Everything You Need to Know About the Partnership Agreement in Illinois
What the worst that could happen if you don’t create a legally binding contract for your partnership business?
Well, let’s take a look at some of the grim possibilities:
One, the courts might get involved to help resolve your troubles. Now, although the courts are just and fair, the due process in courts is long, and by the time things are settled, you may not be able to resolve your issues or get things back on track ever again.
Then there’s the financial bit of things where a partner or some partners might feel aggrieved if one partner takes a lion share of the profits, despite contributing the same or even less capital compared to the other partners.
Also, without a legally binding contract, partners offering valuable expertise might easily be short-changed, and they might not be compensated as well as they should be.
Lastly, we shouldn’t forget that the absence of a legal framework created through an enforceable contract would mean an unstable foundation to the partnership, and minor squabble would jeopardize the partnership business.
Therefore, a partnership contract, though not mandatory as per the state laws, is unequivocal, crucial documentation that lays out the rules and regulations while clarifying roles, relationships, and the responsibilities of the partners (to each other) and to the partnership.
Note that the partnership contract is also called a partnership agreement, a business partnership agreement, articles of partnership, or a general partnership agreement. It’s enforceable as long as it bears the signatures of the partners, and it doesn’t have to be notarized.
How to Create A Partnership Agreement
You’d expect the process of creating a partnership agreement in Illinois to be long and tedious, but thanks to our simple, easy to use, editable, downloadable, and printable free Illinois partnership agreement forms, the process is seamless. Our forms are comprehensive legal partnership agreement templates with all the sections that must be present in the partnership agreement.
The sections of the contract contain the clauses with provisions to govern the operations of the partnership business.
Therefore, in addition to the name of the business, it’s location, purpose, name of the partners, and the duration the partnership is expected to be in operation, the agreement also features all the ground rules that are expected to govern the partnership and its people.
Some of the important sections of the business partnership agreement include:
- The start date of the partnership and the planned duration of the partnership business
- The cash and capital contributions of the partnership
- The allocation/ distribution of the business profits and losses, as well as the steps for the recovery of the losses
- Capital draws per partner; when and how much capital a partner can draw
- Financial reporting procedures and methods.
- Appointment of the managing partner, the roles and the responsibilities of the managing partner, and whether the managing partner gets a bigger share of the profits or if they earn a salary
- Appointment of the tax matters representative – their qualifications, authority, and limitations
- Decision making and the decisions that require the joint/ unanimous consent of all members
- Limitations to the authority of the partners
- Voting rights of the partners
- Whether new partners will be permitted in the future and the terms of permitting new partners
- Steps followed when a partner terminates/ withdraws their partner status
- Dealing with the death of a partner, payout to the deceased beneficiaries and the continuity of the partnership after a partner dies
- Partner buy out procedures and how much a partner would be worth in a payout
- The extent of involvement of partners in the day-to-day operations of the partnership
- Rules against launching a business that competes with the partnership business directly
- Dispute resolution and the incorporation of a mediation clause
- Factors that would necessitate the dissolution of the partnership
- Partnership winding-up procedures
How To Cancel A Partnership Agreement
You don’t hear this often, but partnership contracts are canceled around us all the time because of disagreements between and among the partners, growth, or the need to constitute a different structure of the business.
Before you cancel a partnership contract, talk to the other partners and a lawyer about liability (personal) for the debts of the partnership.
Keep in mind that although you don’t need the consent of the other partner(s) to cancel the partnership contract, you need to look at your liability from the cancellation, as well as the effects of the agreement’s cancellation on leases, loans, and other contracts signed with the other partners. Ensure that your actions don’t result in your getting sued by third parties. Therefore, you must act along with the other partners and also, notify the third parties involved.
Notification to the third parties allows you to negotiate terms with them, saving you from unexpected liabilities.
Where the state is involved, ensure that you abide by the laws.
Whether you are in Chicago, Champaign, Peoria, Rockford, Joliet, Naperville, Schaumburg, or any other city in Illinois, you could create your partnership agreement today using our free partnership agreement form.