The classic business partnership, a general partnership allows flexibility and simplicity of operation, but does not protect the partners’ assets from the company’s liabilities. This means that any debts the business incurs, such as from a lawsuit, can spill over into the owners’ personal assets. The profits and losses from every general partnership are accounted for on the partners’ tax returns that they file individually.
A Partnership agreement is a separate legal document that explains how the partnership operates. Despite their importance, not all states require written partnership agreements be submitted to the state. However, because of how important they are in confirming how the partnership works, SBA requires written operating agreements from all Limited Liability entities.
The partnership agreement is similar to a corporation's bylaws in that it sets forth the financial details regarding the company, including each member's initial financial contribution, voting rights afforded to each partner, and how decisions and disagreements are solved.