How to resolve Partnership Disputes?
Going into business with a friend or family member can seem like a great opportunity; however keeping things informal is often a recipe for disaster and further down the line, it could lead to partnership disputes and sadly the end of a relationship.
What is a Partnership?
A partnership is a business arrangement where two or more people work together with the intention of creating a profit and they fall into two categories:
- A formal partnership where the partners sign a ‘Partnership Agreement’, a legally binding document recording the rights, responsibilities and expectations of the partners.
- A ‘Partnership at Will’ where the parties didn’t sign a Partnership Agreement and so the partnership will be governed by the default terms in the Partnership Act 1890.
Common Partnership Disputes
Despite the best intentions, partnership disputes can occur for a variety of reasons when partners don’t see eye to eye, for example:
- Misconduct by one partner
- A breakdown in the relationship
- Disagreement about drawings or workload
- Misuse of assets
- Illness
How you resolve a partnership dispute depends on whether there is a partnership agreement in place.
What happens if there is a partnership dispute but there is no agreement?
If a partnership doesn’t have an agreement in place and a conflict arises the provisions of the Partnership Act 1890 will apply, this will almost always leave a lot to be desired and a lot of room for negotiation.
“Not least because it was written over 130 years ago, the Partnership Act 1890 is grossly outdated and extremely vague, and simply does not cover most modern commercial situations,” said Commercial Litigation Solicitor, Laura Campbell.
“Most business partners would want to have control over the above matters but often don’t realise they don’t until it’s too late,” she added.
Where there’s no partnership agreement in place, the Partnership Act 1890 states that:
- A partnership will end on the death of a partner
- A partner can serve a notice of dissolution immediately bringing the partnership to an end
- All partners have a right to participate in the management of the partnership
- All partners are entitled to an equal share of any profit
- Partners cannot be dismissed by other partners
Avoiding Partnership Disputes
The simple solution to avoid complicated partnership disputes is to draw up a partnership agreement that sets out the partners' duties, obligations and crucially the processes that will apply in any given scenario so that business disputes are much easier to navigate.
“It’s crucial that business owners seek expert legal advice from a solicitor to help resolve their partnership dispute before it escalates. If it does, so there could be serious financial repercussions for everyone involved,” advised Laura.
How can we help?
If a partnership dispute arises and you need expert legal advice contact our commercial litigation solicitors on 0161 785 3500 or email enquiries@pearsonlegal.co.uk.
Subscribe to our newsletterPlease note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
