New Jersey Business Partnerships

A business partnership agreement is a legal document designed to dictate the terms of the relationship between partners; the way in which the business is run; and each party’s role in the running of the business. The agreement should also include the percentage of ownership assigned to each partner, as well as the legal and financial liability assigned to each. Decision-making; capital contributions and their reimbursements; addition or withdrawal of a partner; and profit and distribution schedule are all topics to address in the partnership agreement.

On a human level – a business partnership is still subject to human error and human emotions, which means it’s also vulnerable to a breakdown in communications. The partnership agreement will be the guide to navigate you and your business through the most tumultuous times, including any legal disputes; death or disability of a partner; divorce of a partner and what happens to his or her shares in the business after their divorce proceedings; or dissolution of the business, to name a few.

Each entity type (limited liability corporation, or LLC; s corp or c corp, or corporation, etc.) has its own rules of ownership and liability under state statutes. In the absence of an agreement, the laws outlined in New Jersey Statues Title 42 will be the default. However, a customized agreement tailored to your individual business will always be the more suitable option. Your business may be unique, with unusual situations and/or consequences, and it is best to have the agreement drafted in advance as a reference document. A qualified and experienced business lawyer will help you choose which entity is most suitable for you, and then help draft the partnership agreement to your individual circumstances.

There are four types of partnerships, in legal and taxation terms; there are many factors to consider when choosing, including your location; division of liability; qualifications of each partner; the industry of your business; and your personal relationship with each other, among others.

1. General Partnership (GP) consists of two or more owners who share equal rights, responsibilities, and liability for all legal obligations and financial debts. A GP is a pass-through entity, which allows for a tax advantage.
2. Limited Partnership (LP) restricts personal liability for an investing partner, which allows the business to receive operating capital. The limited Partner must pay for losses but will also receive any profits due.
3. Limited Liability Partnership (LLP) is a hybrid of the first two, wherein personal liability protection is afforded to each member while also maintaining the advantages of a pass-through entity for taxation.
4. Professional Limited Liability (PLLP) is a limited liability partnership limited to licensed professionals such as attorneys, accountants, and healthcare professionals.

Start your business on the right foot and contact us today to address your concerns and individual needs.