It may not just be you going at it alone when starting a business. Sometimes you want to go into business with a friend, partner, or colleague. Each person who agrees to operate a business together has the potential to share in the profits, losses, and taxation of the business. Your formation documents and local tax laws determine what each impact will have on each member.
To make sure things run smoothly and there is no confusion between partners, it is best to put everything in writing with a limited partnership agreement. The best way to do this is to use a limited partnership agreement template, which you can download below.
What is a Limited Partnership Agreement?
This company formation is where at least one person in the company is a general managing partner and at least one other person is a limited partner. The key difference exists in what the limited partner and what the general partner can do and what liabilities each may face.
The limited partner gains access to the company by contributing upfront with finances or other assets. In exchange, they receive limited ownership interest, profits, and liability for financial loss or legal matters. The limited partner in this arrangement cannot take part in day-to-day decision making, oversee anyone working for the company, or make any other major decisions.
The general partner in the arrangement is personally liable for financial losses and responsibility for legal matters besides making day-to-day decisions about the company. General partners receive more profit, are personally liable for a larger share of income tax where applicable, and have more weight when deciding the future of the company.
Any other person interested in participating or investing in the company will clearly be able to see which partner is more liable for decision-making, profits, losses, and legal matters. A properly executed agreement provides a level of transparency from the beginning.
When to Use a Limited Partnership Agreement?
The best time to use this type of agreement is when you are starting a business with one or more partners and:
- Some of you want to be more actively involved in day-to-day business than others.
- Some of you want to be personally liable for some debts and taxes from the business, and others don’t.
Each partner must be very clear on what levels of activity they want to be involved in and what levels of liability are fair for each of those activities.
What to Include in a Limited Partnership Agreement
The limited partnership agreement template doc should include several elements:
- Name of the business
- Identifying information for all partners
- Each partner’s role
- Division of profits and losses
- Adding new partners to the business
- Handling retirement or death
- Decision making for disputes
- Managing buyouts
- Which state will govern your agreement
You will also want to include the amount and types of contributions each person made at the beginning of the company, and for new partners when joining, what they are contributing upfront. Contributions may include time, money, stocks, bonds, real property, real estate, services, and more. General partnership agreements include much of the same information.
When you’ve completed your agreement, ensure you include information on how you will make an amendment to a limited partnership agreement.
Limited Partnership Agreement Sample
Below, you will find a sample Limited Partnership Agreement that you can download in PDF or Word format:
Partnership Agreement
