A recent decision from one of our favorites, Albany County Commercial Division Justice Richard M. Platkin, is a reminder to would-be assignees of limited partnership interests that without total compliance with the terms and conditions of the partnership agreement, an attempted assignment conveys only economic rights (i.e., the right to distributions, profits, and losses), but not voting or management rights, even if both sides to the assignment genuinely intended transfer of all ownership rights.
Although not an LLC case, the concept of Marini v Marini Realty LP (2025 NY Slip Op 51138[U] [Sup Ct, Albany County July 2, 2025]), applies equally to LLC members: to become a full-blown equity holder with all attendant rights and privileges, compliance with the governing contract (or if none, the default rules under the Partnership Law and Limited Liability Company Law) is essential. Standard language in such contracts requires unanimity for admission of new equity owners. After all, who wants to take on a new partner without one's consent? Less than total compliance conveys only economic benefits, not voting or management rights.
Enacted at the same time, containing almost identical language, Partnership Law § 121-702 and LLC Law § 603 are mirror images of one another.
Partnership Law § 121-702 provides:
Except as provided in the partnership agreement, (1)a partnership interest is assignable in whole or in part; (2)an assignment of a partnership interest does not dissolve a limited partnership or entitle the assignee to become or to exercise any rights or powers of a partner; (3)the only effect of an assignment is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled . . . .
LLC Law § 603 provides:
Except as provided in the operating agreement, (1)a membership interest is assignable in whole or in part; (2)an assignment of a membership interest does not dissolve a limited liability company or entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member; (3)the only effect of an assignment of a membership interest is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled ...
Partnership and membership agreements sometimes either entirely forbid or impose greater restrictions upon assignment of partnership or LLC interests. But where they do not, the default rules of Partnership Law § 121-702 and LLC Law § 603 apply.
Cases applying LLC Law § 603 to deny full membership status following an assignment include Behrend v New Windsor Group, LLC (180 AD3d 636 [2d Dept 2020]), and Lotwala v Dhabuwala (2022 NY Slip Op 32639[U] [Sup Ct, NY County 2022]).
Cases applying Partnership Law § 121-702 to deny full partnership status are less common (see e.g. Matter of Wilmot, 244 AD2d 980 [4th Dept 1997]). Which brings us to Marini.
In the 1990s, Robert and Nancy Marini, husband and wife, formed Marini Realty, LP as a New York limited partnership, ultimately governed by a 2012 amended and restated limited partnership agreement (the "LP Agreement").
The LP Agreement stated:
- No additional partner or partners shall be admitted to the Partnership without the consent of all the Partners. Any new partner duly admitted to the Partnership shall promptly execute this agreement or a counterpart hereof.
- No Partner may sell, assign, pledge, or transfer in any other manner, with or without consideration, all or any part of his interest in the Partnership without having first obtained the written consent of the other Partners and such consent shall not be unreasonably withheld. Notwithstanding the foregoing, a Partner may transfer all or any portion of his Partnership Interest, by will or gift, to his spouse, his descendants, ancestors or any trust created for the benefit of such persons or the Partner himself ....
In 2021, Nancy, co-founder of Marini Realty, as trustee of a trust which then owned a 25% limited partnership agreement of Marini Realty, executed a written assignment purporting to "gift, distribute, sell, assign, transfer, and convey" to her son, Joseph Marini ("Joseph"), "all right, title, and interest in and to the 25% partnership interest" of Marini Realty held by the trust "effective as of the date of execution hereof."
Unfortunately for Joseph, the other three 25% partners of Marini Realty, his brothers, Robert, Steven, and Michael Marini, never consented to Joseph's admission as a limited partner, denying that Joseph attained partnership status through the assignment. Joseph filed a single-count complaint for a declaratory judgment "declaring that: 1) he has a viable 25% partnership interest in and status as a limited partner in Marini Realty, LP, and 2) is entitled to all the rights and obligations under the Partnership Agreement for Marini Realty, LP."
Justice Platkin decided dueling motions for summary judgment on stipulated facts.
In addition to the above-quoted language of the LP Agreement and Partnership Law § 121-702, the Court looked to Partnership Law § 121-704, providing:
An assignee of a partnership interest, including an assignee of a general partner, may become a limited partner if (i) the assignor gives the assignee that right in accordance with authority granted in the partnership agreement, or (ii) all partners consent in writing, or (iii) to the extent that the partnership agreement so provides.
The Court wrote:
Reading the Partnership Agreement in light of the RLPA — the statutory framework pursuant to which Marini Realty was formed — the Court concludes that the Assignment of the Trust's 25% partnership interest in Marini Realty did not have the effect of admitting Joseph to the partnership; the only legal effect was conveyance of the economic rights associated with that 25% interest (citation omitted).
Justice Platkin concluded:
Construing the Partnership Agreement 'to give effect to the parties' intent as gleaned from the four corners of the document itself' (Elmira Teachers' Assn. v Elmira City Sch. Dist., 53 AD3d 757, 759 [3d Dept 2008], lv denied 11 NY3d 709 [2008]), the Court is satisfied that its clear and unambiguous terms deny Joseph the status of a limited partner in Marini Realty. Joseph is entitled only to the economic benefits of the 25% interest received via the assignment.
The lesson of Marini: even if the assignor and assignee of a limited partnership or LLC membership truly, subjectively intend to convey full ownership rights, including those of voting, management, and control, if the other owners do not agree, the transaction will do no more than convey economic rights.
P.S. – Apologies for this week's brief piece. I am in the middle of a lengthy jury trial in Manhattan before the Hon. Robert R. Reed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
