The Partnership Agreement for Your Arizona LLP

For a limited liability partnership, the partnership agreement is the contract among the partners that governs how the business runs. An LLC uses an operating agreement; a corporation uses bylaws; a partnership uses a partnership agreement. The names differ but the purpose is the same — to set the internal rules of the business so the owners are not left to guess or fight over how things work.

Not the same as the state registration

Registering as an LLP with the Arizona Secretary of State is what gives the partners the liability shield and puts the firm on the public record. But that registration says nothing about how the partners actually run the firm — who owns what, how profits are split, how decisions get made, or what happens when a partner leaves. All of that lives in the partnership agreement, which is a private document among the partners, not a public filing.

Why "partnership agreement," not "operating agreement"

It matters to use the right term. An operating agreement is specific to an LLC's members. An LLP is a partnership run by partners, so its governing document is the partnership agreement. Using the correct instrument and language keeps the firm's paperwork consistent with what it actually is — a partnership that has elected LLP status — and avoids confusion with banks, lenders, and courts that expect a partnership to be governed by a partnership agreement.

Arizona does not require an LLP to have a written partnership agreement. You can register and operate without one. That does not make it a good idea — for a multi-partner firm, operating without a written agreement is one of the more serious mistakes you can make.

The default rules fill every gap

When your partnership agreement is silent — or when there is no agreement at all — Arizona's default partnership rules step in and govern. Those defaults may not match what the partners would have chosen. For example, default rules commonly split profits equally among partners regardless of how much capital or work each contributed. If your partners contributed unequal amounts and expected proportional returns, silence hands them an outcome none of them intended.

It prevents disputes

Most serious partner disputes trace back to something the partners never wrote down: how a departing partner gets bought out, whether one partner can bind the firm to a large contract alone, how a deadlock gets broken. A written agreement anticipates these moments and answers them in advance, when everyone is on good terms, rather than in the heat of a conflict. It is far cheaper than litigation.

It reinforces the shield

Running the LLP as a real, separate business — with a written agreement, its own bank account, and clean records — supports the legitimacy of the firm. A partnership that keeps its affairs in order is on stronger footing than one that operates informally with nothing written down.

A good partnership agreement is tailored to the specific firm, but certain provisions belong in nearly every one. Think of the list below as the skeleton every Arizona LLP should flesh out.

Core provisions

• Capital contributions. What each partner put in — cash, property, or services — and how future contributions are handled.
• Ownership and profit sharing. Each partner's ownership percentage and how profits and losses are allocated and distributed, which need not be equal.
• Management and voting. Who makes which decisions, what requires a unanimous vote versus a majority, and each partner's authority to bind the firm.
• Partner duties and compensation. Each partner's responsibilities, and whether partners draw a salary, guaranteed payments, or only profit distributions.
• Admitting new partners. The process and vote required to bring in a new partner.
• Partner exit. What happens when a partner withdraws, retires, dies, or becomes disabled — including buyout terms and valuation.
• Dispute resolution. How disagreements and deadlocks get resolved before they reach a courtroom.
• Dissolution. The vote required to wind up the firm and how remaining assets are distributed.

Tailor it to your firm

A two-partner consulting practice needs a different agreement than a ten-partner law firm. Professional practices in particular should align the agreement with their licensing board's requirements. Because the agreement governs real money and real relationships, having an attorney draft or review it is a sound investment — and one Mainstay Filing does not provide, since we are a filing service rather than a law firm.

The partnership agreement and the LLP shield are two different things that work together, and understanding the relationship is central to running the firm well.

What actually creates the shield

The liability shield comes from registering as an LLP with the state — not from the partnership agreement. This is the crucial distinction between an LLP and an ordinary general partnership. In a general partnership, every partner is personally liable for the firm's debts and for the wrongful acts of every other partner. When the partnership registers as an LLP and the state accepts it, that exposure changes: each partner is generally protected from personal liability for the malpractice and misconduct of the other partners and of firm employees. The registration, not the agreement, is what switches on that protection.

What the agreement does instead

The partnership agreement governs the internal relationships — ownership, profits, decisions, exits. It does not create or expand the shield against outside claims. So an LLP needs both: the registration for the shield, and the agreement for the internal rules. One without the other leaves a gap. A registered LLP with no agreement has protection but no clear internal governance; a detailed agreement with no LLP registration is just a general partnership with unlimited liability, however well-organized.

The limits of the shield

Even a properly registered LLP does not give a partner blanket immunity. A partner remains responsible for their own wrongful acts — the shield covers you against the other partners' misconduct, not your own. And it does not undo a personal guarantee: if a partner personally signs for a loan or lease, that promise stands regardless of the shield. Common among licensed professionals precisely because it protects each partner from another's malpractice, the LLP shield is powerful within its boundaries and important to understand at its edges. The partnership agreement can reinforce good practices around these limits, but it cannot rewrite them.