What Is a Limited Partnership Agreement?
A limited partnership (LP) agreement outlines the terms for partners with general or limited authority. General partners can make the day-to-day business decisions. Limited partners provide funding without receiving the same decision-making power.
Many businesses use a limited partnership to attract investors. The agreement also outlines terms for profit payments, partner withdrawals, and arbitration.
Legal Templates offers a free limited partnership agreement template with the necessary information. Use our form to create a limited partnership that works for everyone.
When Should You Use a Limited Partnership Agreement?
An LP agreement serves investors looking to provide funding and receive passive profits. If your business needs capital without additional decision-makers, a limited partnership can help. An LP agreement often applies in the following situations:
- Real estate businesses: If a group of people pays for a property, they may use this agreement to identify each contributor while authorizing one individual to manage the operations.
- Venture capital: It’s common for venture capital companies to bring on a limited partner who provides capital for the business to invest. The limited partner provides the funds but has no control over the investment decisions.
- Film productions: Investors may fund and profit from film projects, but get no say in the production. This allows the producers to create the project while the investor gets passive income.
How to Write a Limited Partnership Agreement
When writing your limited partnership agreement, consider each partner’s roles and responsibilities. Create your agreement with the following steps:
- Describe the partnership: Record its name and the state where it was formed. Also, describe the start and end dates and the purpose of the partnership.
- Identify the partners: Name each partner and define the extent of their decision-making powers. This section identifies limited and general partners.
- Record capital contributions: If desired, set a due date for contributions. Then record the date, type, and amount for each payment received from the partners.
- Outline profit distributions: Determine the division of profits and losses and when they will be paid. Note if any partners will have a salary and the amount paid.
- Set the financial processes: Determine the start and end of the fiscal year and list the partnership bank account. Also note who can sign checks, whether partners pay interest, and who will handle financial record keeping.
- Determine terms for voluntary withdrawal: Plan whether all or most of the partners must consent to a dissolution. Also, set requirements for partners leaving due to retirement and terms for buyout agreements. If these rules are not specified, dissolution procedures will be governed by default state laws.
- Provide steps for involuntary withdrawal: Decide how to remove partners for misconduct. Also, add terms for buying deceased partners’ shares.
- Set the final terms: Finalize the agreement by noting which state will govern the contract and handle arbitration or dispute resolution methods such as litigation or mediation. Also, set the effective date for your agreement and have the partners sign it into effect. Notarization is usually not required, but it may give the agreement an additional layer of validity.
Limited Partnership Agreement Sample
View our free limited partnership agreement sample for the necessary content and formats. This downloadable form, available in PDF and Word format, makes it easy to plan your partnership and attract investors.
