Amid the diversified business landscape, the Limited Liability Company, one of the most common corporate structures, offers flexibility and simplicity in business management. However, to ensure harmonious coexistence and to define clear rules, partners often opt to enter into a Partnership Agreement. Although not legally mandatory, it plays a crucial role in defining the relationships, responsibilities, and rights of the partners, contributing to the success and stability of the company.
What is a partnership agreement?
A Partnership Agreement is a private contract, supplementary to the company’s social contract, that regulates specific aspects of the relationships between partners. Although it does not need to be publicly registered, it is a legally binding document.
Moreover, it is important to note that only the partners will be the parties to this agreement, with the company itself not being a party but merely a consenting entity.
Key points addressed in a partnership agreement:
Profit and Loss Distribution:
The agreement can establish how profits will be distributed among partners, ensuring a fair division aligned with the interests of each.
Decision Making: Regulates how important decisions will be made, whether by consensus, majority, or specific areas of responsibility of each partner.
Entry of New Partners: Defines the conditions and procedures for admitting new partners, ensuring that this decision is structured and consented to by existing partners.
Exit of Partners: Specifies the circumstances under which a partner can leave the company, whether by selling their shares, retirement, or other reasons, protecting the interests of all parties.
Conflict Resolution: Establishes mechanisms for resolving disputes between partners, such as mediation or arbitration, avoiding prolonged litigation.
Governance: May include clauses on the appointment of administrators, roles of each partner in the management of the company, and other governance-related aspects.
Restrictions on Share Transfer: Defines conditions and restrictions for the transfer of each partner’s shares, including rights of first refusal, prior approval of other partners, or temporal restrictions (lock-up).
Financial Responsibilities: Specifies each partner’s financial obligations, including additional capital contributions, loans to the company, and personal guarantees.
Non-Competition Clauses: May prohibit partners who leave the company from competing directly with the business for a determined period.
Dissolution of the Company: Regulates procedures and conditions for the dissolution of the company, whether by mutual agreement of the partners, judicial decision, or other reasons.
Succession Plans: Defines succession plans in cases of death, incapacity, or departure of partners, ensuring business continuity.
Confidentiality and Secrecy: Establishes the obligation to keep the company’s confidential information secret, protecting trade secrets.
General Clauses: Includes general clauses related to applicable law, dispute resolution, amendments to the agreement, and other formal aspects.
Advantages of a Partnership Agreement in a Limited Liability Company:
Conflict Prevention: Clarifies partners’ expectations from the start, reducing the potential for future disagreements.
Flexibility: Allows for adaptations to the specific needs of the company and the relationships between partners.
Investment Protection: Ensures that partners are protected and aligned in their strategic decisions.
Thus, the partnership agreement is an excellent tool for creating a solid foundation of understanding and collaboration among partners, promoting a healthy and productive business environment through the strengthening of partnerships and the predictability of business relationships.