Limited Partners Agreements (LPAs): What You Need to Know
If you`re planning on starting a business with a partner, it`s essential to consider the legal aspects of the partnership. One such consideration is the Limited Partners Agreement (LPA).
An LPA is a legal agreement between at least one general partner and one limited partner. Simply put, the general partner is responsible for running the business, while the limited partner provides funding and shares in the profits without being involved in daily operations.
A well-drafted LPA can set the terms of the partnership, outline the rights and responsibilities of each partner, and mitigate potential conflicts. It can also limit the liability of the limited partner in case of business debts or lawsuits.
Here are some essential elements to consider when creating an LPA:
1. Capital Contributions: The LPA should state the capital contribution of each partner and how it will be used for the business. This will help avoid misunderstandings in the future.
2. Profit Sharing: The agreement should outline how profits will be shared between the partners. Typically, limited partners receive a percentage of the profits based on their capital contribution, while the general partner receives a higher percentage for running the business.
3. Management Structure: The LPA should define the management structure, including the roles and responsibilities of each partner. This can help prevent conflicts arising from overlapping roles and responsibilities.
4. Involvement of Limited Partner: The limited partner should not be involved in the management of the business to avoid being classified as a general partner. Doing so could result in the loss of limited liability status and exposure to unlimited liability.
5. Dissolution and Liquidation: The LPA should state the process of dissolving the business and how the assets and liabilities will be distributed to the partners.
In conclusion, a Limited Partners Agreement is a crucial legal document for any business that involves more than one partner. It outlines the responsibilities and rights of each partner and can help prevent conflicts and misunderstandings in the future. It`s essential to consider the elements mentioned above when creating an LPA to ensure the success and longevity of your business.
