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Partnerships in New Jersey 101

General Partnership Agreement

General Partnership Agreement

In New Jersey, a general partnership is a legal arrangement between two or more people, by which they agree to share certain aspects of a jointly-owned commercial enterprise, including assets, liabilities and profits.[1] General partnerships are customarily easy to create, requiring no registration or filings with governmental entities and, thus, can be a popular choice of entity formation.[2] While there is generally no legal requirement that the parties have a partnership agreement, entering into one is highly recommended.[3]

One prominent financial benefit of partnerships in New Jersey is that they are not taxed at the business level.[4] This means that all income passes through to partners, which are to be reported on their personal income returns.[5] Moreover, there is generally little to no annual compliance required with governmental agencies, which makes this a very manageable entity choice for first time business owners. With respect to profits, a partner has a right to receive his or her share of partnership profits and losses.[6] Further, a partner has a right to receive his or her share of partnership distributions equal to his or her ownership interest in the partnership.[7]

Under New Jersey law, a partner is not a co-owner of partnership property and has no transferable interest or right in partnership property individually or corporately as a member of the partnership. While partnerships serve several benefits to business owners, general partners in a New Jersey partnership must be wary of their potential liability. One of the biggest drawbacks of a general partnership is the unlimited personal liability of each partner.[8] Under the New Jersey general partnership statute, partners of a general partnership are jointly and severally liable for tort liabilities of the partnership and jointly liable for all partnership debts and other partnership obligations.[9] Individual partner liability, by virtue of various agency law principals, may be imputed to a partner from actions of any of the other partners or agents or employees of the partnership.[10] However, the individual assets of partners are not at risk for the contract debt(s) of the partnership unless, and until, the partnership cannot satisfy the debt from partnership assets or funds.[11]

Partnerships can also face stability issues, as the departure of a partner can effectively terminate the partnership. When a partnership dissolves prior to the term specified in the partnership agreement because of a breach of the partnership by a partner, a co-partner may bring a lawsuit against the breaching partner for damages caused by his or her breach.[12] Similarly, a lawsuit for damages may be brought by the remaining partners against a partner who wrongfully dissociates from the partnership under the Uniform Partnership Act, which NJ has adopted.[13]

It is important to be wary of all the benefits and risks when forming a partnership in New Jersey. For more information on the topics covered here today, or for services related to your specific situation, contact our knowledgeable corporate governance attorneys at (646) 766-8308 or contact us online to get the help you need.  




[4]  N.J. Stat. § 42:1A-18

[5]  Id.


[7]  N.J. Stat. § 42:1A-18


[9]  Id.

[10] Id.


[12] N.J. Stat.  42 § 1A-31

[13] Id.



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