The informal nature of a partnership in the absence of a written agreement, or what is referred to as a “partnership at will”, means that individuals can enter into one without having fully anticipated its consequences. This in turn can bring about various difficulties for those involved and ultimately, unexpected disputes between the partners. In these circumstances, there are no dispute resolution procedures to shadow, which often give rise to the risk of matters ending up in the civil courts at a great cost or the breakdown of a business.
The Partnership Act 1890 governs the rights and duties in a partnership yet simultaneously, it is a brief piece of somewhat outdated legislation which can at times still leave various matters of dispute to be determined.
Alternatively, partnerships can be operated pursuant to a professionally and methodically prepared Partnership Deed which should be regularly reviewed and updated as a business develops. Under the Partnership Act 1890, partners become liable for the business’s profits and most importantly, the losses too. Such liability extends to personal assets of the partners. It is therefore essential that a Partnership Deed is integral in any business, not only to iron out any latent disputes, but also to protect the partners’ personal finances and assets from that of the business.
It is the case that even when Partnership Deeds are in place, disputes can arise where formalities have not been followed or due to defects within the existing agreement.
Some common points of dispute can be:
- The joining of a new partner or the departure of an existing partner.
- A partner not holding up their end of the agreement.
- Breakdowns in personal relationships.
- A change in a partner’s expectations of the benefits they should receive.
- A partner unlawfully removing assets from a company.
As a pre-emptive step, our legal experts can review your Partnership Deed to identify any likely issues that could surge the risk of future disputes and/or update it to make dealing with such disputes a much less problematic process in order to help protect your business by finding solutions that are mutually satisfactory to all partners.
If you do find yourself in these circumstances or anticipate a form of dispute emerging within the business, you should seek legal advice as early as possible. In the event that court action is required, such as injunction proceedings in restraining a partner from breaching restrictive covenants, we are also able to provide you with clear advice and guidance throughout the process.