Sometimes it’s nice to be in a business where you get to have little work to do and only invest your money in it. There is a kind of agreement for this, and it is called the limited partnership agreement. The agreement has a set of rules on how the business will be governed. The creation of the agreement should be voluntary for both partners and it can be attested to the court if some dispute happens.
In the business context, a limited partnership is a kind where one owner is not burdened with making decisions for the business on a daily basis. He is still part of the partnership but he only invested a certain amount of money in it. He is called the “limited partner”, and he has no control over the business decisions. The other party is called the “general partner”, which manages the daily operations of the business and makes all the business decisions without consulting the limited partner. The limited partner should not lose the money he invested in the business.
Forming a limited partnership does not take so much effort. It only takes a few hours of work at most. The first step in forming this kind of sample agreement is to consult a lawyer. He can help you with the paperwork that is in accordance with the law. One important thing to remember when forming a limited partnership is that you should not talk about it outside the bounds of the agreement for security purposes. Some legal rules require compliance. Even after the limited partnership is formed, you still have to comply with some things before actually running the business.
It does not mean that you don’t have to read up and sign a contract when you are in a limited partnership. You still have to make some time for reading since the limited partnership agreement details what you have to do even if there is almost none. You may also see business partnership agreement templates.
The names of the parties participating in the agreement should be specified. One must be referred to as the general partner while the other is referred to as the limited partner. Their roles in the agreement must be clearly defined. Other basic information such as the age and address of the parties is also included. Write a start and end date of the contract’s validity to know how long the contract is good for. You may also see partnership contract templates.
The roles and responsibilities of the parties should be clearly defined as well. As we’ve said before, the general partner operates the business while the limited partner only puts in the money. You have to define what are their other responsibilities and compliance to fulfill the agreement. It also includes their tasks and the limit of their power in making business decisions. You may also see partnership agreement key clauses.
Some decisions have to be made carefully. Partners can vote over business transactions and managerial decisions such as terminating managers and other partners. However, this part has to be detailed when it is about the limit of their voting rights. Sometimes, general partners may not allow limited partners to vote on particular business issues. They can also decide if they want to hire a voting committee to handle the voting process or let all the partners vote. The voting process is outlined as well. You may also see simple partnership agreement templates.
In any business, there will always be profits and losses. The process of splitting these two is written in the limited partnership agreement. The ownership interest is one basis for the partners to get their shares of profits and losses. It can also be allocated differently. The general partner often gets more than the limited partners, considering the fact that they handle the daily operations of the business. You may also see formation agreement templates.
There should be a part where the agreement can be left into the devices of the other party. A partner may be voted out of the agreement when he dies, gets disabled, gets kicked out by other partners, or opts for retirement. For a smoother transition, the ownership interest of the leaving partner can be done in a buy and sell format. The agreement provides rules if the ownership interest of the leaving partner can be bought out by other partners. The limited partnership dissolves when the partners don’t address the possibility of other partners leaving the agreement. In the vent of the partnership being agreed to be dissolved, the splitting of business assets is outlined in the agreement. You may also see business agreement templates.
The confidentiality clause protects any information, data and output made while the limited partnership agreement is valid. Any information should be kept undisclosed at all costs. It also serves as a protection for both parties in case something happens. Rules on what to do if there is a dispute should also be provided. You may also see free sample agreement templates.
Get a lawyer’s help when you draft this agreement. Sure, it is another payment. But it really helps to hire one so the agreement would be in accordance with the law. The lawyer shall review all parts of the document and can make some changes. This makes the agreement more binding and legal. You may also see sample sales agreements.
Revise some sentences that are not needed in the agreement. Sometimes, you have to do a full rewriting of the a part of the document. Polish the draft of the agreement by correcting spelling and grammar errors. This makes reading a legal document easier and more professional. You may also see written business agreements.
Limited partnerships have its highs and lows. It is useful to you in some way but it has some drawbacks. Think hard before getting into this kind of agreement. Once you sign the document, there’s no going back. Below are the advantages and disadvantages of a limited partnership.
In a limited partnership, the limited partner can leave without dissolving the whole partnership. In the first place, he has little control over the business. This makes limited partnership flexible. The general partner also gets paid a percentage of the dividends along with his ownership stake. Limited partnerships can also be customized by writing an operation agreement, which states how the business is run by both parties. You may also see personal loan agreements.
Limited partnerships allow the profits and losses of the company to flow through the business to the partners. The general partners are taxed on their income and tax returns, while the limited partners won’t have to participate in the business at all. You may also see partnership contract templates.
With a limited partnership, the limited partner’s liability is only up to the amount of money he invested in the business. Going beyond that can mean trouble. You can also bring in more investors without giving up control of the business. Their liability in debts is also limited as long as the agreement is valid. You may also see partnership proposal templates.
Limited partners can’t lose the money they invest in the business. In a limited partnership, the partners know their exposure to losses. This, in turn, makes it easier to raise the capital. You may also see partnership contract templates.
When a company goes bankrupt, the general partners bear all the burden of dealing with financial and legal matters. However, all the decisions of the company are made by the general partners. The limited partners don’t have a say in it. You may also see partnership termination templates.
Limited partnerships are only good if you want to invest in a business and get away from the managerial responsibilities. This also opens more opportunities for you to do other things aside from the business that you have invested in. Always think through when signing a contract. It helps to understand everything that is written on it before inking your signature. You may also see basic agreement templates.