Part 9- Partnerships, Chapter 38: Operation of Partnerships and Related Forms, Doc 1

Addressing Default Rules and Custom Provisions in LLP Agreements Default Rules on Partnership Management Under the Revised Uniform Partnership Act (RUPA), unless otherwise specified: 1. Equal Management Rights: All partners have an equal right to manage and participate in decision-making, regardless of capital contribution or seniority. 2. Decisions by Majority: Routine business decisions are made by a majority of partners, while extraordinary matters require unanimous consent. Why Default Rules Are Inappropriate   Unequal Contributions and Roles: The senior partners contribute more capital and have significant reputations driving initial revenue. Equal management rights do not reflect their higher stakes. Decision Efficiency: With 21 partners, equal decision-making could lead to inefficiencies and conflicts, especially as the six senior partners bring in most revenue. Management Section of the Partnership Agreement Section X: Management Structure 1. Management Committee: o A Management Committee comprising the six senior partners will oversee strategic decisions, major expenditures, and client acquisition strategies. o Decisions on routine operational matters (e.g., engagement staffing) will be delegated to an Operations Committee comprising five partners (three senior and two junior). 2. Voting Rights: o Strategic Decisions: Require a two-thirds vote of the Management Committee. o Operational Decisions: Managed by the Operations Committee, with majority rule. 3. Delegation of Authority: o Specific operational tasks, such as marketing and HR management, are delegated to senior partners with relevant expertise. o Junior partners may propose new business strategies, subject to approval by the Management Committee. 4. Dispute Resolution: o Any disputes arising between committees or partners will be referred to an independent mediator. Default Rules on Compensation RUPA’s default rule: 1. Equal Profit Sharing: Partners share profits equally, regardless of capital contribution or role. 2. No Salary: Partners are not entitled to a salary for services rendered. Why Default Rules Are Inappropriate   Unequal Value Contribution: The senior partners provide significantly more capital and client revenue, justifying a higher share of profits. Compensation for Time and Effort: Junior partners and associates will handle most engagements; compensation should reflect work done. Compensation Section of the Partnership Agreement Section Y: Compensation and Profit Allocation 1. Profit Allocation: o Profits will be allocated based on a tiered system:  Senior Partners (6 partners): 70% of profits, distributed proportionally based on individual contributions to revenue.  Junior Partners (15 partners): 30% of profits, distributed equally. 2. Monthly Draws: o Senior partners receive a base draw of $20,000 per month. o Junior partners receive a base draw of $10,000 per month. o Draws are advances against profits and adjusted annually. 3. Performance Bonuses: o Additional bonuses will be awarded based on individual contributions to new client acquisition, engagement success, and operational efficiency. o Bonus pool: 10% of annual net profits. 4. Reinvestment Requirement: o 10% of each partner’s annual profit share is retained in the partnership to fund growth and operations. 5. Associate Compensation: o Associates will receive fixed salaries with performance-based bonuses. Promotion to junior partnership will be reviewed annually. This structure ensures equitable profit sharing and efficient management, balancing the senior partners’ contributions with the operational roles of junior partners.