The Acts of Partners Which May Bind the Partnership and Its Partners Individually
Just what can or what can’t a partner do that will cause legal liability to the partnership? A partner cannot obligate a partnership to something that he or she is not authorized to undertake for the partnership absent some form of consent by the other partners. On the other hand, a creditor who is unaware of the existence of a partnership when extending credit to the partnership may recover from the partnership and even as against an individual partner.
Partners in NJ are each individually liable for the obligations of the partnership if partnership assets are not sufficient to satisfy these claims. The personal assets of the partner may also be attached by making him/her a defendant in a lawsuit against the partnership. To the extent that an individual partner is required to pay more than his or her proportionate share of the partnership obligations, he/she is entitled to proceed against his or her co-partners for the excess paid. But beware, a partner with “deep pockets” may be forced to pay 100% of a partnership debt if the creditor proceeds exclusively against him or her because of their “deep pockets”. A partner in this vicious situation must then proceed against their co-partners for contribution and hope each co-partner has the deep pockets to pay back. This concept is very important to understand as a member of a NJ partnership.
Acts That Will Bind a Partner and Partnership Under New Jersey Partnership Law
You should consult with an experienced NJ partnership law attorney as part of your due diligence partnership planning. Contact Fredrick P. Niemann, Esq. at (855) 376-5291 or email him at email@example.com for a low cost consultation. You’ll find Mr. Niemann easy to talk to and very approachable.
As previously stated, a newly admitted partner to a NJ partnership is liable to the extent of his/her ownership interest only in the partnership for all obligations existing prior to his admission. However, personal liability for partnership debt liabilities and judgments attaches only to those partnership debts incurred after his/her admission. This is an important concept for individuals contemplating the purchase into a NJ partnership.
Unless the partnership agreement provides to the contrary, each partner in a NJ partnership has equal responsibility and say as to the operation of partnership business. They have equal rights in management, access and inspection of the books and records, and to a formal accounting of the partnership’s affairs. They have an equal right to the use, possession and benefits of partnership property if used for partnership purposes only. Their interest and share in partnership property are not assignable, or subject to attachment or execution for individual debts of the partner, to satisfy his/her personal obligations.
FIDUCIARY DUTIES OF A PARTNER TO OTHER PARTNERS
Can a former partner compete against the partnership, or act against the economic interest of the partnership? The short answer is “no”. The duty of loyalty between partners which was previously discussed in this page requires that a partner refrain from doing things that are intended or can reasonably be assumed to cause the partnership economic harm. This duty of loyalty and fair dealing terminates upon a partner’s dissociation from the partnership. If the dissociation is wrongful then the partner may be subject to a damage claim by his or her former partner for breach of contract, but if the dissociation is voluntary and there is no enforceable covenant not to compete, a dissociated partner may immediately begin
to compete with the partnership for new business; subject again to reasonable restrictions that may have been imposed in the original partnership agreement signed by the partner who has withdrawn which limits future permissible competition.
Has a partner placed the partnership at risk for liability or is threatening to leave the partnership? Contact me personally today to discuss your NJ partnership business matter. I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns. You can reach me toll free at (855) 376-5291 or e-mail me at firstname.lastname@example.org.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Partnership Attorney