New Jersey Partnership Agreements

Our attorneys have helped entrepreneurs and business owners draft partnership agreements for New Jersey businesses in a diverse variety of industries, including construction contractors, tech businesses, publishers, restaurants and professional service businesses.

Having a well-drafted partnership agreement is the most important thing a New Jersey business can do to ensure successful, conflict free operations.  While most ventures are started by owners with high levels of trust and optimism, even the best relations can break down during the day to day challenges of running a business.  Partnership disputes can be devastating for businesses - they can disrupt operations, cause internal dissension, lead businesses to fail and result in litigation. A good partnership agreement can go a long way to avoid these problems.

Moreover, partnership agreements allow the partners to take matters into their own hands and write their own rules.  Without a partnership agreement, the partners’ rights and obligations are spelled out by New Jersey partnership law.  This law, written for  generic partnerships, will govern your particular business if you don’t have a partnership agreement.  It is far better to have a well-written partnership agreement and control your own fate.

The first step should be deciding if the partnership form is right for your venture.  Partnerships have many advantages.  For instance, the business is not taxed profits, avoiding the “double taxation” of a corporation.  Likewise, partnerships are very flexible; any two people can form a “de facto” partnership just by operating together as business owners, even without any paperwork.  However, partnerships have drawbacks, as well; for instance, partners are personally liable for their business’s debts, unlike corporations and limited liability companies (“LLC’s”).

Our attorneys bring many advantages to preparing partnership agreements.  For instance:

• We are skilled negotiators.  Maurice McLaughlin, for example, is appointed a mediator by the Superior Court of New Jersey to settle lawsuits filed there.
• We have significant financial expertise.  For example, Frank Nardi, in addition to being a tax and transactional attorney, has been a certified public accountant in New Jersey and New York for more than twenty years, and is also a certified financial planner. This gives him a unique advantage in addressing tax and financial matters when drafting partnership agreements.
• We have decades of transactional experience.  Our attorneys have handled countless transactions, from the purchase and sale of real estate to businesses and their assets.
• We have decades of experience litigating partnership disputes.  Partnership litigation generally stems from disagreements which were not provided for in partnership agreements. This experience gives us the foresight to plan for problems which may occur and provide solutions before they occur – we’ve seen lots of them already.

Partnership agreements should clearly address the many issues that the venture will face, spell out the owners’ rights and responsibilities, avoid disputes, and resolve disputes when they occur.  For example:

• It should set out what each partners’ job within the venture will be.  For instance, some partners may run the business, some may handle sales, and some may be inactive “silent” partners.
• The partnership agreement should provide the management structure, and each partner’s place within it.
• It should specify each partner’s ownership and voting percentages.  Provisions for voting rights should also provide for the situation when voting is deadlocked.
• Partnership agreements should clearly establish the partners’ compensation, both in terms of what they will receive for the performance of their duties (including any incentives) and their percentage of profits.
• The partnership agreement should provide for procedures to resolve disputes, such as mediation or arbitration.
• The agreement should provide for dissolution of the partnership when the partners decide to cease operations.
• It should provide “buy/sell” provisions for the retirement of a partner, or the situation where the partner wants to leave the business.  This may include the right of first refusal, or the right to match any offer the departing partner may receive for her ownership interest.  Buyout prices can be limited in the agreement.
• The partnership agreement can contain “restrictive covenants” which limit a partners’ ability to compete with the business either before or after she leaves.
• It should include provisions for actions to be taken if a partner abuses her position, such as stealing from the business, failing to perform her duties, or mismanaging it.
• The agreement should include procedures for approving and adding new partners.

Partnerships are normally for businesses, but not always.  For example, family members or friends may jointly buy a vacation home at the Jersey shore.  This is a de facto partnership.  Since property is a valuable investment, whether it is for income or pleasure, an agreement setting the ground rules among the owners is vital.  Indeed, it’s not just money that is an issues – in a vacation home the times that each owner gets to spend there should be specified.

It is advisable that every partnership “whether for profit or not, have a solid partnership agreement.

Please e-mail us or call one of our attorneys at (973) 890-0004 to find out about drafting a partnership agreement.