15 Nov What Are the Governing Documents for a Limited Partnership?
By: Barry E. Haimo, Esq.
November 15, 2016
What Are the Governing Documents for a Limited Partnership?
So, you’ve decided to form a limited partnership. As you know, a limited partnership is a type of entity where the shareholders are comprised of general and limited partners. The general partners are in total control of the entity, regardless of amount of ownership, and therefore are completely liable for the debts of the partnership. Conversely, the limited partners have no control, and therefore, no liability. Read more here.
There are many advantages to forming a limited partnership, one being the ease of bringing it to life. But even though a limited partnership can be formed with a handshake, it would be wise to have the agreements of your new business venture on paper. This way each party will have a clear picture of how the limited partnership will operate through regular business, and how to handle any abnormal circumstances or disputes that arise. It also helps think through some circumstances that may not have been contemplated. The best time to do this is when everyone is excited in the beginning. It’s much harder when problems arise and there is tension between the partners.
Actual governing documents for a limited partnership are not required by Florida law, but there are a few other documents that must be submitted for the business to begin operations in the state.
What Documents Need to Be Submitted to the State?
In order for a limited partnership to be formed in Florida, partners must register the partnership with the department of state division of corporations. Specific licenses and permits may also be required before the partnership begins operations.
The limited partnership agreement, however, is perhaps the most important document for forming the limited partnership. This is the document that will spell out the terms of the partnership, and will govern the partnership through its duration.
Why Write a Limited Partnership Agreement?
Even though a limited partnership agreement is not required in Florida, you should seriously consider executing it when forming a limited partnership .
Without the proper governing documents, Florida’s laws will dictate how the limited partnership is established and managed. Before you draft the proper documents for your limited partnership, consult with a business planning attorney and go over Florida’s current laws for partnerships.
If the parties of the limited partnership want to present a different approach to the limited partnership, the terms of the limited partnership agreement will override Florida law. This is one of the main reasons that a thorough, well thought-out partnership agreement is so important. If an issue is disputed, but not covered in the agreement, the parties will have no choice but to follow Florida law to reach a resolution. This is particularly important because taking a small dispute to court might only add extra headaches, time, and money to an issue that could have been quickly solved if a plan had been laid out in the original limited partnership agreement. Remember, litigation is very time consuming and expensive.
What Should Be In the Limited Partnership Agreement?
Limited partnership agreements are drawn up to make sure each partner is aware of the partnership’s operations, management, transfers, allocations of profits and losses, distributions and how to address disputes. It is not necessary to include every situation or conflict that could come up during the course of the limited partnership, but again, if it is not in the limited partnership agreement, Florida law will apply its own methodology to solve the dispute.
At the most basic level, your limited partnership agreement should include the following:
- What each partner will contribute to the limited partnership
- How profits and losses are distributed to the partners
- Distribution of ownership interest among and between partners
- Management structure
- The responsibilities of each partner
- How decisions are made
- How disputes are resolved
- When new partners can join/how they are admitted
- Exit rights and responsibilities of each partner
- How death and disability are handled
- How termination of employment is handled
- How remaining partners will handle the exit of one partner
Consult with a Florida business planning attorney through the creation of your limited partnership agreement.
Barry E. Haimo, Esq.