Legal Insight: New York Business Divorce. Safeguarding Your Interests in a Partnership Agreement in New York

By James Woods
Managing Partner

Business partnerships can dissolve for numerous reasons, ranging from ordinary circumstances, like retirement, to contentious situations, such as embezzlement. Engaging a law firm with the expertise to craft a robust partnership agreement is crucial to protect all parties from a protracted New York Business Divorce. High-stakes disputes are part of the hyper-competitive business landscape. Our litigators create customized approaches aligned with your priorities.

A well-drafted agreement will cover any eventuality for dissolving the entity, additionally, an experienced business law attorney can also help enforce clauses in the partnership agreement should disagreements arise as well. Woods Lonergan’s business law practice stands ready to assist you in drafting a comprehensive agreement or enforcing the stipulations within your existing partnership agreement, always putting your best interests at the forefront.

Understanding the common reasons why business partnerships dissolve allows you to effectively plan and incorporate the necessary clauses into your partnership agreement:

  • Unsustainability of the Business: The market might be oversaturated, or your business might not be the right fit for the location, leading to insufficient customers and business failure.
  • Death or Retirement of a Partner: A business succession plan covers scenarios like partner retirement or death, ensuring the continuity of the business with clearly outlined responsibilities for the remaining partners.
  • Mixing Personal and Business Relationships: Hiring family members or giving preferential treatment can lead to disagreements and resentment, potentially threatening the business partnership.
  • Co-mingling of Business and Personal Funds or Assets: Borrowing from business accounts or using business assets for personal use can be legally problematic and damaging to the partnership.
  • Disagreement Over Business Growth: Different visions for business expansion can lead to disputes. Establishing clear business goals and growth plans at the outset can help avoid such disagreements.
  • Disagreement Over Management Styles: Overlapping responsibilities or contrasting management styles can lead to operational inefficiencies and disputes, disrupting the smooth running of the business.

Being aware of these potential pitfalls is the first step toward prevention. 

To truly protect your business, a comprehensive partnership agreement is necessary. This legal document, which governs a business run by two or more individuals, sets out the terms by which the business will operate. More importantly, it can serve as a shield for your business, safeguarding it from breakdowns if a partner is unable to participate or chooses to leave. By planning ahead and incorporating these concerns into your partnership agreement, you ensure the durability of your business partnership.

Now let’s delve into the key elements that should be included in a well-drafted partnership agreement:

  • Nature and Term of the Partnership: This includes the business name, type of partnership, and whether it’s perpetual or for a specific term.
  • Purpose and Contributions: The agreement should detail the business’s purpose, including the products and services to be offered, and list each partner’s contributions, whether financial, property, service or deferred contributions.
  • Decision Making: Outline the voting procedures and how decisions will be made within the partnership.Specify how and when meetings will be held, how records are maintained, and how financial statements and bookkeeping will be managed.
  • Restrictive Covenants: Incorporate non-compete, non-disclosure, and non-solicit clauses to protect the partnership and its interests.
  • Profit, Loss, and Management: Define how profits and losses will be distributed, how much profit should be retained for business needs, and the roles and responsibilities of each partner or manager. This section of the agreement should also allow for appropriate financial representation to the IRS.
  • Future Contributions: This pertains to any required future contributions and their impact on partnership shares.
  • Admission of New Partners: The process of admitting new partners, including the required contribution.
  • Review Schedule: A stipulation that the agreement should be reviewed and updated periodically to account for all eventualities.The state laws that the partnership will follow for circumstances not addressed in the partnership agreement.
  • Severability and Amendments: Information on how and when the partnership agreement may be amended, and what happens if one clause is found to be invalid or unenforceable.
  • Buy-Sell Agreement: This clause or separate agreement outlines how the partnership will proceed if a partner becomes incapacitated, dies, or if the partnership dissolves. It should also provide guidelines for potential scenarios such as bankruptcy or divorce affecting ownership.
  •  Dispute Resolution: Details on dispute mediation and arbitration procedures.

All of these elements can be customized to suit the unique needs of your partnership. A comprehensive partnership agreement can act as a firm foundation, helping to prevent future disputes and ensuring a smooth business operation.

As you navigate the challenges of forming a business partnership, remember that you don’t have to do it alone. Woods Lonergan is here to provide strategic solutions, grounded in deep knowledge of business law, industries, and your unique objectives. We work with you to resolve issues on your terms. We use value-driven, pre-litigation strategies to limit your exposure and avoid escalating problems. We understand what’s at stake for your business partnership and work with an unwavering focus to ensure that your interests are safeguarded.

Whether you’re in the early stages of drafting a partnership agreement or find yourself in a high-stakes dispute, we are here to provide you with the support and guidance you need to succeed. Our experienced New York business attorneys can help you draft a partnership agreement that considers all contingencies, protecting your interests and paving the way for a successful business partnership.

We believe in personalized, attentive service to each and every client. At Woods Lonergan, your success is our success, and we’re committed to being your trusted partner every step of the way. To consult with our team on your partnership agreement and business strategy, Book A Call. We’re more than just a law firm; we’re partners in your success.

About the Author

James Woods, Managing Partner of Woods Lonergan, holds more than 25 years of experience in corporate, real estate, and business legal matters. His expertise in handling negotiations, litigation, jury trials, and all forms of alternative dispute resolution spans multiple areas, including corporate, real estate, and commercial litigation. James actively represents dozens of Cooperative and Condominium Boards and serves as counsel to many Corporate Boards. Prior to founding the firm, James proudly served as an Assistant District Attorney for Nassau County and handled both jury and bench trials. With experience that also covers sophisticated transactions and complex acquisitions, James also serves as counsel to several domestic companies in a range of industries and commercial arenas, including real estate, insurance, banking, transportation, and construction. If you have any questions about this article you can contact attorney James Woods through his biography page.

Disclaimer: The information in this article and blog post (“post”) is provided for informational purposes only, and may not reflect the current law(s) in every jurisdiction. No information contained in this post should be construed as legal advice from Woods Lonergan PLLC or the individual author(s), nor is it intended to be a substitute for legal counsel on any subject matter. Nothing herein shall be construed to create an attorney-client relationship with Woods Lonergan PLLC. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s jurisdiction. This post is attorney advertising.
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