The Key to Understanding and Creating a Partnership Operating Agreement

Standardized Legal Documents The Key to Understanding and Creating a Partnership Operating Agreement

Partnership Operating Agreement—Who Needs It, and How To Create It?

Drafting a partnership operating agreement can be expensive and time-consuming, as is the case with writing any contract. DoNotPay is here to help you fully understand legal documents—such as an operating agreement—without hiring a lawyer or downloading useless contract templates.

With our assistance, you can draft documents in a matter of minutes!


The Types of Partnerships

There are three types of partnerships, although most people associate this term with limited liability partnerships (LLC). Here’s a table that better explains the types of partnerships:

Partnership Type Description
General partnership A general partnership is a for-profit commercial entity that has two or more general partners. Each of the partners has the same amount of liability for the actions of all partners, potential debts, and obligations of the partnership
Limited partnership A limited partnership is a for-profit business that has one or more general partners with unlimited liability and one or more limited partners who are only liable for their share of the ownership
Limited liability partnership A limited liability partnership is a business that only involves limited partners, meaning everyone is liable only for their actions

Partnership Operating Agreement Explained

A partnership operating agreement is a contract between two or more business associates that outlines the rules, responsibilities, profit and loss distribution, reporting, and financing of a partnership. This document can prevent disagreements and help resolve future issues in a partnership. A partnership agreement is also referred to as:

  • Articles of partnership
  • Business partnership agreement
  • General partnership agreement
  • Partnership contract

Everyone in a partnership for profit should sign this document, even if the parties are friends, family members, or husbands and wives. Even single-member LLCs should have an operating agreement like this in place.

Elements of a Partnership Operating Agreement You Should Include

There are many templates available online for all legal documents, but they are generic and lacking in many aspects. Partnership operating agreements need to include special provisions unique to each partnership and adhere to specific state laws.

When drawing up this agreement, you shouldn’t exclude some crucial elements:

  • The name of the partnership
  • Partnership’s place of business
  • Proof of forming the partnership in the form of a certificate
  • The name and address of the partnership’s registered agent
  • The purpose of your business
  • Term of the partnership
  • The capital contribution amounts of each member
  • Rules for adding new partners
  • Voting rules
  • Record-keeping provisions
  • Profit and loss management
  • Management costs and strategies
  • The rights of partners
  • Buy and sell agreement in case of partnership dissolution or the death of a member

Main Partnership Operating Agreement Aspects

Many aspects constitute a partnership operating agreement, and as such, they shouldn’t be neglected:

  • Ownership—Fairly distributed percentages in correlation to the capital investments
  • Profit and loss distribution—Distributed either in equal shares, fixed percentages summing up to 100% between the partners, or based on capital contributions
  • Tax elections—The IRS considers partnerships as taxable entities, and they normally audit them at this level instead of the individual level for each partner, unless a partnership prefers individual auditing. Partnerships should name one partner as a representative for taxation matters
  • Voting and management—Management can be unanimous, favor the vote of the majority, or there can be a managing partner. Voting power can be capital-based, equal for all members, or based on profit distribution
  • Exiting a partnership—A partner can fill out a timely Notice of Withdrawal form to leave the partnership at any time if they adhere to all the terms of the agreement
  • Dissolution of the partnership— The partners should know in advance what happens in the case of dissolution as a result of bankruptcy, withdrawal or death of a partner, or the situation when a partnership fulfilled its goal or reached the end date

Create a Partnership Operating Agreement Using DoNotPay

If you wish to create airtight agreements while saving time and money, sign up for DoNotPay. Lawyers are expensive, and they aren’t always necessary. DoNotPay can draft a partnership operating agreement for you. Here’s how it works:

  1. Enter Partnership Operating Agreement in the search bar
  2. Answer the questions from our bot
  3. Sign the document and print it

All members of your partnership must sign the document for it to be valid, but this agreement doesn’t need to be notarized. If you still choose to do so, you can get it done with DoNotPay. We can help you book a meeting with an online notary that operates 24/7!

Draft Numerous Contracts With DoNotPay’s Help!

If you sign up for DoNotPay, we can help you create many contracts quickly. Here are some of the most requested ones:

  1. Estoppel certificate
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  6. Operating agreement
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  8. Child care authorization form
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  10. Lease agreement
  11. Bill of sale
  12. Independent contractor agreement
  13. Prenuptial agreement
  14. Non-disclosure agreement
  15. Non-compete agreement

We can also help you create state-specific LLC operating agreements in:

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