Checklist for Your Partnership Agreement

Source: Accounting Today

Nationally known consultant August Aquila ([email protected]) advises accounting firms to review their partnership agreements before problems arise. Here is a summary of his checklist for what should be in the agreement:

• Allocation of profits.
• Initial capital contributions and how future capital contributions will be calculated. Capital contributions entitle partners to interest, but do not provide a basis for a share of profits.
• Partners considerations:
  • Criteria for admission.
  • Process for approval.
  • Termination—what are the grounds for termination of dysfunctional or underproductive partners?
  • Retirement before age 62—retirement benefits normally should not be paid until the retired partner reaches 62 or older.
  • How will the firm buy-out partners who are disabled, deceased, or retired?
  • Should mediation or arbitration be used to resolve disputes?
• Management—responsibilities, methods of election, and terms of managing partners and of executive and compensation committee members.
• Major items to be addressed:
  • Merger or sale.
  • Noncompete agreements. Among other things include forfeiture of retirement benefits if a partner violates the agreement, and offsets to payments if the departing partner doesn’t provide transition assistance.

From Accounting Today, October 2, 2006, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004. For the complete article, click on the following link: http://www.webcpa.com/article.cfm?articleid=22046&;pg=acctoday.