Partnership Disputes

A partnership forms if two or more individuals decide to go into business, but they do not structure their business as something other than a partnership, such as a limited liability company. When there is a de facto partnership, the parties behave as partners, even though no formal partnership agreement has been put in place. When there is a de jure partnership, the parties act in partnership through a formal partnership agreement. Often, it is wise to create a partnership agreement in case a dispute arises. Bergen County partnership litigation lawyer Howard Leopold can help you protect your interests in a dispute.

New Jersey partnership law governs partnerships. Both de jure and de facto partnerships are recognized under the law. When there is a dispute, the first step is to look at the partnership agreement, if there is an agreement, and evaluate what each partner’s rights and obligations are. A well-crafted partnership agreement will also specify what the remedies are, or how to obtain them, in case one partner violates another partner’s rights. It is wise to draft a clear agreement that addresses these issues.

However, if no partnership agreement was drafted, and the partners simply behaved as partners, their disputes are governed by the New Jersey Uniform Partnership Act. Under New Jersey Revised Statutes 42:1A-2, a partnership is an association of two or more people who behave as co-owners in a business for profit formed under section 10, or a comparable law from a different jurisdiction or a predecessor law. A limited liability partnership means a partnership that files a statement of qualification under section 47 and does not have a similar statement in another jurisdiction.

Sometimes partnership disputes are complex. A partnership litigation attorney in Bergen County may want to look at whether there has been partnership oppression, whether a partner has taken excessive profits, or whether one partner has breached their fiduciary duty to another partner. There are situations in which it is necessary to conduct a forensic examination of the partnership’s records and books. There are situations in which the partners’ views are irreconcilable, and one partner may be ordered to buy out another partner, requiring a valuation of the business. Under Section 42:1A-11, property acquired by a partnership is property of the partnership rather than the individual partners, but an agreement may specify otherwise. It can become necessary for a court to make determinations about ownership.

Disputes between partners may be resolved through direct negotiation. Sometimes direct negotiation is not possible, and it only strengthens the conflicts and might even draw stronger adverse lines. In that case, it becomes necessary to resort to formal dispute resolution. This can involve arbitration, mediation, or litigation in a courtroom with the assistance of a Bergen County partnership litigation attorney. Arbitration and mediation are distinct, but they are usually conducted by neutral third parties. Mediation is a gentler way to resolve disputes because it is not binding, and the parties come to a resolution with the help of the mediator. Arbitration results in a decision by a neutral third party. Usually, that decision is binding. A major disadvantage is that the partners give up their right to appeal a decision with which they disagree.

If a partnership dispute involves money, it may be heard before the Law Division of the New Jersey Superior Court. It is possible to ask for a jury trial. However, the Chancery Division, which does not have a jury, is the more common forum in which to bring a partnership dispute. In the Chancery Division, a chancery judge awards monetary damages or equitable relief, or both. For example, the resolution to a partnership dispute may require the dissolution of the partnership, the sale of the assets, and a forced buyout by one of the partners. The Chancery Division has the authority to issue an order to allow a partner access to books and records, and it may order an accounting of business losses or profits or expenses by one partner for the benefit of the others. It can appoint a receiver if a partner has been oppressed by another partner.

At Leopold Law, LLC, we believe in providing knowledgeable and experienced representation in commercial disputes. Our firm has more than 30 years’ experience handling many different kinds of legal matters. Contact us at 201-345-5907 or through our online form. Mr. Leopold represents clients throughout Northern New Jersey, including in Bergen, Passaic, Hudson, and Essex Counties.