|
Partnership Agreements: It’s in the Drafting
by Nicole Perdoni-Byrne
The partnership agreement is the
key document in dictating the
terms, conditions and governance of a
partnership. While such an agreement
is analogous to a contract negotiated
between the partners of the partner-
ship, the Uniform Partnership Act
(“UPA”) contains certain statutory
requirements that must be contained
in a partnership agreement and
cannot be modified or contradicted
through negotiation. When a
partnership agreement fails to provide
for certain terms, the UPA provides
for statutory gap fillers that will dictate
and provide guidance under certain
situations. There is some room for
creative drafting when creating these
agreements, but the drafter must
always keep the provisions of the
UPA in mind.
Statutory Prohibitions
N.J.S.A. 42:1A-4 provides that
“relations among the partners and
between the partners and the
partnership are governed by the
partnership agreement.” But that
same statute sets forth certain things
the partnership agreement cannot do.
It cannot unreasonably restrict the
right of the partners to access the
books and records. The agreement
cannot reduce the duty of loyalty to
the partnership and by the partners,
proscribed by the UPA, in order to
allow a partner to engage in conduct
intentionally injurious to the partner-
ship, nor can it unreasonably reduce
the duty of care required to be given
to the partnership. It cannot provide
contrary rights of the court to expel
a partner nor can it change the
requirements set forth in the UPA to
wind up the partnership business in
certain instances. Pertaining to the
limited liability partnership, the agree-
ment cannot vary the law pertaining
to this type of entity. The partnership
agreement cannot restrict the rights to
third parties provided for in the UPA.
Statutory Gap Fillers
There may be instances when a
partnership agreement fails to provide
for important and necessary terms
that govern the partnership. The UPA
provides provisions to fill those gaps.
For instance, a partnership agreement
may be silent as to who has authority
to bind the partnership. The UPA
provides for this situation in NJSA
42:1A-13, wherein section (a) states
that “each partner is an agent of the
partnership for the purpose of its
business. An act of a partner ...for
apparently carrying on in the ordinary
course of the partnership business or
business of the kind carried on by the
partnership binds the partnership.”
This apparent authority is negated in
situations where the person with
whom the partner was dealing knew
the partner lacked the necessary
authority to act on behalf of the
partnership or received notification
of same. Section (b) states that when
a partner’s act is not apparently for
carrying on in the ordinary course of
partnership business, his or her act
will only bind the partnership if such
act was authorized by the other
partners.
Questions will naturally arise as to
how to quantify “other partners” when
deciding what, in fact, is the ordinary
course of business for a particular
partnership and when is an act outside
of the ordinary course of business an
authorized act. NJSA 42:1A-21 sets
forth a partner’s rights and duties
within the partnership. Section (j)
states that when a difference arises
among the partners as to a matter in
the ordinary course of business it
shall be decided by a majority of the
partners. This Section goes on to state
that an act outside the ordinary course
of business of a partnership (and an
amendment to the partnership agree-
ment) shall be undertaken only with
the consent of all of the partners.
Conclusion
The partnership agreement is a
document that the partners should take
great care in drafting. While it can be
treated as any other contract, terms of
which can be negotiated between the
parties, there are certain rights and
requirements proscribed by the UPA
that cannot be bargained for or
negotiated away. On issues that fail to
be addressed by a written partnership
agreement, the UPA provides for gap
filler provisions in order to resolve any
open issues among and between the
partners. Included in these gap filler
provisions are statutes pertaining to
control and authority of the partner
ship. It is best to consult with your
attorney to assure that you fully
memorialize and carefully draft the
partnership agreement to provide for
the complete understanding of the
partners of the partnership.
Nicole Perdoni-Byrne
is an
associate at Hill Wallack LLP where
she is a member of the Real Estate
Division and the Banking & Secured
Transactions Practice Group. She
concentrates her practice in all matters
of banking and secured transactions,
including: acquisition finance, construction
financing and refinancing, loan modification,
restructuring, loan documentation,
workouts, foreclosures and closings.
|
