Partnership Purgatory: When No Operating Agreement Means Court Decides

Too many businesses start with a handshake. Two friends, colleagues, or investors launch a venture, trusting that everything will work itself out. But without a written Operating Agreement (or Shareholders’ Agreement for corporations), you’re not in control. The court is.

Why No Agreement = Big Risk

• State Default Rules Apply: New York and New Jersey law impose statutory frameworks when there’s no agreement. These rarely match what the partners wanted.
• No Clear Exit: Without buyout provisions, partners often end up in litigation to dissolve the business.
• Frozen Decisions: Deadlocked votes can grind operations to a halt.
• Personal Liability Exposure: Courts may hold partners accountable for obligations they never expected.

Common Court-Driven Outcomes

• Judicial Dissolution: A judge can order the business wound up—even if one partner wants to keep going.
• Receiver Appointed: Courts may install a third party to manage the company’s operations and assets.
• Forced Accounting: Years of financial records scrutinized in expensive litigation.

Real-World Example

I’ve represented business owners who skipped a written agreement. When disputes arose, the absence of clear rules meant the fight played out in court, not the conference room. What could have been handled by a buyout clause turned into years of litigation and six-figure legal fees.

How to Avoid Partnership Purgatory

• Get It in Writing: Draft an Operating Agreement or Shareholders’ Agreement before problems arise.
• Plan Exits: Include buy-sell provisions, valuation methods, and succession planning.
• Clarify Duties: Define decision-making authority and partner obligations clearly.
• Protect Against Deadlock: Add tie-breaking mechanisms, such as mediation or arbitration clauses.

Bottom Line

If you don’t create the rules, the court will. At JDE Law Firm, PLLC, I help business owners draft agreements that protect their interests and prevent costly disputes. Don’t leave your partnership’s future to chance—or to a judge.

📞 NY: 718-966-0877 | NJ: 732-490-7120

👉 Book a Partnership Agreement Consultation