You Receive A Share Of Your Company’s Profits, But Are You Really A “Partner”?

Under New Jersey law, a partnership can be formed in the absence of a written agreement. Without a written agreement, it is not always clear whether an individual is a partner of the business even when the individual holds himself out to be a partner and receives a share of the profits from the business.

Pursuant to the New Jersey Uniform Partnership Act, a partnership is “an association of two or more persons to carry on as co-owners a business for profit.” Because a “partnership agreement” may be “written, oral, or implied,” when there is a dispute regarding whether a party is a partner of a business, the courts engage in a fact-sensitive inquiry based on the following central factors:

1. the intention of the parties;
2. the sharing of the partnership’s profits;
3. the sharing of the partnership’s losses;
4. the ownership and control of the partnership’s property and business;
5. the “community of power in administration and the reservation in the agreement of the exclusive control of the management of the business”;
6. whether the language of the agreement excludes one party from “most of the ordinary rights of a partner”;
7. the conduct of the parties toward third persons, including taxing authorities, clients, and others; and
8. the rights of the parties on dissolution.

“A person who receives a share of the profits of a business is presumed to be a partner in the business,” but such presumption can be overcome by, for example, showing that the share of the profits was received as payment for services or wages.

In the absence of a written partnership agreement, it may difficult for you to determine, based on the above factors, whether you are a partner. Spector & Ehrenworth, P.C. has extensive experience representing clients in partnership disputes involving these issues. Attorneys at the firm would be happy to discuss with you the specifics of your case and help you to determine how best to proceed. To schedule an appointment to speak with a business attorney, call (973) 845-6525 or e-mail info@selawfirm.com.