Limited Partnership Agreement

What is a limited partnership agreement?

A limited partnership agreement is a legal contract that governs the business relationship between general partners and limited partners in a limited partnership. A standard limited partnership agreement template typically lays out:

• details of all partners;
• details of the partnership;
• the rights, responsibilities, and obligations of general and limited partners;
• details of each partner’s capital contribution;
• dissolution of partnership;
• withdrawal from partnership; and
• non-compete and confidentiality obligations.

The parties involved in a limited partnership agreement are general and limited partners:

• General partner: A general partner could be either an individual or legal entity who shall be in charge of daily operations and bear unlimited personal liability for the debts and obligations of the partnership. A partnership shall have at least one general partner.
• Limited partner: A limited partner could also be either a business, entity, or individual whose responsibility is limited to the amount of their contribution and who cannot participate in the partnership’s management.

The process of registering a limited partnership may differ from state to state, including filing fees, lists of documents to be submitted, etc.

What is the difference between a limited partnership and a limited liability partnership?

When forming a partnership, it is vital to understand which exact corporate model you prefer to follow. There are three different types of partnerships you can form within the United States:

• a general partnership;
• a limited partnership (LP); and
• a limited liability partnership (LLP).

A general partnership is a corporate structure that has at least two general partners who run their business together. This is the simplest form of the partnership, which does not require mandatory registration with a secretary of state. Unlike LP and LLP, a general partnership does not have limited partners.

Limited partnerships and limited liability partnerships are similar, except for two things:

• Personal liability: In a limited partnership, general partners remain fully responsible for a partnership’s losses and debts. Contrary to that, in a limited liability partnership there are no general partners. Therefore, partners in a limited liability partnership remain liable for a partnership’s losses only within the amount of contribution made. That’s why it is being said that their liability is limited.
• Operational Management: In a limited partnership, limited partners are excluded from the business’ management. All daily management and operation are being concentrated in the hands of general partners. In the LLP the management is shared more equally between the partners. LLPs are common for professional businesses like law and accounting firms.

How to draft a limited partnership agreement template?

Drafting a limited partnership agreement template requires a lot of attention, clarity in wording, and the absence of ambiguity provisions. While the law does not define the exact structure a good limited partnership agreement shall have, the provisions listed below remain essential:

Details of General and Limited Partners

A limited partnership has two categories of partners—general and limited partners. Therefore, the text of a partnership agreement shall define:

• full legal names, addresses, and contact information of each general and limited partner who signs the agreement;
• signatures of all general and limited partners at the end of the document; and
• date of signing or effective date.

Details of the Partnership

Every agreement of limited partnership shall provide a clear reference to the limited partnership involved, including:

• Name: a partnership’s name cannot be the same as the name of other partnerships that are already registered. Apart from that, the name cannot involve a direct or indirect reference to the connection with the federal or state authorities. Finally, the name cannot include offensive words or phrases.
• Purpose: a limited partnership cannot perform activities directly prohibited by federal or state laws, for instance, illegal drug selling, etc.
• Principle place of business: this a registered address where a partnership will normally operate. It could be a leased premise or a property that belongs to either partner.
• Duration: a limited partnership could be registered to achieve a specific goal (less common), for a defined period of time, or indefinitely.

Capital Contributions

A good limited partnership agreement example is the inclusion of information about the contribution of each partner. The contributions could be made in various forms, including cash, goods, services, or property. Except for cash contributions, a limited partnership agreement template shall also provide a contribution’s market value and detailed description.

Secondly, the agreement shall also define the date by which both limited and general partners shall make their contributions in full.

Finally, a solid limited partnership agreement sample shall also define if additional capital calls are permitted or not. A capital call is a solicitation of additional contributions from limited partners.

Distribution of Profits and Losses

One of the most important clauses for every limited partnership agreement template is the division of profit and losses. There are a number of ways partners may pick up from:

• division in proportion to each partner’s contribution;
• division in equal shares;
• division pro rata to each partner’s interest in the partnership;
• any other arrangement.

Admission of New Partners

The parties to the agreement of limited partnership should decide whether the admission of new limited or general partners is allowed. If it is a family business or a professional services firm like a law firm, the agreement may specify additional conditions a third party shall meet to be able to become a partner.

If admission of new partners is allowed, the limited partnership agreements may impose additional limitations on their admission; for instance:

• unanimous consent of all existing partners;
• meeting certain criteria (e.g., making a cash contribution in a specific amount); or
• any other conditions (e.g., to become a partner in a law firm, a person shall bring a new client).

Dissolution of Partnership

A limited partnership agreement template shall also include a dissolution clause.

Partners have to agree on how to vote for a voluntary dissolution—unanimous vote, simple majority, or qualified majority (i.e., 2/3 of all partners).

The text of a limited partnership agreement sample shall also define the list of events triggering forced dissolution, for instance:

• expiration of the term for which a partnership has been established;
• bankruptcy case;
• withdrawal of all general partners, etc.

The list of such triggering events remains closed to avoid unnecessary wide interpretation by some partners.

Non-Compete Obligation

A partner who transfers their full interest to a third party and ceases to remain a partner may have a non-compete duty towards a partnership. Usually limited partnership agreements provide a standard clause obliging an ex-partner to refrain from any competing activity with a partnership.

This obligation remains valid for the whole period of time of being a partner and for some period after. The period of time may vary from a couple of months to several years.

How to customize a legal document template at Faster Draft?

In order to personalize your agreement, follow a few easy steps below:

1. Click the button “Create Document.”
2. Answer simple questions in the form.
3. Select a document’s format—limited partnership agreement PDF or Word.
4. Make a payment.
5. Download, print, and use a ready template in minutes.