What is a limited partnership agreement?
Here’s what you need to know about limited partnership agreements.
Generally, a partnership is a business that two or more individuals own and operate. There are three types of partnerships: general partnerships, limited liability partnerships, and limited partnerships.
A limited partnership agreement establishes the final type of partnership from the above list. A limited partnership is a partnership between a general partner and a limited partner. The general partner oversees and runs the business, and has unlimited liability for any business debts. The limited partner, also called the silent partner, contributes capital to the partnership but has no role in managing the business; they also have only limited liability up to the amount of their investment.
When to use and how to draft a limited partnership agreement.
A limited partnership agreement helps protect your business into the future by outlining each partner’s roles and responsibilities, as well as how they share in the business profits. You should use a limited partnership agreement if you want to form a limited partnership or formalize an existing limited partnership.
Some elements to consider in your limited partnership agreement include but aren’t limited to:
- Business name and purpose
- Reason for establishing the limited partnership
- Voting rights and decision-making processes
- Ownership shares
- Partners’ capital contributions
- Dissolution guidelines
However, make sure to obtain legal advice before developing your limited partnership agreement to ensure it is airtight, comprehensive, and meets your own business needs.