What are Articles of Partnership?

Articles of partnership are included in a formal agreement between the participants in a business entity who want to combine their capital and labor. This document is used to govern the many decisions in which partners might engage. These articles are not a legal requirement, but are a good way to minimize friction between the partners in regard to certain organizational issues. The articles can address a number of issues, such as the following:

The amount of capital contributions to be made by each party
The circumstances under which arguments can be submitted to arbitration
The circumstances under which partners can be expelled
The circumstances under which partnership interests can be sold or transferred
The duties assigned to each partner
The primary place of business of the partnership
The name of the business entity
The ratio of profits and losses to be allocated to each partner

A key reason for writing articles of partnership is to avoid disagreements among the partners in regard to such matters as how partners are to be compensated and what they will be paid if they choose to leave the partnership.

Advantages of Having Articles of Partnership

There are multiple advantages associated with having articles of partnership, which include the following:

Clearly defined roles. The articles clearly state the responsibilities of each partner. This minimizes conflict over who is supposed to perform certain tasks, and who is supposed to make decisions in targeted areas.
Used for conflict resolution. The articles can be used to resolve disagreements, such as stating a clearly-defined path that includes mediation or arbitration. This can save substantial litigation costs.
Enhances business stability. The articles provide guidelines for how to bring in new partners, as well as how to buy out the interests of those partners who are retiring from the business.
Clarifies profit distributions. The articles show exactly how profits and losses are to be shared among the partners. This can be used to avoid any disputes over the calculation or fairness of these distributions.