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complex partnership

Page history last edited by abogado 13 years, 2 months ago

Bus Law II - Resource Materials

Prepare a Complex Partnership Agreement 

 

PARTNERSHIP AGREEMENT

 

THIS PARTNERSHIP AGREEMENT (this "Agreement") is entered into as of this ____ date, by and among, ____ specify names of partners and if applicable, type of entity of each (collectively, the "Partners", and each individually, a "Partner") and all subsequent Partners who acknowledge, accept, and become signatories to this Agreement at the time of becoming Partners in this Partnership (as defined below).

 

RECITALS

 

The Partners desire to form a Partnership (the "Partnership") pursuant to the California Uniform Partnership Act on the terms and conditions subsequently set forth.

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the Partners agree as follows:

 

ARTICLE I

PURPOSE

 

The Partnership shall be formed for the purpose of engaging in the business of ____ specify purpose of business and in such other related business as may be agreed on by the Partners.

 

ARTICLE II

NAME OF PARTNERSHIP

 

The name of the Partnership shall be ____ specify partnership name.

 

ARTICLE III

PLACE OF BUSINESS

 

The principal place of business of the Partnership shall be located at ____ address, ____ city, ____ county, California, or such other place as may be agreed on by the Partners.

 

ARTICLE IV

DURATION

 

The Partnership shall commence on ____ specify partnership start date, and shall continue until ____ specify partnership end date, or until dissolved pursuant to Article XIV(a) of this Agreement.

 

ARTICLE V

CAPITAL CONTRIBUTIONS

 

(a) Partnership Capital. The initial capital of the Partnership shall consist of the sum of ____ Dollars ( $________ ).

 

(b) Initial Capital Contributions. The initial capital contribution ("Initial Capital Contribution") of each Partner shall be as follows:

 

 

____ Separately list name of each partner and that partner's contribution; if cash, state amount; if other than cash, give description of property and fair market value.

 

(c) Additional Capital Contributions. Subsequent capital contributions, as such are needed by the Partnership, shall be made by each Partner in proportion to his or her respective distributive share (as defined in Article IX(a)). In the event any Partner fails to make such subsequent capital contribution, the Partners who have contributed their shares may consider the sums so advanced as loans to the Partnership.

 

(d) Time of Initial Capital Contributions. Each Partner shall make his or her Initial Capital Contribution to the Partnership on or before ____ date initial contribution due.

 

(e) Effect of Failure To Make Initial Capital Contribution. If any Partner fails to make the required Initial Capital Contribution to the Partnership on or before ____ date initial contribution due, this Agreement shall be abandoned and of no further effect. On the occurrence of such contingency, all Initial Capital Contributions that have been made shall be returned to the Partners who have made such Initial Capital Contributions.

 

(f) Interest on Capital Contributions. No Partner shall receive, or be entitled to receive interest on his or her contributions to the capital of the Partnership.

 

ARTICLE VI

PARTNERSHIP PROPERTY

 

All property originally paid or brought into, or transferred to, the Partnership as contributions to capital by the Partners, or subsequently acquired by purchase or otherwise, on account of the Partnership, is Partnership property.

 

ARTICLE VII

RIGHTS, DUTIES, AND LIABILITIES OF PARTNERS

 

(a) Other Business Activities Prohibited. No Partner, during the continuance of the Partnership, shall pursue, or become directly or indirectly interested in, any business or occupation that is in conflict either with the business of the Partnership or with the duties and responsibilities of such Partner to the Partnership.

 

(b) Time Partners To Devote to Business. Each Partner shall devote to the business of the Partnership the following amount of time: ____ list each partner and specify time to be devoted to business in terms of hours per day, week, or month as the case may be.

 

(c) Salaries. Each Partner, for his or her time devoted to the business of the Partnership, shall receive, in addition to a share in any profits, the following salary:

 

____ list each partner and specify salary for each.

 

(d) Vacations and Leaves of Absence. Each Partner shall be entitled to ____ specify number of vacation days per year and ____ specify number of days per year of leave of absence for illness or disability per year, commencing from ____ specify date on which year begins for purpose of vacation and leave, with no impairment of any right to share in the profits or of any other rights under this Agreement.

 

ARTICLE VIII

MANAGEMENT OF BUSINESS

 

(a) Participation in Management. Each Partner shall diligently attend to the business of the Partnership and devote his or her full time and attention to that business. Except as otherwise provided in this Agreement, all Partners shall have equal rights in the management and conduct of the Partnership. Decisions shall be by majority vote (each Partner having one vote) except as provided in clause (b) of this Article.

 

(b) Matters Requiring Unanimity. During the continuance of the Partnership, no Partner shall, without the consent of all the Partners, do any of the following:

 

(1) Assign the Partnership property in trust for creditors or on the assignee's promise to pay the debts of the Partnership;

 

(2) Dispose of the good will of the business;

 

(3) Submit a Partnership claim or liability to arbitration or reference;

 

(4) Confess a judgment against the Partnership;

 

(5) Do any act that would make it impossible to carry on the ordinary business of the Partnership;

 

(6) Make, execute, or deliver in the name of the Partnership any bond, trust deed, mortgage, indemnity bond, guarantee, surety bond, or accommodation paper or accommodation indorsement;

 

(7) Borrow money in the name of the Partnership or use as collateral any Partnership property;

 

(8) Assign, pledge, transfer, release, or compromise any debt owing to, or claim of, the Partnership except for full payment; (9) Convey any real property of the Partnership;

 

(10) Act as an endorser, surety or guarantor on any obligation that could result in a liability for the Partnership;

 

(11) Pledge or transfer in any manner, except to another Partner, his or her individual interest in the Partnership; or

 

(12) Undertake or complete any act for which unanimity is required under any other provision of this Agreement.

 

(c) Contracts. For purposes of the Partnership business, but subject to any limitations and restrictions imposed by this Agreement, each Partner shall have equal power and authority in using the Partnership name and in binding the Partnership, in making contracts and purchasing goods, and in otherwise trading, buying, selling, and managing on behalf of the Partnership.

 

(d) Employment and Dismissal of Personnel. No Partner shall hire any person for employment by the Partnership or dismiss, except in case of gross misconduct, any person in the employment of the Partnership without the consent of all the Partners.

 

(e) Indemnity by Partnership. The Partnership will indemnify each Partner in respect of payments made and personal liabilities reasonably incurred by each Partner in the ordinary and proper conduct of the Partnership business, or for the preservation of its business or property.

 

(f) Bank Deposits and Accounts. All Partnership funds shall be deposited in the name of the Partnership in accounts in the ____ specify name of bank. All checks, drafts, or other withdrawal slips drawn on such Partnership accounts must be signed by two Partners.

 

ARTICLE IX

PROFITS AND LOSSES

 

(a) Sharing of Profits. The Partners shall be entitled to the net profits arising from the operation of the Partnership business that remain after the payment of the expenses of conducting the business of the Partnership. Each Partner shall be entitled to the distributive share of the profits specified below:

 

____ list names of partners and the designated percentage.

 

The distributive share of the profits shall be determined and paid to the Partners on the ____ specify day of month day of ____ month of each year.

 

(b) Losses. All losses that occur in the operation of the Partnership business shall be paid out of the capital of the Partnership and the profits of the business, or, if such sources are deficient in funds to cover such losses, by the Partners in the following shares:

 

____ list names of partners and the appropriate percentage for each.

 

ARTICLE X

ACCOUNTING MATTERS

 

(a) Books of Account. Books of account shall be kept by the Partners, and proper entries made in those books of all the sales, purchases, receipts, payments, engagements, transactions, and property of the Partnership.

 

(b) Method of Accounting. All accounts of the Partnership shall be kept on the accrual basis. All matters of accounting for which there is no provision in this Agreement are to be governed by generally accepted methods of accounting.

 

(c) Place Where Books and Records To Be Kept. The Partnership books of account, and all securities, papers, and writings of the Partnership shall be kept at the principal place of business of the Partnership. Each Partner shall have free access at all times to such information in order to examine and copy the Partnership books.

 

(d) Capital Accounts. A capital account shall be maintained on the Partnership books on behalf of each Partner. Capital accounts shall be maintained in accordance with 26 CFR section 1.704-1(b)(2)(iv). No additional share of profits or losses shall inure to any Partner because of changes or fluctuations in the Partner's capital account.

 

(e) Allocation of Profits and Losses. An income account shall be maintained on the Partnership books on behalf of each Partner. As soon as practicable after the conclusion of each fiscal year, and at such other times as the Partners may decide, the income account of each Partner shall be credited with that Partner's distributive share of profits and debited with his or her share of the losses. Any losses to be debited to a Partner's income account that exceed the credit balance of that account shall be debited to that Partner's individual capital account. If, as a result of debiting a Partner's individual capital account with the excess losses, that capital account is depleted, future profits of that Partner shall be credited to his or her capital account until the depletion has been eliminated.

 

(f) Drawing Accounts. A drawing account, to which withdrawals shall be debited, shall be maintained on the Partnership books on behalf of each Partner. Withdrawals may be made subject to such limitations as the Partners may from time to time adopt. Amounts so withdrawn shall be charged against each Partner's share of the Partnership's profits at the end of each fiscal year of the Partnership.

 

(g) Fiscal Year. The fiscal year of the Partnership shall commence on ____ specify fiscal year start date and end on ____ specify fiscal year end date.

 

ARTICLE XI

ACCOUNTING BETWEEN PARTNERS

 

Each Partner shall, on every reasonable request, give to the other Partners a true accounting of all transactions relating to the business of the Partnership, as well as full information of all letters, accounts, writings, and other things that shall come into such Partner's hands or to his or her knowledge concerning the business of the Partnership.

 

ARTICLE XII

ADMISSION OF PARTNERS

 

Additional Partners may be admitted to this Partnership on such terms as may be agreed on in writing between the existing Partners and new Partners. The terms so agreed on shall constitute an amendment to this Agreement, and shall conform to the requirements of Article XVII.

 

ARTICLE XIII

WITHDRAWAL, RETIREMENT, AND EXPULSION

 

(a) Notice of Withdrawal or Retirement. In the event any Partner desires to withdraw or to retire from the Partnership, or shall become disabled so that he or she is unable to fulfill his or her obligations to the Partnership, as specified in this Agreement, the Partner shall give ____ specify number days' notice of the withdrawal or retirement in writing by registered or certified mail to the other Partners at each Partner's last known address. If any Partner is adjudged incompetent, then the Partner's guardian shall give notice of this condition to each of the other Partners in the manner provided above.

 

(b) Expulsion. If any Partner is adjudged incompetent, or becomes disabled to the extent that the Partner will be unable to fulfill his or her obligations to the Partnership as specified in this Agreement, or fails for any other reason to fulfill his or her obligations, the Partner may be expelled from the Partnership by a majority vote of the other Partners, this expulsion to become effective after ____ specify number days' notice of expulsion to that Partner. The notice shall briefly state the

grounds for the expulsion.

 

(c) Competitive Activities After Retirement. No Partner who retires or withdraws from the Partnership shall, without the consent in writing of the active Partners in the Partnership, conduct or otherwise engage in the ____ specify type of business business within ____ specify city where retired Partner may not compete, or within a radius of ____ specify number miles of the current Partnership location, whichever is less, for a period of ____ specify number years after the retirement or withdrawal.

 

ARTICLE XIV

DISSOLUTION, WINDING UP; LIQUIDATION

 

(a) Causes of Dissolution. The Partnership shall be dissolved on the happening of any of the following events:

 

(1) Termination of the ____ specify term of partnership or undertaking specified in this Agreement;

 

(2) Withdrawal, retirement, or expulsion of any Partner;

 

(3) Death, disability, or bankruptcy of any Partner; or

 

(4) Unanimous agreement of the parties.

 

(b) Right To Continue Business After Dissolution. On dissolution of the Partnership, the remaining Partners shall have the right to elect to continue the business of the Partnership under the same name, by themselves, or with any additional persons they may choose. If the Partners remaining desire to continue the business, but not together, the Partnership shall be liquidated pursuant to clause (e) of this Article.

 

(c) Payment if Partnership Continued After Dissolution. If, on dissolution, the remaining Partners elect to continue the Partnership business under clause (b) of this Article, they shall pay to the retiring, withdrawing, or expelled Partner, or to the estate of the deceased Partner, the value of that Partner's interest, as determined by clause (d) of this Article, as of the date of dissolution. The payment shall be made within ____ specify number months of dissolution.

 

(d) Value of Partner's Interest. The value of a Partner's interest in the Partnership shall be computed by (1) adding the totals of (A) the Partner's capital account, (B) the Partner's income account, and (C) any other amounts owed to such Partner by the Partnership, and (2) subtracting from the sum of the above totals the sum of the totals of (A) the Partner's drawing account and (B) any amount owed by the Partner to the

Partnership.

 

(e) Winding Up and Liquidation. On dissolution of the Partnership, if the Partnership business is not continued pursuant to clause (b) of this Article, it shall be wound up and liquidated as quickly as circumstances will allow. The assets of the Partnership shall be applied to Partnership liabilities in the following order:

 

(1) Amounts owing to creditors other than Partners;

 

(2) Amounts owing to Partners other than for capital and profits;

 

(3) Amounts owing to Partners in respect to capital; and

 

(4) Amounts owing to Partners in respect to profits.

 

ARTICLE XV

ARBITRATION

 

It is agreed that disputes arising under this Agreement, or under any instrument made to carry out the terms of this Agreement, shall be settled by arbitration. A majority of the Partners shall select an impartial arbitrator, whose decision shall be binding and may be enforced in any court of competent jurisdiction in the State of California.

 

ARTICLE XVI

NOTICES TO PARTNERS

 

All notices to be given under this Agreement shall be in writing and sent by (a) certified mail, return receipt requested, in which case notice shall be deemed delivered three (3) business days after deposit, postage prepaid in the United States Mail, (b) overnight courier, in which case notice shall be deemed delivered one (1) business day after deposit with that courier, or (c) telecopy, in which case notice shall be deemed delivered on transmittal by telecopier or other similar means to the address of each Partner set forth on the signature page or to such other address as any Partner may designate by written notice to the other Partners.

 

ARTICLE XVII

AMENDMENTS

 

This Agreement, except with respect to vested rights of the Partners, may be amended at any time by a majority vote of the Partners.

 

ARTICLE XVIII

GOVERNING LAW

 

This Agreement shall be governed by the laws of the State of California.

 

IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement as of the date first above written.

 

______________________

Signature

 

______________________

Signature

 


Notes

 

Article I: The attorney should be certain to draft a clear and unambiguous purpose clause. This should help to avoid disputes between the partners as to what business activities of the individual partners constitute partnership as opposed to nonpartnership enterprises.

 

Article II: A partnership that adopts a name other than the proper name of the persons transacting the partnership business must file a fictitious business name statement. See Cal Forms (1990 Ed) Assumed Business or Professional Name (Ch 5)

 

Article IV: A partnership may be formed for a fixed period or for an indefinite period. A continuation of the business by the partners, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. Corp C § 15023(2) When a partnership for a fixed term or particular undertaking is continued after the termination of that term or undertaking without any express agreement, the rights and duties of the partners remain the same as they were at the time of termination, so far as is consistent with a partnership at will. Corp C § 15023(1)

 

Caution: Unless otherwise provided in a written agreement, dissolution may be at the express will of any partner when no definite term or particular undertaking is specified. [Corp C § 15031(1)(b); for discussion of partnership dissolution and impact of Uniform Partnership Act of 1994, see Business Entities: Dissolution and Termination of Partnerships (Ch 20)]

 

Article V: The partnership basis for property contributed to it by the partner is the adjusted basis of that property to the contributing partner at the time of the contribution, increased by the amount (if any) of the gain recognized to the contributing partner at such time. 26 USCS § 723 If, when a partner contributes property to a partnership, the partnership assumes a liability of the partner, the resulting decrease in the partner's liabilities is treated as a distribution of money to the contributing partner. 26 USCS § 752(b) If the indebtedness assumed by the other partners exceeds the contributing partner's adjusted basis for his or her partnership interest, the excess is treated as a capital gain from the sale or exchange of a partnership interest. [26 CFR § 1.722-1]

 

Article V(b): Valuation of the assets is especially important in view of the California Uniform Partnership Act provision that in settling accounts between the partners after dissolution, the liabilities of the partnership include those owing to partners in respect of interest on contributed capital. Corp C § 15018(d) Article V(f): Subject to any agreement to the contrary, a partner shall receive interest on the capital contributed only from the date that repayment should be made. Corp C § 15018(d)

 

Article VI(a): For statutory provisions as to partnership property, see Corp C §§ 15024 et seq. In the absence of an agreement to the contrary, a partner is to receive interest on the capital contributed by that partner only from the date when repayment should be made. Corp C § 15018(d) For statutory provision as to indemnity by partnership, see Corp C § 15018(b)

 

Article VII(b): Ordinarily, no taxable gain or loss is recognized when property is contributed to a partnership in exchange for a partnership interest [26 USCS § 721; 26 CFR § 1.721-1], except where the property is subject to a mortgage that exceeds the contributing partner's adjusted basis for the property [26 USCS § 752(b); 26 CFR § 1.722-1], or, if a partner, including a new partner, makes a contribution all or part of which is credited to another. [26 CFR § 1.721-1(b)(1)]

 

Article IX(a): A partner's interest in the partnership is his or her share of the profits and surplus, and as such is personal property for all purposes. Corp C § 15026 Article X(g): The taxable year that may be adopted by a newly formed partnership without prior approval of the Commissioner of Internal Revenue is limited to the following: (1) the same year as that of one or more of the partners having an aggregate interest in partnership profits and capital of more than 50 percent (majority interest taxable year); (2) if there is no majority interest taxable year, the taxable year of all of the principal partners of the partnership; or (3) a calendar year, if there is no taxable year adopted under (1) or (2). 26 USCS § 706(b)(1), (4)

 

A partner may not change to a taxable year other than that of a partnership in which he or she is a principal partner unless it can be established that there is a valid business purpose for the change. 26 USCS § 706(b)(2)

 

A "principal partner" is defined as a partner having an interest of five percent or more in partnership profits or capital. 26 USCS § 706(b)(3)

 

Article XII: A contribution by a new partner to the partnership will not ordinarily result in a tax liability on the part of the other partners or the partnership. There may, however, be taxable income to an existing partner to whom the contribution

is credited for services rendered by that existing partner. [26 CFR § 1.721-1(b)(1)]

 

In the absence of an agreement to the contrary, no person can become a member of a partnership without the consent of all the partners. Corp C § 15018(g)

 

A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his or her admission as though that person had been a partner when those obligations were incurred, except that this liability is to be satisfied only out of partnership property. Corp C § 15017

 

Article XIII(a): Insofar as tax consequences and benefits are concerned, withdrawal of a partner does not automatically terminate the partnership if the remaining partners continue the business. [26 USCS § 708; 26 CFR § 1.708-1(b)(1)(i); for statutory provision as to rights of retiring partner or estate of deceased partner when the business is continued, see Corp C § 15042]

 

Article XIV(a)(3): Unless the agreement between the partners provides otherwise, dissolution of the partnership is caused by the death of any partner. Corp C § 15031(4)

 

For statutory provisions as to the rights of the estate of a deceased partner where the partnership is continued, see Corp C § 15042.

 

Article XIV(a)(4): Dissolution of the partnership is caused by the bona fide expulsion of any partner from the business in accordance with such power conferred by the agreement between the partners. Corp C § 15031(1)(d)

 

Dissolution may be caused by the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking. Corp C § 15031(1)(c)

 

Dissolution may also be caused by the express will of any partner when no definite term or particular undertaking is specified. Corp C § 15031(1)(b)

 

A dissolution is distinguishable from a termination of the partnership. On dissolution, the partnership is not terminated, but continues until the winding up of partnership affairs is completed. Corp C § 15030

 

Article XIV(c): The withdrawal of a partner ordinarily does not terminate the partnership for tax purposes where the business is continued in whole or in part by the remaining partners. [26 USCS § 708; 26 CFR § 1.708-1] Even the withdrawal of one partner from a two-person partnership apparently does not terminate the partnership so long as the estate or other successor in interest of the deceased partner continues to share in the profits and losses of the partnership business. [26 CFR § 1.708-1(b)(1)(i)(a)] However, if the interest of the withdrawing partner is 50 percent or more, the sale or exchange of the entire interest to another within a 12-month period can cause the partnership to be considered terminated, with important tax consequences. [26 USCS § 708(b)(1)(B); 26 CFR § 1.708-1(b)(1)(ii)and (iv)]

 

"Sale treatment" takes precedence over the general rules applicable to partnership distributions 26 USCS § 731(c), and applies to distributions that terminate the partnership.

 

A distribution is "disproportionate" if a partner receives more than his or her proportionate share either of unrealized receivables 26 USCS § 751(c) or of substantially appreciated inventory items 26 USCS § 751(d) and less than his or her proportionate share of other property. 26 USCS § 751

updated: 1-15-11

 

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