What is a general partnership agreement in business?
Learn the key elements that every partnership agreement should have.
What is a general partnership agreement used for?
What is a general partnership agreement used for? General partnership agreements, also known as business partnership agreements or simply partnership agreements, establish legally enforceable rules for partners starting a business together. From roles and responsibilities to ownership stakes and decision-making strategies, a general partnership agreement should anticipate, address, and resolve any type of business dispute that may arise.
Benefits of general partnership agreement vs limited.
General partnerships are the most common type of agreement because of their flexibility. Most commonly adopted by professionals and small business owners, each partner actively participates in business operations and equally assumes responsibility for debt, liabilities, and assets.
A general partnership agreement benefits from the following characteristics:
- Easy to form and dissolve
- Simplified tax structure — all profits and losses are passed through to the individual partners
- Less expensive to form and manage
- No business registration or financial reporting requirements
Comparatively, in a limited partnership, partners have defined responsibilities — not all are part of the day-to-day operations or decision-making. Additionally, at least one general partner is liable for all the company debts, while the others cannot lose more money than they initially contributed.
Unless partners need to be protected from significant financial liabilities, the flexibility of a general partnership provides the best opportunities for creating a joint business venture.
General partnership examples.
A general partnership only requires a formal agreement for two or more people to work together. Common examples of a general partnership may include:
- An automotive company started by a group of mechanics
- A consignment store opened by thrifty family members
- A summer lawn care business organized by several college students
- A dental practice owned by dentists with different specialties
5 key elements to include in a general partnership agreement.
When you and your partner(s) are developing your general partnership agreement, make sure you discuss, agree on, and include the following components:
- General information. Include all partners’ names, the business name, and the purpose of the business partnership. Also, specify the date when the partnership will go into effect.
- Contributions. Specify each partner’s initial capital contribution, which is the amount of money each partner will invest in the partnership. Usually, general partnership agreements also set a contribution deadline for depositing initial capital contributions.
- Ownership. Enter each partner’s ownership percentage in the partnership. As a rule, general partnerships split ownership equally among partners.
- Profits and losses. Map out how the partnership will divide profits and losses — and how often any profits will be distributed to partners. It’s a good idea to provide the option of retaining earnings to reinvest into the partnership, especially in the early stages of your business.
- Decision-making and management. Indicate how you will make business decisions, including how to avoid any possibility of a tied vote. This scenario typically arises if you have an even number of partners and require a majority vote to make business decisions.
Consult a legal expert before developing your general partnership agreement to ensure it is solid, comprehensive, and meets your business needs.
Easily create, sign, share, and start.
With Adobe Acrobat, you can create airtight general partnership agreements, share them as electronic documents with your partners, easily e-sign them, and move ahead with your business ventures.