A general partnership agreement is a contract that defines the rights, duties, responsibilities and liabilities of the partners in a general partnership business form. A general partnership is a unique business entity that is recognized by most states throughout the United States, but generally requires no formal filing requirements for creation. Therefore, most of the obligations that pertain to a general partnership are derived from the clauses or items contained within the general partnership agreement.
Most general partnership agreements commence with basic information about the contract, such as the date the agreement is made, the names of the parties entering into the agreement and the name and address of the partnership business. Some partnerships may also include an explanatory statement that sets forth the overall goals and business vision that the partners are joining together to achieve.
Nearly all general partnership agreements contain a section or paragraph outlining the specific purpose of the business and which partners are responsible for management functions. Unlike a limited partnership, general partners are presumed to have equal responsibilities within the partnership, unless specific responsibilities, liabilities or benefits are set forth.
A basic general partnership agreement sets forth the specific capital contributions that are made by each partner. Capital contributions could include cash, stocks, real estate, equipment or any other investment that adds value to the business. The purpose for this clause is to bind the partner to his promise to make the capital contribution, and to act as proof of the amount of the contribution made if it is to be tied to a profit sharing plan amongst the partners.
Profit and Loss Sharing
This provision defines how profits and losses from the business are allocated between the general partners. In the absence of an agreement on this point, all general partners are entitled to share equally in the profits and losses of the business under most state statutes. In scenarios where one partner contributes a greater capital contribution at the inception of the partnership, the general partnership agreement might provide for a higher percentage of profit sharing for that specific partner.
New or Exiting Partner Provisions
All partnership agreements should provide guidelines on how the partnership handles the incorporation of a new partner into the general partnership. If there are numerous partners involved in the general partnership, they may not agree unanimously on the inclusion of a new partner. The general partnership agreement may stipulate that there must be a unanimous agreement among the partners, or a majority vote in favor of incorporating a new partner. Similarly, provisions should be made for exiting partners. Occasionally, a partner will pass away or wish to retire. Unless a provision exists to buy out the partner or her heirs, the partnership is dissolved automatically and its assets are sold under many state statutes.