Important Elements of a Partnership Agreement

Posted on December 15, 2011 at 3:43pm by

A dispute between two New Jersey companies over an alleged partnership agreement recently ended when a federal court found in favor of the defendant company. The two companies had been doing business together since the late 1970s, having entered into a 20 year, renewable lease in 1977. In 1980, they created an addendum to the agreement that provided that the defendant would pay the plaintiff one half the value of its liquor license if the lease ever expired or if the defendant sold the license.

The two sides ran into problems in 2008 when the defendant filed for bankruptcy. The defendant’s bankruptcy trustee ultimately rejected the lease and informed the plaintiff.
The plaintiff company then filed a lawsuit, arguing that there was a de facto partnership existing between the two companies and that, as a result, the court should enforce the 1980 amendment as a contract requiring payment. The court disagreed and found for the defendant. If you are interested in forming a partnership and would like to protect your business interests, a Monmouth County business lawyer can help you craft an appropriate partnership agreement.

Important Elements of a Partnership Agreement

Along with a number of other states, New Jersey has adopted a version of the Uniform Partnership Act, which aims to standardize partnership laws across the United States. The elements of a partnership agreement are extremely important. Unclear agreements or the lack of a partnership agreement altogether can be costly mistakes.

The following are several of the more important elements of a partnership agreement:

  • Initial Contributions. The agreement should spell out how much money each partner should contribute and what his or her decision making power will be as a result.
  • Compensation. The form of compensation is a frequently contested area. The partnership agreement should detail monetary compensation, stock compensation and other forms of non-cash compensation.
  • Dispute Settlement. The partnership agreement should have a mechanism by which the partnership can effectively deal with disputes. It should be transparent, and all partners should have input into its creation.
  • Income Distribution. In a partnership, profits and losses pass directly onto the partners, so it is important to detail how this distribution will occur.
  • Dissolution/Leaving the Partnership. A final important area for a partnership agreement is deciding what to do at the end. Death, sale, and marriage are all events that can dramatically affect ownership and decision-making in a partnership. A partnership may unexpectedly end if a partnership agreement is silent in these areas.

Contact a Monmouth County business attorney at Klafter & Mason LLC if you would like to learn more about writing effective partnership agreements.

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