Question

While the lack of formality may be viewed as an advantage of a partnership over a corporation, it is still necessary to plan for various factors affecting the partnership. Therefore, it is advisable for the partners to develop a written partnership agreement or articles of partnership. 1) List seven provisions that should be included in the articles of partnership besides the partnership name and address, the names of the partners and the effective date of the partnership. 2) Discuss why the articles of partnership are important.

Answer 1

1. Beside partnership name and address, the names of partner and the effective date of partnership following provisions should be included in the articles of partnership:-

i. Contributions: The partnership deed must contain how much each partner will contribute and what will be responsibility of each partner for future deeds.

ii. Distribution: The article must specify how the profit of the partnership will be distributed among partners and what will be the ratio. It should also specify if each partner will be paid a salary.

iii. Ownership: The article should specify what will the partnership’s position on taking on new partners. If one partner wants to withdraw from your business, then what will happen. Your agreement should carefully describe how ownership interests would be handled in various scenarios like those and others, such as in the event of any partner’s death, a retirement, or bankruptcy.

iv. Decision Making: Partnership deed must define how day-to-day management and long-term decisions will be made. Identify what types of decisions require a unanimous vote by partners, and what decisions can be made by a single partner. By setting up a decision-making structure that everyone understands and has agreed to, the business will have the foundation for a more friction-free business.

v. Dispute Resolution: If things get ugly between partners, how will disputes be handled, that should be defined by partnership agreement. It should define the resolution process like.mediation be the initial step or it will require arbitration to settle differences etc.

vi. Critical Developments : Sometimes, the unexpected events happen. It’s what makes business exciting and unnerving at times. Your partnership agreement should address possible scenarios and concerns, such as: A partner getting sick or dying—What happens then?, Retirement provisions etc.

vii. Dissolution: The agreement should also include what steps should be taken to legally end the partnership. What is required to dissolve partnerships. State law governs dissolution and your state’s website should define the process and provide the forms you need to complete.

2. Articles of partnership is a voluntary contract between two or more persons to place their capital, labor, and skills into business, with the understanding that there will be a sharing of the profits and losses among partners. An articles of partnership helps to avoid conflict which may arise between the partners. Where the terms of a partnership are not clearly set out and recorded, disputes may arise over ownership division, the roles and responsibilities of the partners, and the division of assets upon termination of the partnership.It is a legally binding document and allows the partners to structure the relationship in a way that suits their particular business. It typically establishes the right to share in profits or losses for each partner, the responsibilities of each partner, and proper procedures for changes to and termination of the partnership.