How to Create a Partnership Agreement in Kentucky
Using a partnership agreement, a legally binding relationship is created between the partners and also between the partners and the partnership. The partnership agreement lays out the rules and regulations under which the partnership is run while also stipulating the obligations of the partners.
In essence, this agreement lays down the framework within which all the important aspects of the partnership are run while also serving as a reference point in the event of disputes in the future. The agreement covers things like the partners' capitalization, type, and nature of the partnership’s management, the number of capital accounts for the partnership, application of assets after liquidation, as well as any other rules/ laws that govern the entity.
Note that this partnership agreement is also called a business partnership agreement or a partnership contract.
If you’d like to create a partnership agreement in Kentucky, you will be happy to note that the steps involved in creating this legally enforceable document are simple, and the best bit is that you can do it at the comfort of your home in the presence of the other partners. You don’t have to involve a lawyer to create this document. The ease of creating this document comes from our free Kentucky partnership agreement form, an easy to use sample partnership agreement that’s acceptable in the state.
Even though partnership contracts are not required by the state, their creation is essential for the success of the partnership.
That said, how do you create an enforceable business partnership contract today?
Essentials of a partnership agreement in Kentucky
Basic partnership details
In this section, you must agree on the basic details of the partnership from the name and the purpose of the business partnership to the location and the details of the named partners. These are essential elements of any partnership since they identify the partnership. Don’t forget to include the abbreviations for the type of partnership at the end of the business name. The term of the partnership should be included here too, whether the term of the partnership is specific or not.
Financial Rights – Partner Contributions
The partners' contributions in terms of cash investments, physical property, or intellectual property must be listed in the agreement.
The capital contributions are essential in establishing partners’ equity or ownership stake in the partnership, and in most cases, the contributions from each partner will determine the partners’ share of the profits/ losses. Therefore, the actual contributions of each partner must be specified in this section.
Real estate, personal property, and the client lists also qualify as partner contributions.
Even though all partners in a partnership wish to hold equal ownership interests in business partnerships, this hardly happens since there are different factors that determine these interests. In most cases, the ownership interests of the partners will vary depending on their contributions: specifically, capital raises, cash/property contributions, time contributions, intellectual property, as well as the ideas contributed.
Allocation of Profits/ Losses
The partnership contract should also bear a section that stipulates how the profits and losses of the partnership will be distributed. Some of the specifics to be covered here include:
- The distribution ratios for the profits and losses
- Calculation of the profits and losses
- When the profits will be distributed
- Whether the partners agree to the reinvestment of profits and the percentage of reinvested profits.
This section of the contract outlines the voting procedures applicable in the partnership, when voting is essential, and the decisions that can only pass through unanimous voting.
Tax and Accounting Matters
The business partnership agreement is also expected to specify the acceptable accounting requirements, day-to-day maintenance of accounting records, as well as the tax matters. The financial recording methods and procedures should be acceptable by the partners and the state laws, as well. This section is also expected to outline where the books of accounts will be stored and how they will be audited.
Adding New Partners
If the partnership is open to new partners in the future, the procedures for admitting new partners must be specified in this contract. This section should also address the effects of the additional partners on the partnership’s ownership structure, adjustment to partners’ responsibilities, and whether voting is essential for the admission of new partners or not.
Management Structure and Partner’s Authority
The partnership contract must name the managing partner, along with the roles and responsibilities of this partner. The limitations to the managing partner’s authority should be specified too to ensure that things like credit borrowing and asset transfers are handled right.
Meetings, the need for a management committee, and the qualifications of the managers are also discussed here.
Generally, the termination of the partnership can happen at any time, as desired by the partners. Handling of leases, assets, and other contracts should be addressed in this section of the contract.
Since disputes are inevitable in all businesses, you can only control how the disputes affect your business by incorporating a dispute resolution or a mediation clause to your contract. The mediation clause involves the use of alternative dispute resolution methods and third-party professionals to resolve conflict.
Once you have all these sections covered and all the partners agree on the terms, you can have the agreement signed.
To create a partnership agreement in Bowling Green, Louisville, Frankfort, Lexington, Owensboro, Paducah, or any other city in Kentucky, download our free partnership agreement form here today.