Partnership Interest Pledge Agreements must be drafted and executed when two companies agree for one company to take a partnership interest in the other. These interests are taken for the purpose of securing a loan or mortgage. Naturally, there exist certain elements common to partnership interest pledge agreements.
Initially, the parties involved must be identified. This is usually accomplished in the Recitals section. Both the lender and borrower must be identified by their legal names, and the subject property, if there is one, should be identified as well. Next, the percentage of the interest must be identified. This percentage will vary; sometimes the interest taken will be 99.9% of the partnership, other times it can be less than 10%. Whatever the parties agree upon must be identified. All these elements can usually be addressed in the Recitals section of the Agreement.
After the Recitals section, each element of the contract must be broken down one by one. The term “Collateral” should be defined, whether it refer to capital accounts, rights of distribution, profits and losses, or any other collateral upon which the parties agree. The rights of the new interest holder should be identified as well. Usually these rights will include the right to vote, the right to inspect the books, records, and documents of the partnership, the right to receive a return of capital contributions in accordance with the Partnership Agreement, the right to receive tax benefits, the right to receive payments or distributions made to the Partnership, and the right to receive all proceeds from the sale or transfer of the Pledgor’s interest in the partnership.
The grant of security interest should also command its own paragraph. Generally, the pledgor will assign, grant, transfer, and deliver to the secured party a priority security interest in the collateral; be it a first, second, or third priority interest. Next, the lender will want to address the perfection of the secured loan under the rules of the Uniform Commercial Code. To perfect the security interest, the Pledgor must agree to deliver to the secured party an executed Assignment that the secured party will hold as security for the loan note. The Pledgor must also deliver to the Secured party a UCC-1 Financing Statement in a proper form.
Finally, both parties must represent, jointly and severally, that they are authorized to enter into the transaction, that the pledgor is the sole owner of the limited partner interests in the partnerships, free and clear of all liens or encubrances or prior pledges. It must also promise that sol long as the obligations secured by the Agreement are outstanding, , that the Secured Party will maintain ownership of at least a certain percentage of the stock of the partnership.
These are the most critical elements of a Partnership Interest Pledge Agreement. What will happen in the event of a default, the rights of the secured party, the rights of the pledgor, and under what circumstances the Agreement will terminate should also be addressed. For examples of actual Partnership Interest Pledge Agreements, visit the Agreements section of the Real Deal Docs website.
RealDealDocs.com is a division of Practice Technologies, Inc. the creators of SmartRules.com.
SmartRules provides step by step guides to local rules and civil procedure for state courts & federal courts throughout the country.
Popularity: 7% [?]
