Partnership Agreement Drafting
Set Your Partnership Up for Success with Snook Law Office
Here at Snook Law, we guide individuals and companies through the process of establishing new general partnerships, limited partnerships, and limited liability partnerships. If a partnership is the best arrangement for your venture, Snook Law will draft a compliance partnership agreement that reflects your goals and needs.
Is a Partnership Right for Your Business?
Partnerships carry certain tax benefits and provide a mechanism for individuals or companies to co-own a company. However, in general partnerships, each partner is liable for the debts and obligations of the other partners. For this reason, most companies choose to create either a limited partnership or a limited liability partnership, which provides additional protection from liability arising from the actions of other partners.
Each company is different. A partnership may or may not be the best entity for your goals.
Snook Law Office Resolves Disputes to Help Companies Move Forward
Our office also helps business clients resolve various legal disputes that arise in a partnership arrangement, including:
work or pay inequality
failure of fiduciary duties
ruining company goodwill
Call Snook Law if you are considering a partnership or need knowledgeable and experienced legal counsel for any of your partnership matters.
Learn More About Partnerships in Massachusetts
Types of Partnerships in Massachusetts
In a general partnership, each partner shares in the operation and administration of the business and is responsible for its liabilities. If any partner is sued, all partners are liable. These types of partnerships are usually not favored.
Limited partnerships have both general and limited partners. Limited partners act as investors who do not participate in the daily operations or administration and only share in the profits. Limited partners have reduced liability.
Limited Liability Partnerships (LLP)
Limited Liability Partnerships (LLP) are more akin to limited liability companies (LLC). All partners have limited liability and are immune from the tortious, negligent, or wrongful acts of other partners. These types of partnerships are the most common and favored.
Forming a Partnership Agreement in Massachusetts
Generally, to form a partnership in Massachusetts, the parties must:
Choose a business name
Register the business name with local, state, and federal authorities
Draft a partnership agreement
Obtain any necessary licenses or permits
File necessary tax and regulatory forms
Partnership agreements may be formed by implied agreements (not in writing) as determined by the conduct of the partners, the sharing of profits and losses, common ownership of property, investment in the business, and control of the business operations.
Because partnerships can be formed implicitly, even if individuals or companies do NOT want to form a partnership, they may be engaging in conduct that creates a partnership by “implied agreement.”
Partnership Laws in Massachusetts
Partnerships are governed by the Massachusetts Uniform Partnership Act, or for limited partnerships, by the Massachusetts Limited Partnership Act.
How are Partnerships Taxed?
Partnerships are not taxed separately; however, they must file a Form 1065 to show income, expenses, and deductions. The income tax is that of the distributable income, meaning that it need not have been distributed to any partner to be taxed.
Also, each partner is considered to be self-employed and pays self-employment taxes that are included on each partner’s 1040 form. If the partnership has employees, it must pay withholding and reporting of various taxes such as FICA, workers’ compensation, Social Security, and Medicare.
What Should be Included in a Partnership Agreement?
Explicit partnership agreements help the partners set expectations. All terms of the agreement should be customized to the partnership’s needs. Still, the following key provisions should be included in any partnership agreement:
Name, date of formation, statute, or laws under which it was formed, and if it is to conduct business under any other name(s).
Term of the Partnership
Whether the partnership is perpetual or terminated upon completion of the project or enterprise.
A description of both the general and specific purposes of the partnership, such as to carry on any other business activity that a limited partnership may be authorized to perform under state law.
Amount and manner of contributions from each partner such as cash, property, or services. This section should also describe what happens if a partner fails to abide by the stated commitment.
Capital Accounts, Distributions, Profits, and Losses
Terms creating separate capital accounts and establishing how profits and losses are allocated.
How salaries are determined for partners and non-partners.
Whether management responsibilities will be vested in one partner or in a management group, and who is an authorized signatory. Authorized signatories are those who can commit the partnership to contractual obligations.