Partnerships, limited partnerships and limited liability partnerships are forms of organization that can be used to pursue social objectives and are recognized as statutory entities under New Jersey law. Until the advent of LLCs in 1994, partnerships were the most often used alternative to a nonprofit corporation.
Partnerships provide almost unlimited flexibility in governance and management. Profits and losses are allocated according to the capital contributions of each partner but unlike LLCs and nonprofit corporations, the total assets of each partner in a general partnership are at risk, not just the capital that has been put into the enterprise. Limited partnerships changed this by permitting the creation of a special class of partners, known as “limited partners,” who provide capital but do not participate in management. In limited partnerships, the limited partners are shielded from liability beyond their capital contributions, but the general partner—who manages the affairs of the limited partnership—does not have this liability protection. Limited partnerships are often used as financing vehicles and are most useful when investors are to have no role in management and a simple or flexible governance structure is needed.
Limited liability partnerships (LLPs) function like general partnerships but provide extra protections for the general partners. Such protections include personal immunity for liability arising from the negligence and wrongful acts of other partners, unless the other partners were under their direct supervision. Thus, a partner’s loss with respect to the LLP is usually limited to his/her investment in the partnership.
The Uniform Partnership Act (“UPA”) governs the formation, operation and dissolution of New Jersey general partnerships. A general partnership is formed when there is an association of two or more persons to carry on as co-owners a business for profit, whether or not the persons intend to form a partnership.
No filings with the New Jersey Secretary of State are required to form a general partnership. A general partnership, however, is required to file a Certificate of Trade Name (following an agreement of the partners) with the clerk of the county or counties in which the business is conducted. Personal liability for all debts and obligations of the partnership is held jointly and severally by the partners.
Once formed, as a general matter, a partnership agreement governs the relations among the partners and among the partners and the partnership. The partnership agreement may modify many of the default provisions of UPA that concern the relations among the partners and among the partners and the partnership. Subject to the effect of a general partnership’s statement of partnership existence and its partnership agreement, each partner has equal rights in the management of the partnership.
The books and records of the general partnership must be kept, subject to any agreement between the partners, at the chief executive office of the partnership, and every partner and each partner’s agents and attorneys must have access to and may inspect at any time the partnership’s books and records pertaining to the period during which they were partners. The partners are also required to render on demand any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the partnership agreement, and any other information concerning the partnership’s business and affairs. It is important to note that a partner that sells his, her or its interest in the partnership does not entitle the buyer to interfere in the management or administration of the partnership’s business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books. The buyer is merely entitled to receive in accordance with his, her or its contract the profits to which the selling partner would otherwise have been entitled to receive.
The Uniform Limited Partnership Law (the “NJ LP Law”), governs New Jersey limited partnerships. A New Jersey limited partnership is formed when at least two persons have an agreement to form and operate a limited partnership with at least one being a general partner and at least one being a limited partner, and execute and file a certificate of limited partnership with the New Jersey Secretary of State. The certificate of limited partnership needs to contain the following information:
A limited partnership is formed upon the filing of the certificate of limited partnership with the New Jersey Secretary of State, or such later time specified in the certificate up to 30 days from the date of filing. The filing fee is $125.
A generic form of the certificate of limited partnership for a New Jersey limited partnership may be found at http://www.state.nj.us/treasury/revenue/pdforms/pubrec.pdf.
Once formed, the limited partnership’s partnership agreement and the NJ LP Law govern the operation and management of the limited partnership. The partnership agreement can modify many of the default provisions of the NJ LP Law. Typically, the general partner manages the business and activities of the limited partnership. Unless otherwise provided in the partnership agreement, the general partner has the authority to delegate its rights and powers to manage the limited partnership.
The limited partnership agreement should set forth how to keep and maintain the books and records of the limited partnership. Any partner has the right, subject to reasonable standards set forth in the partnership agreement or otherwise established by the general partner, to:
The NJ LP Law also describes the liabilities of the partners. The general partner has general liability for the debts and obligations of the limited partnership to third parties. So long as a limited partner is not also a general partner and does not otherwise participate in the control of the business of the limited partnership, a limited partner does not have liability for the obligations of a limited partnership. A limited partner does have liability for any unperformed contributions that such limited partner has agreed to make to the limited partnership, the amount of any distribution that such limited partner is required to return to the limited partnership pursuant to the NJ LP Act, and their own tortious or wrongful acts.
Limited Liability Partnerships (LLPs)
The Uniform Partnership Act ("UPA") governs New Jersey limited liability partnerships (“LLPs”). An LLP is a general partnership that has elected to become an LLP. A general partnership may be formed as or become an LLP by filing with the New Jersey Secretary of State a statement of qualification. The statement of qualification needs to only contain the following information:
A generic form of the certificate of registration may be found at Public Records, The State of New Jersey, Division of Revenue, at: http://www.state.nj.us/treasury/revenue/pdforms/pubrec.pdf. The filing fee for the certificate of registration is $125.
In general, an LLP is managed and operated the same as a general partnership. The partnership agreement governs relations among the partners and between the partners and the LLP. The partnership agreement may modify many of the default provisions of UPA that concern the relations among the partners and between the partners and the LLP.
Partners of an LLP have different liabilities than partners of a general partnership. Partners of an LLP are not liable for any debts or obligations or liabilities of, or chargeable to, the LLP or each of the partners, whether arising in contract, tort or otherwise, which are created, incurred or assumed by the LLP. Notwithstanding the above, each partner of the LLP is personally liable for such partner’s negligent or wrongful acts or misconduct. Other than this difference, however, LLPs are subject to the same legal requirements as general partnerships.
Citizen Media Law Project, Forming a Partnership in New Jersey, available at: http://www.citmedialaw.org/legal-guide/new-jersey/forming-partnership-new-jersey.