Partnership Agreement Checklist: Essential Terms to Review
Key Items to Review in a Partnership Agreement
A well-drafted partnership agreement prevents disputes by addressing potential conflicts upfront. Whether you are forming a general partnership, LP, or LLC taxed as a partnership, review these areas carefully.
Capital Contributions
- How much is each partner contributing (cash, property, services)?
- Are future capital contributions required, and under what circumstances?
- What happens if a partner cannot meet a capital call?
- How are capital accounts tracked?
Profit and Loss Allocation
- How are profits and losses divided among partners?
- Are distributions tied to profit allocation, or handled separately?
- Is there a guaranteed payment or salary for managing partners?
- When and how often are distributions made?
- Can the partnership retain profits instead of distributing them?
Management and Decision-Making
- Who manages day-to-day operations?
- What decisions require unanimous consent vs. majority vote?
- Are there spending limits that require partner approval?
- Can a partner bind the partnership to contracts without other partners' consent?
Partner Roles and Duties
- Are each partner's responsibilities clearly defined?
- Is there a non-compete clause restricting outside business activities?
- What fiduciary duties do partners owe each other?
- How is partner compensation for services handled?
Exit and Buyout Provisions
- What triggers a buyout (death, disability, retirement, voluntary withdrawal)?
- How is the departing partner's interest valued?
- What is the payment structure for buyouts (lump sum, installments)?
- Is there a right of first refusal if a partner wants to sell their interest?
- Can a partner be expelled, and under what circumstances?
Dispute Resolution
- Is there a mediation or arbitration clause?
- How are deadlocks resolved?
- Is there a buy-sell (shotgun) provision for irreconcilable disputes?
Dissolution
- What events trigger dissolution of the partnership?
- How are assets distributed upon winding up?
- How are partnership debts handled during dissolution?
When to Consult a Lawyer
Partnership agreements govern long-term business relationships with significant financial stakes. Consider having an attorney draft or review the agreement, particularly the buyout, valuation, and dissolution provisions.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.