A partnership agreement is a written document detailing the terms and conditions of a business relationship between partners. The agreement explicitly states the partners’ individual duties, obligations, and contributions to the Illinois partnership. Ideally the agreement should cover all possible situations that the partnership could face during the partnership’s lifespan. Because of this, partnership agreements are oftentimes complex and legal counsel is highly recommended in drafting, negotiating, and reviewing a finalized version of the partnership agreement.
An important function of the partnership agreement, besides outlining the partners’ rights and responsibilities in the partnership, is that it provides for the dissociation of partners and dissolution of the partnership. These provisions determine, among other things, how members are to be expelled from the partnership and how assets and debts of the partnership are distributed. If there is no partnership agreement, Illinois State law and guidelines found in the Illinois Uniform Partnership Act will govern dissolution. The Partnership Act rules are broad, and the imposition of these statutory rules on the partners and the partnership is often problematic and undesirable.
Elements of a Partnership Agreement Include:
- Name and address of the partnership and the partners;
- Duration of the partnership (Partners can choose a specific termination date or include a general clause explaining that the partnership will exist until all partners agree to dissolve it or will exist until a partner dies);
- Purpose of the partnership;
- Financial information, like bank account information and what partners have check-signing privileges; partners’ contributions and a valuation of all partners’ contributions (cash, property, services);
- What compensation will be (details how profits and salaries are to be distributed amongst the partners);
- Management authority (what the partners’ operational responsibilities, decision-making abilities, voting rights are);
- What decisions require unanimous consent;
- How tie votes are to be resolved;
- In what circumstances might new partners by allowed to join the partnership;
- Work hours and vacation time;
- How the partnership’s name will be disposed of in event of a partner’s death;
- How disputes will be resolved; and
- Buy-sell agreement.