A partnership is defined as two or more individuals in business for a profit. As

Question

A partnership is defined as two or more individuals in business for a profit. Assume that you are an entrepreneur and will start a new business with three other associates. As such, there are four partners in this proposed business. You may assume that the business will be in any field of your choosing (eg. restaurant, service, financials, etc.). A general partnership does not have any formal requirements for formation. Essentially, partners can simply begin working as long as the local jurisdiction has approved their Business Permit. However, as a savvy MBA student, you know that a Partnership Agreement is imperative to ameliorate any issues in the long-term.

Without a Partnership Agreement, State Statutes will resolve any prospective issues and litigation between partners. Write a partnership agreement which includes all necessary considerations for creating a partnership, including the type of partnership, specific duties of each of the partners (check those listed in the text), rights and financial issues. You may use any standard partnership agreement as a guide, but do not simply “fill in the blanks” of a standard form or retype a form changing only a few words. Instead, make any necessary modifications or additions for your chosen business. The agreement should include all elements necessary to make it legally binding, including line items for signatures. The best agreements not only incorporate suggested provisions in Chapter 18, but also delineate the agreement in your own words. (For example, you can change the word "will" rather than “shall”). A Partnership Agreement is a contract between all partners. Please ensure that the Agreement contains all provisions that will allow it to be enforceable under the respective state law. You may obtain a form partnership agreement at many stationers and bookstores or you may copy one from a layperson’s guide to business organizations, which should be available in any law library. Public law libraries are located in most courthouses, along with the central county law library downtown. Many students have found forms on the internet. You can also simply draft the Partnership Agreement in a Word Document. You should not have to pay to find a form. Good Luck!

Explanation / Answer

PARTNERSHIP AGREEMENT

This PARTNERSHIP AGREEMENT is made on ____________, 20__ between ____________________________ and __________________________________________.

1. NAME AND BUSINESS. The parties hereby form a partnership under the name of _________________________ to conduct a _____________________. The principal office of the business shall be in _______________________.

2. TERM. The partnership shall begin on _____, 20____, and shall continue until terminated as herein provided.

3. CAPITAL. The capital of the partnership shall be contributed in cash by the partners as follows: A separate capital account shall be maintained for each partner. Neither partner shall withdraw any part of his capital account. Upon the demand of either partner, the capital accounts of the partners shall be maintained at all times in the proportions in which the partners share in the profits and losses of the partnership.

4. PROFIT AND LOSS. The net profits of the partnership shall be divided equally between the partners and the net losses shall be borne equally by them. A separate income account shall be maintained for each partner. Partnership profits and losses shall be charged or credited to the separate income account of each partner. If a partner has no credit balance in his income account, losses shall be charged to his capital account.

5. SALARIES AND DRAWINGS. Neither partner shall receive any salary for services rendered to the partnership. Each partner may, from time to time, withdraw the credit balance in his income account.

6. INTEREST. No interest shall be paid on the initial contributions to the capital of the partnership or on any subsequent contributions of capital.

7. MANAGEMENT DUTIES AND RESTRICTIONS. The partners shall have equal rights in the management of the partnership business, and each partner shall devote his entire time to the conduct of the business. Without the consent of the other partner neither partner shall on behalf of the partnership borrow or lend money, or make, deliver, or accept any commercial paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to purchase, or sell or contract to sell any property for or of the partnership other than the type of property bought and sold in the regular course of its business.

8. BANKING. All funds of the partnership shall be deposited in its name in such checking account or accounts as shall be designated by the partners. All withdrawals are to be made upon checks signed by either partner.

9. BOOKS. The partnership books shall be maintained at the principal office of the partnership, and each partner shall at all times have access thereto. The books shall be kept on a fiscal year basis, commencing __________________ and ending ______________, and shall be closed and balanced at the end of each fiscal year. An audit shall be made as of the closing date.

10. VOLUNTARY TERMINATION. The partnership may be dissolved at any time by agreement of the partners, in which event the partners shall proceed with reasonable promptness to liquidate the business of the partnership. The partnership name shall be sold with the other assets of the business. The assets of the partnership business shall be used and distributed in the following order: (a) to pay or provide for the payment of all partnership liabilities and liquidating expenses and obligations; (b) to equalize the income accounts of the partners; (c) to discharge the balance of the income accounts of the partners; (d) to equalize the capital accounts of the partners; and (e) to discharge the balance of the capital accounts of the partners.

11. DEATH. Upon the death of either partner, the surviving partner shall have the right either to purchase the interest of the decedent in the partnership or to terminate and liquidate the partnership business. If the surviving partner elects to purchase the decedent's interest, he shall serve notice in writing of such election, within three months after the death of the decedent, upon the executor or administrator of the decedent, or, if at the time of such election no legal representative has been appointed, upon any one of the known legal heirs of the decedent at the last-known address of such heir. (a) If the surviving partner elects to purchase the interest of the decedent in the partnership, the purchase price shall be equal to the decedent's capital account as at the date of his death plus the decedent's income account as at the end of the prior fiscal year, increased by his share of partnership profits or decreased by his share of partnership losses for the period from the beginning of the fiscal year in which his death occurred until the end of the calendar month in which his death occurred, and decreased by withdrawals charged to his income account during such period. No allowance shall be made for goodwill, trade name, patents, or other intangible assets, except as those assets have been reflected on the partnership books immediately prior to the decedent's death; but the survivor shall nevertheless be entitled to use the trade name of the partnership. (b) Except as herein otherwise stated, the procedure as to liquidation and distribution of the assets of the partnership business shall be the same as stated in paragraph 10 with reference to voluntary termination.

12. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in accordance with the rules, then obtaining, of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof.

Executed this ___ day of ____, 20_____ in _____________________ [city], _____________________ [state].

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