What is a partnership?
A Business Partnership is created whenever two or more people go into business together and share any profits and losses – even if there is no written partners agreement, and even if they were unaware they were creating a partnership. Without a written partners’ agreement, the business is governed by the 1890 Partnership Act. Partner Disputes are usually much simpler to settle with a written agreement.
Quite apart from the thousands of professional service businesses using partnerships as their business vehicle of choice, many new businesses use the partner route which is quicker and easier to setup than a company. In fact some people probably don’t even realize that their business is a partnership automatically created under the 1890 Act.
For FREE initial legal advice about any commercial dispute, just call our Solicitors on FREEPHONE 0800 1404544 or Salisbury (01722) 422300.
Our lawyers represent partners in commercial disputes both locally in Wiltshire, Hampshire, Dorset and Somerset – and throughout England and Wales – from our offices in Salisbury, Andover, Fordingbridge and Amesbury.
Our team deals with a wide variety of problems including:
- Problems with partnership accounts
- Attempts to remove a partner
- Issues regarding misrepresentation
Whether or not you have a written agreement, if you’re involved in a tricky dispute with your partners, it’s sensible to get expert advice.
Rest assured that our Partnership Dispute Lawyers have that specialist experience and will take a practical and commercial view of your dispute. Partner and head of our dispute resolution team, David Patterson, is a member of the Commercial Litigation Association (CLA) – the UK’s only specialist group for commercial litigation practitioners.
How to leave a partnership
While starting a business partnership off can be incredibly simple, getting out of the business may prove to be much more complicated – especially if you were not prudent enough to have a written partnership agreement properly drafted by specialist lawyer.
Put very simply, there are two main ways in which a partner can leave a business partnership: resignation or expulsion.
The route you choose depends largely on whether the person wishes to leave the business voluntarily or whether the other business partners wish to have the person removed for the good of the business.
If a person wishes to resign from the business, there’s no statutory notice period and they can resign effectively immediately.
However, if the business’s Articles of Association or any specific agreement with the person states a notice period, this must be honoured.
Most partnership agreements will contain a minimum notice period and it’s important that this is regarded as otherwise you could find yourself in breach of contract and liable to an expensive court case.
In the case of Limited Liability Partnerships, a person can leave the partnership by dissolution, agreeing with the other members of the partnership to leave and by giving reasonable notice to the other partners of their intention to leave. The process is much simpler because, as with a limited company, the business exists as a separate legal entity to the people who run it and as such does not require the partnership to remain for it to exist as a company. An LLP agreement is vital, though, as otherwise a partner cannot be expelled by a majority vote should that be necessary.
Can a majority of the partners simply remove someone from the partnership?
That really depends on whether or not you have a well drafted partnership agreement or not.
If other partners which to expel a person, this is difficult unless there is a written agreement ( in the case of a LLP0, a clause in the company’s Articles of Association) which states the circumstances under which a partner can be expelled. Again, there may be a set procedure which will need to be followed but this will be specific to each individual business.
If nothing is set out, the only answer may be to dissolve the partnership.
If the business is not structured as a Limited Liability Partnership, the partnership will be automatically wound up, its assets sold and creditors paid off with the proceeds. This can, however, be avoided by having a written agreement in place
How our Lawyers help to resolve Business Partnership Disputes
Wherever your business is based in the UK, our lawyers can help by taking your instructions and providing advice by phone, video call or email. Or, if you are local to our Wiltshire, Dorset or Hampshire offices, you may prefer to meet us there.
•In the absence of a written agreement, we strongly support the use of mediation wherever possible, and can also assist you in selecting the right mediator and by preparing for and supporting you throughout the mediation process. In fact the head of our dispute resolution team is a qualified civil mediator himself – and has taken part in numerous mediation meetings for small and big business disputes. So we really understand how mediation works – and how to get the most out of it for our clients
•However if both mediation and negotiation fail, you may be left with little choice but to refer the partner dispute to court – in which case we will support you throughout in any litigation.
•Our team can assist you in a partnership dissolution, if required.
•We can draft or update any existing written agreement – to reduce the risk of future partner disputes.
Click here for more information about why you need a written partnership agreement and what that agreement should contain
Is your Business Partnership Dispute worrying you?
We strongly recommend early legal advice in the event of any existing or likely partner dispute. What’s more our lawyers offer no strings attached FREE initial phone advice.
So if you already involved in a business partnership dispute, or fear that you could be, and want to know more about your options – so there’s no reason for you to continue to suffer in silence – call our specialists for a free initial chat today.
Business partnership disputes – how big is the problem?
A few years back the Lawyer Magazine revealed government statistics which show that the number of partnership disputes which have reached the High Court almost doubled in 2009 – increasing to 106. These are, of course, only those that make it all the way to the High Court – and industry experts suggest that this could be just the tip of the iceberg. So what is the answer?
What Can Cause A Business Partnership Dispute
It has to be said, there can be many advantages to a business partnership – when it works. For example, costs, responsibilities, and risks can all be shared. The partners can work with each other’s strengths and weaknesses and motivate each other.
However, there are many reasons why partnerships don’t work out, and a business partnership dispute can arise. Here are the most frequent ones.
• Shared profits but unshared workloads – There are numerous examples of businesses where one partner has put in the vast majority of the money, and the other partner does the vast majority of the work – not 50:50 partnerships by any definition. As the business takes off, the partner who is doing all of the work continues to work harder, but their percentage stays the same. They can eventually become very disgruntled with their (usually) low percentage share in the company, and a business partnership dispute can arise.
• Shared decisions – An effective partnership is one where the two partners are interdependent. Most businesses have several important decisions that need to be made on a frequent basis. If one partner does not agree with the other’s decision, especially if the decision will change the course of the business, this may be another cause of a partnership dispute.
• Personality Clashes – The partners may realise that they don’t get on both in and out of business. This can affect their relationships and the outcomes of meetings and decisions. They may go out of their way not to work together. This may make the partners and hence the business less productive.
Different Visions for the business – One partner may want to build the business up slowly, whereas the other has a very aggressive strategy for growth. It is important that both partners share the same vision for the business, as that makes them more likely to co-operate on the day-to-day decisions that need to be made. Having different visions for the business can negatively affect how it is run, and decrease productivity as it will take much longer to reach a decision that both partners are happy with.
• Breaking trust – If one partner does something that is considered “shady” or illegal, particularly behind the other partner’s back, this is a very quick route to a business partnership dispute. For example, one partner may not disclose some of the profits they have made to the other partner, this is known as “secret profits”.
• One director or partner losing interest in the business or focusing his or her time elsewhere
• A failing business – Another very common reason for partnership disputes to arise. If a business is failing, one of the partners may try to shun their responsibility or run away from debts that are payable by the company.
Outlined above are some of the more commonplace reasons for business partnership disputes, although they can happen for several other reasons, depending on the individual circumstances. If you and your partner are in the midst of a partnership dispute, seek legal advice. The earlier you take action, the more likely it is that you will be able to come to an amicable resolution. Don’t let it build up into something that it doesn’t have to be.
What happens if one partner dies or goes bankrupt?
In the case of death or bankruptcy, a partnership will usually be automatically dissolved and the remaining partner must re-register for Self Assessment and can then continue to trade as a sole trader. If there are more than two partners, the partnership will be dissolved unless there’s a partnership agreement in place which contains a contingency plan.
Avoiding business partnership disputes
You cannot guarantee that you will never fall out with your business partner – but you can make the means of resolving any business partnership disputes as simple as possible. The best way to do that is by getting your solicitor to draft a partnership agreement dealing in more detail with how you want your partnership to be run – and critically how you want any business partnership dissolution dealt with. In particular it’s worth considering the following issues when drafting your partnership agreement;
• how you want to divide the profits and losses -with an indication of how much each of you have put into the business and setting out ownership percentages
• the mutual rights and obligations of each partner
• how to appoint any new partners
• methods of resolving any business partnership dispute e.g. mediation
• circumstances when the partnership will be terminated
• what happens to the business if one of you becomes incapable or dies
• provisons to allow for buyouts