New York Partnership Agreement Attorneys

A strong partnership agreement clearly outlines the roles, responsibilities, profit sharing, dispute resolution strategies, and other mechanisms for each partner.  The goal of a partnership agreement is to prevent future disputes and confusion between partners, so the drafting phase should include detailed discussions and planning.

To maximize transparency in the business venture, partners should not only include provisions that detail the operation of the partnership but also exit strategies and post-partnership plans in the event of a dissolution. It is best to be over-inclusive in writing a partnership agreement, addressing all potential issues that may arise during business. In the drafting process, partners may benefit from dispute resolution. The use of advisors can resolve certain roadblocks on contract provisions and may prevent future issues at mediation or arbitration.

In New York, a breach of fiduciary duty occurs when one partner fails to act in the best interests of the partnership or other partners. To prove that a partner breached their fiduciary duty, a plaintiff must establish four elements:

• Fiduciary relationship. The plaintiff must first establish that they have a relationship of trust and confidence with the breaching partner. This can be easily proven with the existence of a written partnership agreement.
• Breach of duty. With a relationship established, the plaintiff must then show that the partner breached their duty. This can be shown with evidence pointing to the partner misusing company assets, failing to disclose conflicts of interest, or acting against the partnership’s best interests. Clearly outlined partnership agreements allow plaintiffs to bring actions of breach with proof of each partner’s duties.
• Causation. The breach of fiduciary duty must have caused the harm to the plaintiff who brings the lawsuit. To prove this element, plaintiffs can look to the partnership agreement to prove that the breach impacted them financially or otherwise.
• Damages. Lastly, the plaintiff must show that they suffered damages from the partner’s breach, such as financial losses, reputational harm, or lost opportunities.

If a partner breaches their fiduciary duty in a partnership agreement, the plaintiff may be able to recover monetary damages, obtain an injunction from the court, and can even earn punitive damages if the breach was willful. Fiduciary duties should be outlined clearly in partnership agreements for partners to be held accountable in their actions and for plaintiffs to recover damages in the event of foul play.

A business partner can be sued for breach of contract if they do not follow the terms of a partnership agreement. In New York, a material breach is a substantial failure to perform the contract that significantly defeats the purpose of the agreement. Like a breach of fiduciary duty, breach of contract must be proven with four elements:

• Existence of a contract. The suing partner must first show that a partnership agreement exists between them and the partner they are bringing the lawsuit against.
• Contract obligations were performed. The plaintiff must show that they upheld their part of the contract. Detailed partnership agreements clearly outline each partner’s responsibilities. This element should be fairly easy to prove with a well-drafted contract.
• Other party failed to perform. The plaintiff must then prove that the other party did not fulfill their contractual obligations.
• Damages. Lastly, the plaintiff must show that the other party’s failure to perform their contractual obligations caused damages unto the partner or partnership.

If a partner is found to have violated their partnership agreement, they may be responsible for paying monetary damages to cover costs of repairs, compensate for financial losses, and even for lost profits.

Partners can be removed from a business venture if the partnership agreement allows for it, or if the partner’s actions meet certain criteria, such as illegal activity.  When drafting a partnership agreement, it is important to think ahead about possible issues that may arise between partners.  As part of the dispute resolution provisions of the agreement, partners should agree to terms about how to handle the removal of a partner.  Once that is clearly outlined, the partners can act upon the contract with no confusion or further disputes.

If the partnership agreement is silent about the removal of a partner, it can still be done if the partner in question has performed illegal activities. In that case, the partner looking to remove will likely have cause to do so, as well as a potential claim for breach of contract or breach of fiduciary duty. Either way, it is best to discuss possible removal at the onset of any partnership and to include such procedures in the agreement.

If no written partnership agreement exists, New York law allows a partner is free to unilaterally dissolve a partnership without risking a breach of contract claim.  Thus, it is important to add dissolution sections to a written partnership agreement to outline the process in which the partnership should be divided equally and fairly among partners.  Provisions within this section should discuss under what circumstances a partnership can be dissolved, the responsibilities of each partner in the dissolution, and how profits and/or losses should be distributed.

The first step in dissolving a partnership is to follow the procedures outlined in the partnership agreement.  This could require a vote or written consent from a certain number of partners, such as more than half or two-thirds depending on what the agreement says.  Without a written agreement, the partnership can be dissolved by any partner at any time, or in the case of the bankruptcy or death of a partner.  Partnership agreements can prevent dissolution in these circumstances if addressed and agreed to by the partners.

In New York, partnerships are not required to file any paperwork with the Department of State when the dissolve.  Once the partnership is dissolved according to the provisions in the contract, each partner is required to pay all outstanding debts and distribute any assets to their respective owners.  Further, partners must pay all creditors upon dissolution.  New York requires partners to first pay outside creditors, then creditors who are also partners, and lastly to partners who are entitled to receive back their capital contributions.

Though not legally required, partners should reach out to creditors and business associates to inform them about the dissolution.  Further, partners should also pay and file all final tax returns with the state’s Department of Taxation and Finance.

Partnership agreements do not need to be finalized at the time they are drafted.  Instead, you should think of them as living documents that evolve with your business venture.  If any partner decides to update an existing partnership agreement, they may do so by following a few steps.

The first step in updating an existing partnership agreement is by reviewing the current contract and identifying any issues that stand out.  This should be done at the same time as you consider factors such as how profits and losses are distributed, how decisions are made, and how new partners are admitted to keep the partnership’s goals intact.

Once all the partners have communicated about suggested updates in the agreement, the partnership as a whole should seek an experienced attorney to draft an updated agreement.  The new agreement should address all the provisions in the original contract, as well as adding or changing anything that prompted the update.  Finally, the partners should sign and implement the updated partnership agreement.  The signing must be witnessed by a notary public or a similar authority in order for the contract to have binding effect.