Many states in the USA have legislation in place to regulate the sharing of profits and losses in a limited partnership. Many of these state laws are based off the Uniform Limited Partnership Act (ULPA), which includes its 1976 revision called the Revised Uniform Limited Partnership Act (RULPA), a federal law that aims to regulate limited partnerships. However, states are not obliged to adopt this legislation, and instead, many choose to draft their own laws pertaining to limited partnerships. This is particularly relevant when it comes to profit distribution within a limited partnership. Limited partnerships are encouraged to draw up their own agreements on profit distribution in a partnership agreement when the company is formed. If they fail to do so, and a dispute is brought before a judge, the judge will simply refer to their state partnership legislation and that will dictate the outcome of your disagreement. For example, in New York, the NY Pship L § 121-503 (2016) states that in the absence of a partnership agreement, profits and losses will be allocated on the basis of each partner’s value, which is based on the value of each partner’s contribution. However, it is up to you to make sure you are familiar with your state’s partnership legislation so that you can avoid legal pitfalls.
This drives home how important it is to prepare a partnership agreement so that you are legally protected from your business partners. Always consult with a legal professional to ensure that any contracts you enter or disregard will not land you in legal trouble down the road.