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Partnership articles are contracts that outline the nature of a partnership, including contributions, policies, dispute resolution, and procedures for adding or removing partners. They serve as an operator’s handbook and are essential for the success of a business.
The term “Articles of Partnership” refers to the contract entered into between those who enter into a partnership, such as a sole proprietorship or a corporation, which is a specific form of business operation. While it may seem counterintuitive to craft a complex operating charter at the start of a business venture, this really is the best time to boil down to writing all the different things that could lead to disagreement or confusion at some point in the future. Many successful companies dissolved prematurely, for example when one of the partners died and their heirs had no interest in keeping the company alive and the surviving partners could not afford to buy them out.
Well-written partnership articles will include many different provisions. They will name the company and partners, identify the nature of the partnership and define what each partner has contributed and is expected to contribute in the future, not only in capital but also in time and other assets such as real estate. They can make provisions for the inclusion of new partners and the process by which existing partners can voluntarily leave the partnership. Partnership articles should also state how company policy will be made and who will be responsible for the day-to-day running of the company. They should also establish procedures for resolving disputes and for expelling partners when such action is felt to be in the best interests of the partnership. Many partnerships will also lay out specific procedures to be followed in the event of the death of a partner, to try to avoid the possibility of the company collapsing.
Some of these provisions may seem extreme for a partnership, but it should be kept in mind that many large and dynamic business operations are partnerships, with hundreds or even thousands of partners sharing in the company’s operations and profits. Most old-line professional organizations, such as accountant firms, are partnerships. Law firms are also often organized as partnerships and try to attract the best new talent by offering partner status to new associates after a certain number of years. Many major league sports franchises are also organized as partnerships. The partnership articles for these organizations are highly complex and detailed, providing all possible contingencies.
The partnership articles that govern companies large and small are intended to serve as their operators’ handbooks. They serve the same purpose as the articles of incorporation of a corporation or the constitution of a government. Their success can be measured as they prepare the business for different events and circumstances, leaving management with enough flexibility to allow the business to adjust to changing market conditions.
Asset Smart.
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