399 Chestnut Street • Needham, MA 02492 • Ph: 781-444-9344 • Fax: 781-449-0242 • bob@robertsmart.net
Partnership and Shareholder Agreements
This bulletin concerns partnership agreements, buy-sell agreements, shareholder agreements, and LLC operating agreements.
Numerous Massachusetts laws affect the rights and obligations of people who go into business together. They include the Uniform Partnership Act (Chapter 108A), the Limited Liability Company Act (Chapter 156C), and the Massachusetts Business Corporation Act (Chapter 156D). While these Acts establish certain presumptions, rights, and obligations, they are not adequate substitutes for detailed agreements between the business partners, shareholders, or LLC members (all referred to herein as partners).
People who go into business together without a written agreement are asking for trouble down the road. Disputes, and costly litigation, can often be avoided if the parties have signed a good written agreement which anticipates future situations. Here are some of the issues an agreement should address:
• The parties’ respective capital contributions, roles, and duties.
• Management of the business, and a dispute resolution mechanism.
• Check signing authority, and banking arrangements.
• Allocation of profits and losses.
• Tax reporting of income and expenses, profits and losses.
• Employment status of each of the partners.
• Continuation or dissolution of the business on the death or disability of a partner.
• Valuation of a deceased or departing partner’s interest in the business.
• Compensation arrangements for a partner who wants to leave the business.
• Purchase of insurance to fund the buyout of a deceased partner’s interest.
• Confidentiality and non-competition obligations of the partners.
• Restrictions on the transfer of a partner’s interest in the business.
February 17, 2008