A Well-Drafted Partnership Agreement is Essential
A partnership agreement is a contract between business partners. It forms the foundation of the relationship that business partners have with each other and the partnership. Although a partnership agreement is not required for general partnerships (GPs) in North Carolina, it is strongly recommended. Without a partnership agreement, the risk of disputes (and other problems) rises dramatically. Here are four key things that should be addressed in a partnership agreement:
1. Financial Contributions
A partnership agreement should clarify the initial and ongoing obligation that each partner has to contribute financially to the general partnership. You do not want any confusion over the financial responsibilities of you or your business partners.
2. Distribution Rights
Distributions are often how business partners get paid. A partnership agreement should always provide clear instructions regarding distribution rights. Each party to a general partnership in North Carolina should understand when and how they will receive distributions.
3. Day-to-Day Management
A partnership agreement should also provide clarity regarding the day-to-day management of the business. For example, the partnership agreement should have instructions for how important decisions will be made.
4. Dispute Resolution
A properly drafted general partnership agreement reduces the risk of conflict. That being said, no written agreement can ever completely eliminate the risk of a disagreement between business partners. There should be a dispute resolution provision. As an example, you may want to consider a mandatory mediation or mandatory arbitration clause.
A general partnership can be formed by two or more people doing business together. While it does not require an agreement to be in place, it is recommended that anyone operating as a general partnership have a partnership agreement. Such an agreement will control how the partnership is operated, how debts and assets are managed, decision-making, etc. Income, losses, and the like in a general partnership pass through in proportion to each partner’s ownership. There is no limited liability in a general partnership and the partners are subject to personal liability for all obligations of the partnership, regardless of their percentage of ownership. A business lawyer in Monroe, NC can help you through the process if you are looking to form a general partnership. Contact us now for help.
Contact Our Monroe, NC Partnership Law Attorneys for Immediate Help
At Plyler, Long & Corigliano, LLP, our North Carolina business lawyers have the skills and experience to advise clients on the full range of issues related to general partnerships. If you have any questions about forming, developing, or transitioning a general partnership, we are here as a legal resource. Contact us today to set up a confidential initial appointment. With a law office in Monroe, we provide commercial law representation in Union County and throughout the region.
General Partnerships in North Carolina: Frequently Asked Questions
Is a General Partnership the Right Choice for My Business?
A general partnership (GP) may or may not be the right legal entity for your North Carolina business. The answer depends on a number of different factors. A GP can be an efficient business entity with low start-up costs. However, the lack of liability protection makes a general partnership the wrong entity for certain types of businesses.
What are Some Alternatives to a General Partnership?
There are other business entities in North Carolina that offer some of the benefits of GPs while also providing much-needed liability protection. Notably, in North Carolina, you can form an alternative type of business partnership called a limited liability partnership (LLP). It offers some personal liability protection. In some other cases, you may be better off opting to form a limited liability company (LLC) instead of a partnership. If you have questions about what type of business entity is right for your situation, a North Carolina partnership law attorney can help.
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