Need Legal Assistance with a Business Partnership Agreement?
Manalapan Business Attorney Explains Different Types of Partnerships
A partnership exists when two or more people do business together, which may happen with or without a formal written agreement. Your own responsibilities and liability to the business and/or your partners depends on which type of business partnership you form. A general partnership is easiest to create and does not require a written agreement, but this kind of partnership may not be best for you or your business. Limited partnerships and limited liability partnerships offer more protection and typically require more planning, as well as a formal agreement. No matter what kind of entity you wish to form, a business partnership agreement can help you avoid future issues and liability. An agreement usually contains procedures for making business decisions, settling disputes and partnership withdrawal.
If you are starting a business in New Jersey, then Garland & Mason, L.L.C. can help ensure that your partnership agreement and all other paperwork is sound. Business attorney Gary L. Mason has been handling partnership agreements for companies and small businesses since 1990. He can review your agreements and contracts or help you write them from scratch.
What are the Different Kinds of Partnerships?
When you are starting a business with one or more partners, one of your first decisions may be what kind of partnership to form. In some cases, you may not need formal documentation for a partnership agreement. However, a written agreement is essential if you want to limit your liability or that of your partner(s). The different types of partnerships are:
- General partnership. In New Jersey, a general partnership does not require a written agreement or any filings other than tax returns; all that is necessary is that you and at least one other person operate in business together. However, in a general partnership, you are personally liable for the contracts, torts and debts of all other partners. This can be problematic if the business dissolves or cannot meet its debt obligations, such as rent.
- Limited partnership (LP). An LP is made up of one or more general partners, and limited partners who are liable only for certain aspects of business. The general partners manage the business and remain personally liable for it. However, the limited partners, often investors, are not personally responsible for the business and usually do not participate in running the company. If the business incurs debts or faces a lawsuit, for example, a limited partner is only liable for his or her capital investment.
- Limited liability partnership (LLP). In an LLP, all partners are legally responsible only for their actions and their investment. None of the partners are personally liable for the business or the actions of the other partners.
Both an LP and an LLP require you to create and file partnership agreements with the New Jersey Secretary of State. The kind of partnership you choose will depend on your individual circumstances and business plan.
What Should a Partnership Agreement Include?
Partnership agreements protect the rights of the partners. Therefore, they are often extensive, since you should ideally plan for all eventualities – even unpleasant ones. Your agreement should also be tailored to your specific business; some companies may face questions or challenges that others do not. However, most agreements include routine information, like partners’ names and address, as well as:
- Decision-making procedures. In most cases, partners vote on business decisions. You should define whether each partner gets an equal say and whether you need unanimity or majority to make decisions.
- Cost and profit sharing. You should be very specific about everyone’s financial obligations to the business and how you will divide profits. This may relate to ownership percentage, but you and your partner(s) may reach different terms.
- Partner authority. You may appoint a managing partner who has authority to sign checks and handle minor day-to-day decisions. On the other hand, all partners may equally divide all these responsibilities.
- Accounting responsibilities. In most cases, either an accountant, accounting firm or one of the partners handles the financial records. You should also decide how often to audit the business’s finances and what accounting records each partner must keep.
- Partnership addition and withdrawal procedure. This determines each partner’s rights when a new partner wishes to join, or one of the partners wants to leave. Usually, this includes the time frame during which the remaining partners may or must buy out the leaving partner’s shares. You may also consider the procedure for non-voluntary withdrawal, such as what happens if a partner dies.
- Registered agent’s name and address, for service of process.
- Partnership dissolution. You should have a plan in place for deciding when and how to end the partnership and/or dismantle the business.
Questions About Partnership Agreements? Contact Our Law Firm Today
Partnership agreements are crucial for good business, so you should always consult with a lawyer when starting a new company or joining an existing partnership. Business lawyer Gary L. Mason can advise you at any stage of your partnership. This includes partnership disagreements and dispute resolution as well as business formation.
If you need assistance with partnership agreements during business formation or at any other time, then contact our attorneys today. We offer free initial consultations to business owners throughout New Jersey from our office in Manalapan.