How to Create a Partnership Agreement in Maryland
In Maryland, the process of forming a limited partnership is quite straightforward. You are required to file the Certificate of Limited Partnership and to confirm the chosen name of the limited partnership.
The state doesn’t require any written agreement between the partners and the partnership, there is no limitation to the number of people who form a partnership, but you must file the annual returns required by the state.
While you don’t have to prepare and sign any written agreement to start your partnership business, we highly recommend that you talk to the partners about creating a legally binding agreement, agree on the terms of the agreement, and then sign it to make the document enforceable.
Well, a partnership agreement, also referred to as the business partnership agreement, a partnership contract, or a limited (or general) partnership agreement is the legally binding written agreement created between two or more parties (individuals or organizations) that own a company and share in the profits and losses.
This agreement is different from the agreements signed by the owners of limited liability companies and corporations – Operating Agreements and Shareholder agreements, respectively.
The agreement used in partnerships has provisions for the roles, responsibilities, and the relationships that apply to the partners, and also between the partners and the partnership.
In essence, this agreement lays the ground rules that the partnership will be based on. As a result, this written agreement must be drawn up and signed as soon as possible, specifically during the formation of the partnership business. By constituting the terms that the business will be based on, it means that all the partners will come to an understanding of the basic ground rules governing the business, making sure that things set off on the right foot. Otherwise, constituting the partnership agreement months into the business would mean dealing with divergent ideas and opinions that could breakdown the business before it really begins.
Before we look at how you can use our free Maryland partnership agreement form to create your company’s legally binding partnership contract, let’s take a brief look at some of the benefits of this written agreement.
Reasons why you must have a partnership agreement in Maryland
The agreement takes precedence over any default state laws, and you have the final word. Things like the roles of the partners and the profit-sharing models will be resolved within the partnership’s constitution if you have a written contract drawn up. Otherwise, the state rules applicable to limited or general partnerships would be enforced.
It allows the partners to maintain full control over the ownership of the partnership by restriction the sale or the transfer of ownership interests by partners withdrawing their interests.
All important issues like dispute resolution and voting rights are agreed upon in advance.
It sets in place agreeable rules for the removal of a non-performing or even a disruptive partner in the partnership.
The agreement protects the business from collapse, while also protecting the investments of the partners.
The written agreement protects the minority owners. The inclusion of a Tag-Along provision will protect the minority partners from being bought out by third parties.
It also protects the majority owners of the business. The applicable clause here is the Drag Along with clause whose role is to force the minority partners to sell their stake in the partnership business if there is an ensuing third-party buyout that threatens the business.
Essentials of the Partnership Agreement in Maryland
Name of the business partnership with the partnership structure in abbreviations at the end of the business name.
The purpose of the partnership and the expected duration that the business will be in operation from the date of the agreement’s creation.
Capital contributions (cash, services, ideas, real property, and intellectual property) of all the partners and the corresponding ownership interests of the partners.
Distribution of the business losses and profits; specifically, the method used to allocate the profits and losses.
Timing for profit draws from the partnership, as well as the frequency of the draws.
Partner authority regarding the undertakings of a partner that can bind the partnership and the other partners, as well as the limitations to the authority of the partners.
Decision making. The agreement must give provisions for the decisions that can be made by the managing partner independently, the ones that would require the input of all the partners, as well as the decisions that must be passed by the management committee.
The duties of the managing partner.
The procedures for adding new partners.
Steps to be taken after the demise of a partner or withdrawal from the partnership.
Dispute resolution measures, mediation clauses, and arbitration
Termination procedures for the partnership.
Whether you are in Annapolis, Baltimore, Rockville, Frederick, Bethesda, Ocean City, Silver Spring, Bowie, or any other city in Maryland and interested in creating solid legal frameworks for your partnership, you can download our free partnership agreement form here.