Partnership and LLP Agreements
The following list is not exhaustive but includes many of the most common issues for consideration and negotiation:-
- decision making – what sort of decisions need to be agreed or is there a designated Managing Partner who makes most day to day decisions. Which, if any decisions need to have unanimous agreement? With a number of partners, will most decisions be a simple majority in number or equity? If only 2 partners, what happens with a deadlock scenario?
- capital contribution and drawings – how much is each partner obliged to contribute and what is the policy on drawings? It may also be necessary to consider the issue where a partner overdraw from capital i.e is it agreed that a partner can draw against future earnings? This is common with professional partnerships as are provisions potentially requiring partners to contribute where the partnership has difficulties financially.
- death or disability – issues here can be complex. With many partnerships being based on fee earning by partners, what happens if the partner cannot work? On death, what happens regarding future profits – do they stop immediately or not? If there is an ongoing equity in the partnership, do the partners beneficiaries have any decision making rights or are they compelled to sell to the remaining partners? With partnerships, it is very common and recommended to insist that all partners have appropriate insurance, possibly for the benefit of other partners as well as family.
- terminating (dissolving) the partnership – dissolution of a partnership is generally a less than ideal way to proceed. Other alternatives may include some or all partners being bought out or assets being sold to a 3rd party. Where there is no partnership agreement or a partnership agreement is not clear as regards mechanisms for resolving dispute and the rights of the parties, the chances of a dissolution, possibly leaving debts or problems is greatly increased.
- suspension or removal – always important but especially so for professional partnerships vis regulatory issues and good leaver/bad leaver provisions.
- new partners joining – in what circumstances, if any, should new partners be sought or allowed to join? Who and how is this decided?
- salaried or equity? – in professional services partnerships, there are often 2 different classes of partners, those with an equity stake and those who have the title but no share in overall profits.
- borrowing money – in what circumstances can money be borrowed, who decides, how and if power is delegated, does it need to be limited
- meetings, information and record keeping
- time off, including holidays or sickness
- outside business activities (permitted, restricted)
- pre-emption rights where a partner leaves and valuation methods
- resolution of disputes