The Partnership Agreement for a Montana LLP

In an LLC, the internal governing document is called an operating agreement. In a partnership — including a limited liability partnership — the equivalent document is the partnership agreement. It serves the same purpose: it's the private contract among the owners that spells out how the business runs. For an LLP, "partners" replace "members," and the partnership agreement replaces the operating agreement.

Montana does not require you to file the partnership agreement with the Secretary of State. It never becomes public and isn't part of the Statement of Qualification. But it is the single most important internal document the LLP has, because it's what actually governs the relationships among the partners. The state filing creates the LLP's legal status and liability shield; the partnership agreement determines everything about how the partnership operates day to day.

Why you shouldn't rely on the defaults

If the partners don't have a written agreement, Montana's default partnership rules under the Montana Uniform Partnership Act fill in the gaps. Those defaults are one-size-fits-all and frequently don't match what the partners actually intend. The most notorious example is profit sharing: under the default rule, profits are split equally among partners regardless of how much capital or effort each one contributed. If one partner put in most of the money and another put in most of the labor, an equal split is probably not what either of them wanted — but that's what they get without an agreement that says otherwise.

The defining difference between an LLP and an ordinary general partnership is the liability shield, and it's worth understanding precisely, because it shapes how the partnership agreement should be written.

What the shield does

In a plain general partnership, every partner is personally liable for the partnership's debts and, critically, for the wrongful acts and negligence of every other partner. If your partner commits malpractice, a general partnership leaves your personal assets exposed to the resulting claim. The LLP election changes that. By filing the Statement of Qualification, the partnership gains a shield that protects an innocent partner from personal liability for the partnership's obligations and for the misconduct of the other partners. Your partner's malpractice is no longer your personal problem, provided you weren't involved in it.

What the shield doesn't do

The shield is not unlimited. A partner remains fully responsible for their own negligence and wrongful acts — the LLP doesn't let anyone escape their own conduct. It also doesn't override personal guarantees a partner signs, and it doesn't reach certain tax obligations. And because the shield is statutory, it depends on the LLP registration being valid and maintained. A lapsed registration can put the shield at risk, which is why keeping the LLP in good standing is part of preserving the protection.

This is exactly why licensed professionals gravitate to the LLP. Accountants, attorneys, engineers, architects, and healthcare partnerships want to share a practice without each partner guaranteeing the others' professional errors. The LLP gives them shared ownership and pass-through taxation with cross-liability protection — something a general partnership can't offer.

A thorough partnership agreement anticipates the situations that cause disputes and addresses them in advance, while everyone is still on good terms. The essential provisions:

Ownership and contributions

• Each partner's ownership interest and how it's expressed
• Capital contributions — what each partner contributed at the outset (cash, property, services) and any obligation to contribute more later

Money

• Profit and loss allocation — how profits and losses are divided among partners, which does not have to be equal and should reflect the partners' actual intentions
• Draws and distributions — when and how partners take money out of the business

Control

• Management structure — who makes decisions, which decisions require unanimity, and how day-to-day matters are handled
• Voting rights — how votes are weighted and what majority or supermajority is needed for major actions

Change and exit

• Admitting new partners — the process and approval required to bring someone in
• Departure of a partner — what happens when a partner retires, withdraws, dies, or becomes disabled, including how their interest is valued and bought out
• Transfer restrictions — whether and how a partner can sell or assign their interest
• Dissolution — the circumstances under which the partnership winds down and how assets are distributed

Professional matters

For a professional-services LLP, the agreement should also address how the partnership handles matters specific to its field — allocation of professional-liability insurance, treatment of client relationships, and compliance with licensing-board requirements.

The provisions partners most often neglect are the ones that govern a partner's exit — and those are precisely the ones that prevent the ugliest disputes. What happens when a partner wants to leave, dies unexpectedly, gets divorced, or the partners simply can't work together anymore?

A good agreement includes buy-sell terms: a method for valuing a departing partner's interest, a mechanism for the remaining partners or the partnership to buy it out, and terms for how the buyout is paid. Without these, the departure of a single partner can force the sale or dissolution of the whole partnership, or drag the partners into litigation over what a share is worth. For partnerships where the partners are also the people doing the work — which describes most professional LLPs — these provisions are the difference between an orderly transition and a crisis.

Because these terms can get technical and their consequences are significant, the partnership agreement is a document worth having an attorney draft or review rather than assembling from a template. The cost of good drafting is small compared with the cost of a dispute over a poorly drafted or missing provision.

A partnership agreement is not a set-it-and-forget-it document. As the partnership evolves — partners join or leave, the profit split changes, the business shifts direction — the agreement should be updated to match reality. An outdated agreement can be as problematic as none at all, because it may govern the partnership according to arrangements that no longer reflect how the partners actually operate.

Revisit the agreement whenever a significant change occurs, and at least periodically as a matter of housekeeping. Keep signed copies accessible to all partners. And remember the relationship between the agreement and the state registration: the partnership agreement governs the internal operation of the LLP, while the Statement of Qualification and the annual report keep the LLP's legal status and liability shield in place. You need both working together — a solid agreement among the partners and a maintained registration with the state.