What Are the Governing Documents for a Limited Partnership?
By: Barry E. Haimo, Esq.
March 11, 2021
A limited partnership is a type of entity where the shareholders are comprised of both general and limited partners. The general partners are in total control of the entity, regardless of amount of ownership. This means they are completely liable for the debts of the partnership. Conversely, the limited partners have no control, and therefore, no liability.
There are many advantages to forming a limited partnership. One is just how easy it is to bring to life!
But even though a limited partnership can be formed with a handshake, you want 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 — both through regular business and when any abnormal circumstances or disputes arise.
It helps to think through some of these more unusual circumstances so you have a set process for how to handle them. The best time to do this is in the beginning when everyone is excited.
Why? Because it’s much harder after problems have already arisen, causing tension between the partners.
Actual governing documents for a limited partnership are not required by Florida law. That being said, 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?
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.
Perhaps the most important document for forming the limited partnership, however, is the limited partnership agreement. This is the document that spells out the terms of the partnership and will govern it throughout its duration.
Even though a limited partnership agreement is not required in Florida, you should seriously consider executing it when forming a limited partnership .
Why Write a Limited Partnership Agreement?
Without proper governing documents, Florida’s laws will dictate how the limited partnership is established and managed. Creating a limited partnership agreement gives you more control.
Because the terms of the limited partnership agreement 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 it increases the likelihood that you could end up taking small disputes to court.
Why is this bad? Because litigation is very time consuming and expensive. Having to go through it can’t help but add extra headaches, time, and money to these issues.
However, if a plan is laid out in the original limited partnership agreement, you can resolved these kinds of issues on your own.
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. Again, though, if it is not in the limited partnership agreement, Florida law will apply its own methodology to solve the dispute.
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.
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
For best results, consult with a Florida business planning attorney through the creation of your limited partnership agreement.
Originally published 11/15/2016. Updated 3/11/21.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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