GENERAL PARTNERSHIP AGREEMENTS - PROVISIONS & CONSIDERATIONS
The provisions suggested in this checklist must be considered in relation to the particular facts in the matter at hand, and augmented and revised as appropriate.
CONTENTS
1. Effective Date of Agreement
2. Identification of Parties
3. Recitals
4. Interpretation
5. Partnership
6. Conduct of the Affairs of the Partnership
7. Financing
8. Partnership Property
9. Transfer and Encumbrance of Interest in Partnership
10. Effect on the Partnership of Various Events
11. Dissolution
12. Miscellaneous and General Provisions
PROVISIONS & CONSIDERATIONS
1. Effective Date of Agreement
2. Identification of Parties
2.1 Distinguish general and limited partners.
2.2 Provide for the addition of partners (usually limited partners).
3. Recitals
3.1 General statement of the legal relationship between the parties and the reasons for entering into the agreement.
3.2 Statement relating the recitals to the rest of the agreement.
4. Interpretation
4.1 Definitions:
.1 Specific definitions (consider setting out in a schedule).
.2 Statement that accounting terms not defined have the meanings ascribed to them in accordance with generally accepted accounting principles.
4.2 Choice of law and forum.
4.3 Principles that govern the interpretation of the agreement (e.g., use of the masculine form, insertion of headings for convenience only).
4.4 Schedules, such as:
.1 Definitions (see item 4.1.1).
.2 Pro forma budget (see item 6.8).
.3 Assets which are partnership property (see item 8.2).
5. Partnership
5.1 Establishment of the partnership.
5.2 Name:
.1 For a limited partnership, ensure compliance with s. 53 of the Partnership Act.
.2 Consider provisions regarding amendment and, where the partnership name includes the names of partners, retention of the name of a departed partner and indemnification from any liability resulting from continued use of that name.
5.3 Description of business.
5.4 Place of business.
5.5 Offices.
5.6 Term. For example, does it commence before execution (note that limited partnerships do not commence until the certificate is filed), or does the partnership continue until a specified date, or until terminated as provided in the agreement.
5.7 Addition of partners:
.1 Terms and conditions.
.2 Restrictions (e.g., maximum number of partners).
6. Conduct of the Affairs of the Partnership
6.1 Duties and powers of partners, including any restrictions on powers, distinguishing where appropriate between types of partners (i.e. general and limited) and individual partners, and including such matters as:
.1 How major decisions are made (e.g., see item 6.7 of the shareholders’ agreement drafting checklist).
.2 How day-to-day decisions are made.
.3 Partner’s duties:
(a) Duty to devote full energy (or a specified amount of time) to the business of the partnership, subject to any prescribed right to vacations and sabbaticals.
(b) Duty not to compete while a partner and for a reasonable time thereafter, within a reasonable geographic area. Alternatively, consider provision for payment of a specified sum, or a reduction in capital to be returned, in the event the partner competes with the partnership after ceasing to be a partner.
(c) Duty not to disclose any information acquired by reason of the partner’s association with the partnership, both while a partner and for a reasonable time thereafter.
(d) Methods for authorizing exceptions.
.4 Specific duties of the general partner, such as:
(a) Filing s. 51 certificate or s. 81 declaration and, any amendments or cancellations that may be required.
(b) Establishing an office and keeping records there (as required for a limited partnership pursuant to s. 54).
6.2 Partners’ committee to be established and to have specified duties and powers (e.g., its consent may be required for specified major decisions or for permitting a partner’s competition or conflict of interest).
6.3 General partner has power of attorney for limited partner(s) for specified purposes (e.g., filing amendments to certificate of limited partnership).
6.4 Meetings, including rights of limited partners:
.1 Place and time.
.2 Calling a meeting, including notice requirements.
.3 Quorum and voting.
.4 Record date.
6.5 Liability of partners, distinguishing general and limited partners, and including liability of general partner to limited partners.
6.6 Indemnification of the partnership and the partners, distinguishing general and limited partners, in various circumstances.
6.7 Whether a general partner may also be a limited partner.
6.8 Pro forma budget (consider attachment as a schedule and inclusion of a statement of intent).
6.9 Whether a partner is to be employed by the partnership and, if so, consider:
.1 Including employment provisions in the partnership agreement.
.2 Having a separate employment or management contract tied to the partnership agreement so that a default by the partner under either the employment contract or the partnership agreement would constitute a default under both agreements.
6.10 Fiscal year.
6.11 Bank and accounts.
6.12 Signing officers.
6.13 Auditor/accountant.
6.14 Books of account, financial statements, accounting principles.
6.15 Access of limited partners to the books and records.
6.16 Reports and statements required to be made by the general partner(s) to the limited partners.
7. Financing
7.1 Define interest of each partner in the partnership as a percentage, as units (possibly of different classes), or otherwise.
7.2 Initial capital contribution required and basis on which it is determined.
7.3 Mechanisms by which the partnership may raise additional funds for working capital:
.1 Borrowing from an institutional lender:
(a) Whether the partnership is required to try to obtain funds in this manner before turning to the partners.
(b) Whether the partners are required to enter into guarantees of indebtedness of the partnership (such guarantees are usually required by the lender to be joint and several, in which case include an appropriate provision for mutual indemnification).
.2 Additional capital contributions from the partners:
(a) Circumstances in which the partnership may require this, how the decision is made, and whether there is a maximum amount that may be demanded.
(b) Basis of contribution (e.g., on percentage of interest).
(c) Notice requirements.
(d) Partners’ obligation (or option) to advance funds.
(e) Where the partners are obligated to advance funds, a provision for consequences of failure to do so (e.g., reduction of interest).
7.4 Whether the capital contributions of the partners bear "interest", and if so, how it is calculated and paid (note that compensation on capital contributions is not really interest but a charge against surplus).
7.5 Whether and in what circumstances capital contributions can be withdrawn.
7.6 Other contributions that may be or are required of partners (e.g., property, services).
7.7 Obligations of partners to provide own equipment, cars, office furniture, etc.
7.8 Obligations of partners with respect to costs and expenses.
7.9 Matters relevant to the determination of taxable income, such as the rate at which capital cost allowance ("CCA") is claimed, whether deductible expenses capitalized, etc.
7.10 Allocation of profits and losses.
7.11 Distributions :
.1 In what amounts distribution will occur (e.g., except as prohibited by the terms of debt financing, and to the extent permitted by law, after provision (by a specified mechanism) for necessary reserves).
.2 Frequency of distribution.
.3 Basis for distribution (e.g., based on each partner’s book equity, percentage of interest, etc.).
8. Partnership Property
8.1 Lease, sale, or contribution of property by partners to the partnership.
8.2 Statement of assets that are partnership property (consider attaching a schedule).
8.3 Statement of types of assets that will become partnership property.
8.4 Statement affirming types of assets that will not become partnership property (desirable when property is co-owned by partners who wish to claim CCA at different rates).
8.5 Statement regarding the nature of the interest of each partner in the partnership and its assets (e.g., whether the interest consists of contractual rights).
9. Transfer and Encumbrance of Interest in Partnership
9.1 No partner shall dispose of or mortgage his or her interest except as set out in the agreement (ensure that the agreement specifies any differences between general and limited partners).
9.2 Conditions which must be met before a partner may dispose of his or her interest, such as:
.1 Written consent of all the other partners.
.2 Right of first refusal to be offered to the other partners. See, e.g., item 8 of the shareholders’ agreement drafting checklist, and adapt it to the circumstances.
.3 Piggy-back rights pursuant to which the partner may only dispose of his or her interest if the purchaser also purchases the interests of all or certain of the other partners.
9.3 Circumstances in which a partner may force the purchase of that partner’s interest or the sale of another partner’s interest, such as:
.1 A compulsory buy-out (roulette or shotgun clause. See, e.g., item 9 of the shareholders’ agreement drafting checklist, and adapt it to the circumstances.
.2 A clause providing that a partner may require the other partners to join in the sale of all of their interests to an outsider. See, e.g., item 10 of the shareholders’ agreement drafting checklist, and adapt it to the circumstances.
.3 A clause providing that a partner may require the other partners to purchase that partner’s interest upon the occurrence of specified events (e.g., retirement from the work force or from active involvement in the partnership).
9.4 A defaulting partner is not entitled to dispose of the defaulting partner’s interest pursuant to the above provisions, unless prior to or concurrently with the transfer that partner ceases to be a defaulting partner.
9.5 Consider including a set-off where the seller is indebted to the partnership.
9.6 Conditions upon which a transferee will be admitted as a partner.
9.7 Obligation of the partners, where a partner has disposed of all of the partner’s interest in compliance with the agreement, to use all reasonable efforts to have any guarantee or pledge given by the partner discharged or cancelled, and to indemnify the departing partner for those liabilities after the partner’s departure.
9.8 Consider circumstances in which a potential purchaser under 9.2.2 or 9.3.1 can decide not to close or can renegotiate purchase price (e.g., material adverse change before closing, breach of representations and warranties, failure to obtain requisite consents and approvals).
10. Effect on the Partnership of Various Events
10.1 Provision for various events, including their effect and the procedures to be followed:
.1 Withdrawal from the partnership.
.2 Retirement from the partnership.
.3 Expulsion from the partnership (note that reasonable notice must be given before a partner is expelled).
.4 Death (also consider a provision that the partnership or partners be required to maintain life insurance policies on each other, to be used in financing a compulsory purchase of a deceased partner’s interest). See also items 13 (insurance), 14 (sale on death), and 15 (wills) of the shareholders’ agreement drafting checklist.
10.2 Default:
.1 Circumstances that constitute a default, such as:
(a) Failure to carry out obligations under the agreement for a specified period of time after the other partners have made a written demand that the failure be cured.
(b) Failure to defend assiduously a proceeding affecting possession or management of the partner’s interest for a specified period of time after the other partners have made a written demand that the failure be cured.
(c) Bankruptcy, commission of an act of bankruptcy, the appointment of a receiver or receiver-manager with respect to the partner’s assets, or an assignment for the benefit of creditors or otherwise.
(d) Change in control of a corporate partner.
(e) Termination of employment, retirement or death of a partner, or a representative of a corporate partner, who was employed by the partnership.
(f) Incapacity (as defined in the agreement).
.2 Consequences of default (indicate if consequences differ for different types of default; indicate alternatives), such as:
(a) Dissolution.
(b) Other partners may waive the specific default.
(c) Other partners may pursue any remedy available in law or equity.
(d) Other partners may take such actions as may reasonably be required to cure the default, in which case expenses shall be recoverable as provided in the agreement.
(e) Implementation of a buy/sell procedure, whereby the defaulting partner is deemed to offer to sell all or a part of the partner’s interest to the other partners, possibly at a discounted value.
(f) Where the default consists of failure to make a capital contribution as required under the agreement (see item 7.3.2), additional remedies may be provided to the non-defaulting partners, such as:
recovery of contributions made by them, the right to elect not to make contributions without being held in default, or the right to make the contribution on behalf of the defaulting partner and to be reimbursed.
11. Dissolution
11.1 The partnership shall be dissolved in the circumstances specified (e.g., written consent of the parties, insolvency of the partnership).
11.2 The partnership shall not be dissolved in the circumstances specified.
11.3 Procedures to be followed upon dissolution (e.g., notices to creditors).
12. Miscellaneous and General Provisions
12.1 Interest rate on any funds required to be paid to other partners (except default loans under item 10.2.2(f)).
12.2 Valuation methods (e.g., to value interest in partnership, profits, purchase price in various circumstances).
12.3 Whether insurance is to be carried by the partnership or the partners (e.g., life insurance (see item 10.1.4), income protection, accident insurance).
12.4 If a partner disposes of all of the partner’s interest in compliance with the agreement, then the partner is bound by only the rights and obligations that arose pursuant to the agreement prior to the disposition.
12.5 Execution of further assurances.
12.6 Entire agreement.
12.7 Amendments may be made as provided in the agreement (specify the type of amendment and the procedure that must be followed for each, particularly notice and consent requirements).
12.8 Any provision having the effect of imposing on a limited partner the duties of a general partner shall be of no force and effect.
12.9 Severability of invalid provisions.
12.10 Time of the essence.
12.11 Failure to insist upon strict performance of any provision of the agreement shall not prevent a subsequent violation of the agreement from having the effect of an original violation.
12.12 Notices:
.1 Addresses for service.
.2 Prepaid registered mail, telex, telecopy, or other arrangement.
.3 Deemed date of receipt, including effect of postal strike.
12.13 Arbitration.
12.14 Binding on heirs and executors.
12.15 Validity of counterparts, execution by facsimile, and other adopting instruments.