Attorneys in Los Angeles for Partnership Agreements
When it comes to starting a business, there are various business structures to choose from. When two or more parties open businesses together, they often establish partnership agreements that provide guidelines for the operation of their business. Partnerships are one of the most straightforward business models available. The fact that they are easy to understand, when compared to some other structures, makes them a popular option among new business owners.
Partnership agreements generally require less paperwork and bureaucracies when compared to other types of business agreements. Although you may be tempted to venture into establishing a partnership agreement on your own, it is not always the best thing to do. The ease of a partnership agreement should not be overlooked. These agreements contain critical details that not only determine how your business will run and who will run it, but they also specify how to handle legal issues should they arise. Working with a skilled legal team that can draft your partnership agreement will help to ensure you are able to protect your legal rights and establish an effective partnership agreement.
The attorneys at Leiva Law Firm have extensive experience helping business owners in Los Angeles and throughout Southern California establish effective and trusted partnership agreements that ensure our clients are able to protect their best interests. Our team works to not only help business partners draft legal agreements but we work to ensure each partner is well aware of their rights and responsibilities moving forward. Our attorneys can help you to decide what type of partnership agreement is right for your specific needs. Contact Leiva Law Firm today to schedule a consultation with our team to discuss your partnership agreement needs at your earliest convenience.
Understanding Partnership Agreements
When people start businesses as a partnership, it is crucial that they understand that the operations are governed by partnership agreements. These agreements, sometimes referred to as partnership contracts, establish various terms of the partnership, the roles of each individual, and what responsibilities fall on each partner. Partnership agreements play a critical role as governing documents for any registered partnership and often cover how the business should be run on a day-to-day basis as well as during a crisis situation.
There are three types of partnership agreements that can be used to govern your business. Regardless of the type of agreement you have for your business, its content will be fairly simple and should require various clauses and provisions. Each type contains variants that set it apart from the next.
General Partnership (GP): The majority of partnership agreements in the United States fall under the category of being a general partnership. These specify that each party takes part in the day-to-day management of a business and each shares equal liability.
Limited Partnership (LP): Similar to general partnerships, limited partnership agreements establish grounds under which partners participate in operating a business and take on unlimited liability. The difference between a general partnership and a limited partnership is that LPs can have silent limited partners who are not involved in the daily operations of a business. These partners do, however, have liability limited only to the amount of their investment.
Limited Liability Partnership (LLP): California LLP agreements are made that restrict the undertakings of certain partnerships. Although LLPs operate like GPs, they specify that each partner has limited liability.
Each type of partnership has both advantages and disadvantages. Working with a skilled legal team can help you better understand how each partnership can benefit you and help you determine which is best to meet the needs of you and your partner.
Key Terms and Provisions in California Partnership Agreements
Although the specific details in partnership agreements will differ, they all must address various issues that are pertinent to the operation of a business. There are various key terms and provisions that are generally included in partnership agreements, regardless of the type. These include:
Name: The first clause in any type of partnership agreement will name the business that the agreement regards. In some cases, the name will be accompanied by the request to file a fictitious name request or a “doing business as…” petition.
Ownership Percentages: It is imperative that a partnership agreement specifies what percentage of the company is owned by each partner. More often than not, the ownership percentage is determined by either how much money or how much time a partner puts into the operation of a business.
Capital Contributions: It is crucial that a partnership agreement specifies what each partner will contribute to open the business as well as who will be obligated to contribute at later stages. The circumstances surrounding the contribution requirements should be clearly defined.
Profit and Loss Allocation: Although the profits and losses of a partnership are typically determined by the ownership percentage, this is not always the case. This is particularly true in cases where one of the partners engages in managing the business without a salary. All of the profits and losses must be clearly defined in the agreement.
Distributions: This area of the agreement will show when profits of the business are to be distributed to the partners as well as how. The distributions section will also specify which partners earn a salary.
Partner Authority: In general, all partners are provided equal and unlimited authority to commit the business in any manner which they see fit. This power can be limited in this section or it can require the joint authority of partners during any big decision making.
Management: This section of the partnership agreement will show what management duties fall onto each partner. This area generally covers the management aspects of a business, including accounting.
New Partners: This section of the partnership agreement will specify the process that partners will need to take to add new partners to the business.
Death and Disability: In the event of a death or disability to one partner, it is crucial that there is a plan in place that dictates what the remaining partner must do moving forward. This section generally defines the authority of the beneficiary of the partner who passes away or is no longer able to perform the duties of their job.
Dissolution: This area of the agreement will specify circumstances under which the business will dissolve. It will also include strategies that any single partner can undertake should they want to leave the partnership without dissolving the business.
Dispute Resolution: Although we would like to see business partners perform the duties of their jobs without any issues, this is not always the case. Should any disagreements or arguments arise, this clause is needed to specify the resolution process that partners must take to solve disputes.
Registering a Partnership in California
There are various circumstances in which you have to register your partnership in California. In general, you must register your partnership with both federal and state tax authorities, regardless of the type of partnership you are in. Registering the partnership federally will ensure you are provided a federal employer identification number (EIN) from the United States Internal Revenue Service. This will enable your company to open a bank account and register with the state’s tax authorities.
California partnerships are also required to establish accounts with the following authorities:
Board of Equalization: This must be done to engage in sales and other business taxes.
Employment Development Department: This is required for businesses that hire employees to ensure they are properly taxed for their wages and earnings.
Franchise Tax Board: This registration is required for income, franchise, and other state taxes imposed on partnerships.
State and local business licenses are also required for businesses. Working with a skilled legal team can help you ensure your business is properly registered and licensed moving forward. The assurance of adequate licenses is necessary to prevent your business from facing any legal consequences in the future.
Leiva Law Firm is Here to Help You
It is imperative that you take the steps necessary to establish a legal partnership before opening your business in the state of California. Although the drafting of partnership agreements is a simple and straight-forward process, it is crucial that you take various steps to ensure your legal rights and best interests are protected. Establishing a partnership with the assistance of a skilled legal team can help you avoid any hassle you may face moving forward.
The attorneys at Leiva Law Firm have extensive experience helping business owners throughout southern California with the drafting of and modifying existing partnership agreements. Our team strives to help partners fully understand the legal options available to them so they can best decide what type of partnership agreement best suits their business needs. If you are interested in opening up a business with one or more partners, contact our team at Leiva Law Firm today. Call our legal team at (818) 703-1777 to schedule a consultation so we can discuss options available to help you and your partners move forward at your earliest convenience.