Common type of partnership, limited partnerships allow for limited partners whose liability is limited to the amount of their investment in the partnership. Limited liability partnerships additionally shield them from liability incurred by other partners. These partnerships are common among professionals that commonly incur liability, such as doctors and lawyers but are less common in other types of professions.
A Partnership agreement is a separate legal document that explains how the partnership operates. Despite their importance, all states do not require submission of written partnership agreements 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.
These agreements should typically include the rules for:
* Voting rights among partners
* Issuing and transferring ownership interest among partners
* How a new partner will join, and if the partners will allow new partners to join
* How the partnership will be dissolved
* What happens if a partner dies, goes bankrupt, becomes incapacitated, or gets a divorce
* Financial provisions, including the specific accounting method that will be used
* The roles and responsibilities of each partner