Law Office of Omar S. Anorga

Today let’s discuss a little bit about partnership agreements, and the actual written document.  So often I meet with clients who have entered into partnerships (oral) without an actual written partnership agreement. It is important that if you are going to partner up with someone, the terms and conditions of your partnership relationship are set forth in a written partnership agreement.  A written document promotes clarity and puts partners on notice regarding acceptable partnership conduct.

The California Corporations Code §§ 16100, 1602 et seq., (“Act”) provides rules to determine whether a partnership exists.  If a partnership does exist, it will be governed by both the partnership agreement and the Act.  Under the Act, the partnership agreement is defined as the agreement, whether written, oral, or implied, among partners concerning the partnership, including amendments to the partnership agreement.  The relations among the partners and between the partners and the partnership are governed  by this agreement, whether oral or written.  In addition, the Act will govern the relations among the partners and between the partners and the partnership, to the extent the partnership agreement does not provide otherwise.

While the partnership agreement may vary most provisions of the Act, it may not do any of the following (non-exhaustive list):

• Vary the rights and duties under the Corp. Code § 16105 regarding the statement of partnership, except to eliminate the duty to provide copies of statements to all of the partners.

• Unreasonably restrict the right of access to books and records granted by Corp Code § 16403(b) or the right to be furnished with information concerning the partnership’s business and affairs as granted by Corp Code § 16403(c)

• Eliminate the duty of loyalty under Corp Code §§ 16404(b) and 16603(3), although, if it is not manifestly unreasonable, the partnership agreement may identify types or categories of activities that do not violate the duty of loyalty, and may provide that all of the partners or a specified percentage may authorize or ratify, after full disclosure of all materials facts, a specific act or transaction that otherwise would violate the duty of loyalty.

• Unreasonably reduce the duty of care under corporation code.

• Eliminate the obligation of good faith and fair dealing under the corporation code, but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable.

A well-drafted partnership agreement will enable the partners to clarify their respective rights and obligations before the commencement of the partnership business.  This may eliminate ambiguities and areas of doubt that might result in future disputes and controversies.  The existence of an oral joint venture or partnership agreement must be established  by a preponderance of evidence.  Thus, where the agreement is not in writing, the intention of the parties must be determined from their language and conduct, and misunderstandings may escalate into litigation.

As with all other contracts, competency of the parties, consideration, the nature of the agreement, and a meeting of the minds are elements necessary of the validity of a partnership agreement.  A partnership agreement must be free from fraud.  Where a party has been induced to enter into a partnership by the fraudulent representations of a copartner, the agreement may be rescinded.  Similarly, the agreement must not have as its object an illegal purpose or be contrary to public policy if it is to be enforced.

A partnership being drafted with respect to a specific enterprise should include provisions reflecting the type of business engaged in and the particular circumstances that may be unique  to that partnership.

That’s all for now on partnership written agreements.  Stay tuned until next week when we will discuss certain types of partnerships – general, limited, etc.

For more information on the matter, please contact the Law Offices of Omar S. Anorga at 213 489-1271.  Thank you.

By using this blog site you understand that this information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. This blog site should not be used as a substitute for competent legal advice from a licensed attorney in your state.

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