default partnership rules will apply.
For example, if the profits and losses of the partnership are currently shared equally, but a partner makes an additional capital contribution and wants to have a larger share of the profit, a written Partnership Amendment needs to be executed. Or if interest was not discussed in the original agreement, the state may automatically provide for interest on that additional capital contribution.
If the partners prefer not to pay interest, an addendum allows them to dictate how events not contemplated in the original agreement will be handled.
Nearly every state has adopted the Uniform Partnership Act (1914) [1] or the Revised Uniform Partnership Act (1997).
Most Common Amendment Situations
A Partnership Amendment is used whenever there is a change to the original Partnership Agreement or new provisions must be added to the original Agreement. Often, this is used when:
- A partner leaves the partnership
- A new partner is added to the partnership
- To change the distribution of profits and losses
- A partner contributes additional capital
- The partners adopt new accounting and oversight policies
- The partnership changes its banking institution
An Amended and Restated Partnership Agreement is an agreement that has been changed one or more times (amended) but now appears in its entirety with the amendments incorporated (restated).
What Should Be Included?
A simple Partnership Amendment should generally have at least the following:
- Who are the original partners
- What provisions are being changed or amended
- Where is the partnership’s business located
- When will the amendment go into effect
- How many other amendments have there been
Here are some other useful details to include:
Counterparts: the amendment may be signed in one or more counterparts
Governing Law: which state’s laws will apply if there is a dispute
Original Agreement: unless otherwise modified, the original agreement remains in full force and effect
Be sure to attach or file any Partnership Amendments with the original agreement.
Partnership Amendment Sample
