Disputes And Litigation : Partnership Disputes

Partnership Disputes

Solicitors Dealing With Partnership Disputes

How And Why Do Partnership Disputes Occur?

Disputes between business partners can occur for any number of reasons. 

The most common causes of conflict include a breakdown in the working relationship, or an existing associate wishing to leave the partnership. In some cases, they may even be compelled to leave by an existing partner.

Due to the complex and personal nature of many business partnerships, these disputes need to be dealt with sensitively in order to find the most reasonable outcome. Unfortunately, this can’t always be achieved in the privacy of the boardroom.

In the event of a partnership dispute, it’s imperative to avoid the expense and disruption of court litigation or arbitration proceedings. As a preventative measure, you should always enlist a legal professional who can manage the issue discreetly and effectively, while also mitigating any wider fallout. 

Coles Miller can assist you to carefully manage partnership disputes, ensuring that reputations are maintained, costs are managed, and finances protected.

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Partnership Agreements

A partnership agreement is the legal document which dictates the way a business is run. It details the rights and responsibilities of each partner. It is integral to preventing partnership disputes, but the provisions of the agreement may still come into question if the relationship breaks down.

In some circumstances, there may be no formal partnership agreement at all. If a partner raises a dispute, it will then be subject to the Partnership Act 1890 in order to find a resolution, as opposed to any personal agreement that you may have assumed to be in place.


The Partnership Act 1890

The Partnership Act 1890 (UK) governs the rights and duties of people, or corporate entities, conducting business in partnership. A partnership is defined in the Act as 'the relation which subsists between persons carrying on a business in common with a view of profit'.

A partnership isn’t a separate legal entity, but an expression of a relationship. As a result, many people who go into business together end up in partnership without realising that a written partnership agreement is needed. Under those circumstances, the relationship is governed by the Partnership Act.

Under the Partnership Act, you are liable for all the business’s profits – and more critically, the losses. This liability extends to any personal assets you possess. Therefore, a written partnership agreement is integral to not only iron out any disputes, but also to protect your personal finances from that of the business.


Typical Causes of Partnership Disputes

Liability

In the case of a claim against both the partnership and the partners themselves, a dispute may arise about how liability is proportioned.

If you don’t have a written partnership agreement, your personal capital could be at risk.

Departure

Should one or more of the partners wish to leave the partnership, disagreements may arise over the terms of their exit and how this process is structured. In some instances, these terms simply can’t be agreed by the parties involved.

In situations where a partnership agreement is absent, the next steps will be dictated by the Partnership Act.

Misconduct

As a business, you would expect to be reactive over employee misconduct – but when it comes to misconduct from a partner, their influence over the company makes the issue even more contentious.

Aggression, the use of illegal substances, fraud, theft of business opportunities and breaches of the partnership agreement are all examples of misconduct which could cause a dispute. It’s vital to resolve these issues quickly and prevent any further damage to the company. 


A Partner Doing Less Than Their Fair Share

When a partner takes on less than their fair share of responsibility it can be an uncomfortable problem to tackle. 

If your company brings in new business which is outside of a particular partner’s specialism, you may find the allocation of workload to be uneven; the lion’s share of work may simply be more profitable when actioned by somebody else. 

On the other hand, you may have plenty of work for each partner to do – but one may insist on spending less time on the job.

Similarly, a partner may experience a chronic health problem which prevents them fulfilling their role; this is, of course, highly sensitive to resolve but will still require attention.  


A Breakdown In Your Professional Relationship

Waning trust, conflicting priorities and irreconcilable personality clashes can cause a partner to conclude that they simply can’t continue to work with the other.

A breakdown in your professional relationship is not only an immensely personal strain, but it can soon produce a ripple effect in the rest of your business. These challenges need not be long-term, but it’s vital that you seek the correct help as soon as possible. 

If you are involved in a partnership dispute or have been threatened with legal action, contact Coles Miller for expert advice.

Our experienced legal team can guide you through the process of partnership disputes, including issues relating to retirement, expulsion and the value of assets.

We actively seek to resolve disputes as early as possible, so your business can avoid time-consuming and costly litigation. As such, we assist our clients throughout settlement negotiations using alternative dispute resolution measures where appropriate.

In the event of court proceedings being required, our team will be able to assist you with the full presentation of your case – with the option to also draw on the expert guidance of our professional network which includes accountants, valuers and insolvency practitioners.


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