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Partnership Disputes

Partnership is a term used to describe an agreement between two or more people for them to jointly manage and run a business with a view to them making a profit.

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Unlike a limited company, which has a separate legal identity from its directors and shareholders, a partnership is not a distinct legal entity, and partners are personally liable for the affairs of the business.

Unfortunately, disagreements between partners can and do arise.  This might be over something such as a difference of opinion regarding the day-to-day running of the business, or it could be more serious, such as where it is discovered that one partner is misappropriating funds from the business.

When assessing how to resolve disagreements between partners, its important to understand the basis on which the partnership is being operated.

Typically, when entering a partnership, partners will expressly record the terms on which they will conduct the affairs of the business, and the relationship between the partners, in a partnership agreement.  A well drafted partnership agreement should cover how the day-to-day running of the business will be conducted, including the rights and responsibility placed on each partner, but most will also include a method for resolving any disputes, and procedures for partner exits.

Where there is a partnership agreement, disagreements between partners should be resolved in accordance with the contractual provision which the partners have agreed.  If this, for example, involves a partner exiting the business, both the exiting partner and the remaining partners may wish to seek their own legal advice on the operation of the agreement and the correct procedures to be followed.

In the absence of there being a partnership agreement, partnerships will be governed by the Partnership Act 1890 (“the Act”).  In contrast to a well drafted partnership agreement, the Act does not include any dispute resolution methods, nor does it include any procedure for a partner’s exit.  In practice, this can mean that disputes are not as easily concluded as where there is a partnership agreement, with disputes being often being more protracted and, as a result, costly.

Another important factor of a partnership governed by the Act is that, at any time, a partner can serve notice on the other partners seeking to dissolve the partnership, even if the other partners do not want this outcome.  This provision could be deployed vindictively by an exiting partner and can have both legal and tax consequences for all partners.

Prevention is better than a cure

How Richardson Lissack can help

At Richardson Lissack, we can assist partners with reviewing the status of the partnership and, in the absence of there being a partnership agreement (or a well drafted one), ensuring one is in place before any disputes arise.  If partners find themselves in a position where a dispute has already arisen, Richardson Lissack can also assist with seeking to resolve issues between partners, whether that is following the dispute resolution procedure prescribed by the partnership agreement or advising on the consequences of the Act.

Contact us today to discuss your case in confidence.

Our lawyers are available to assist you and provide legal advice.

Contact London 020 3753 5352 or Manchester 0161 834 7284. Alternatively you can email info@richardsonlissack.co.uk

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