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Do Partnership Agreements Have to be in Writing?

NJ Partnership Dispute AttorneysWhile it is always preferred to have a written agreement defining the type of partnership, the purpose of the partnership, the duties and obligations of the partners, distribution of partnership profits and other key terms,  under New Jersey law the short answer is no.  An agreement to create a partnership may be oral, written or implied by the conduct of the parties.  Kozlowski v. Kozlowski, 164 N.J. 162, 171 (App. Div. 1978), aff’d, 80 N.J. 378 (1979); Sarner v. Sarner, 62 N.J. Super. 41, 53 (App. Div. 1960), other, 38 N.J. 463 (1962); Ruta v. Werner, 1 N.J. Super. 455, 459 (Ch. Div. 1948).

Though partnership agreements typically are written, oral agreements governing matters such as division of profits and payment of a salary to a partner have been found to be enforceable.  White v. Caeser, 302 N.J. Super. 318, 320-322 (App. Div. 1997)(holding that an oral agreement governing division of profits and payment of salary to one partner was enforceable).  But see Preston v. Sailer, 225 N.J. Super. 178, 192-194 (App. Div. 1988)(holding that oral contract to purchase land as partnership or joint venture comes within purview of statute of frauds).

When there is no written partnership agreement, the Uniform Limited Partnership Act (“UPL) governs relations among the partners and between the partners and the partnership. N.J.S.A. 42:1A-4; Wilzig v. Sisselman, 182 N.J. Super. 519, 534 (App. Div. 1982). The UPL, N.J.S.A. 42:1-1 to -49, defines a partnership “as an association of at least two or more persons to carry on as co-owners of a business . . . .” N.J.S.A. 42:1-6; Kozlowski v. Kozlowski, 164 N.J. Super. 162, 171 (App Div. 1978), aff’d, 80 N.J. 378 (1979). The UPL also provides that “receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business,” subject to exceptions, one being receipt of the share of the profits “[a]s wages of an employee.”

Under the UPL, each partner has a non-transferable ownership interest in partnership property, management, control, and voting rights.  See N.J.S.A. 42:1A-27. Also, each partner has a fully transferable share of the partnership’s net losses and profits. N.J.S.A. 42:1A-28 to 42:1A-29. Absent a partnership agreement, each general partner is equally entitled to participate in the management and conduct of the business. N.J.S.A. 42:1A-21(f).  Further, partners share partnership profits and losses equally unless the partnership agreement provides otherwise.  N.J.S.A. 42:1A-21(b); Zyck v. Hartford Ins. Group, 150 N.J. Super. 431 (App. Div. 1977).

Under the UPL, the plaintiff has the burden of establishing that a partnership exists. Tuxedo Beach Club, Corp. v. City Fed. Savings Bank, 749 F.Supp. 635, 646 (D.N.J. 1990). In determining whether a business relationship was indeed a partnership under the UPL, New Jersey courts have considered several factors, including 1) the intention of the parties; 2) control of the business and partnership property; 3) how profits and losses are shared; and 4) the conduct of the parties towards third parties. Id. at 646-647; Kozlowski, supra, 164 N.J. Super. at 171.

Even though New Jersey law accepts verbal partnership agreements, the proponent of the partnership must still prove that a partnership exists.  Since most partnerships don’t begin with the partners intending to face off in a courtroom someday, best practices dictate establishing a written partnership agreement before going into business with a partner.

Admitted to NJ Bar in 1990, NY Bar in 1991. Former Judicial Law Clerk to Honorable Peter Ciolino, Assignment Judge, Superior Court of New Jersey, Bergen County. Member & Barrister: Daniel J. Moore Bankruptcy Inn of Court Member & Barrister: Morris Pashman Inn of Court Member: Bergen County Bar Association NJ Superlawyer - 2008, 2009, 2010, 2011, 2012, 2013 Nominated for inclusion in Best Lawyers of America Member: Litigation Counsel of America, Trial Lawyer Honorary Society
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