What is a Partnership Dispute?
Partnership disputes are disagreements between business partners, often stemming from issues with money, management of the business, or misconduct. Common causes include financial disagreements over profit sharing or capital contributions, conflicts over business strategy and decision-making, and a partner’s failure to fulfil their duties or a breach of the partnership agreement. When a partnership dispute occurs it’s wise to involve a solicitor to assist in the resolution.
Resolving these disputes typically involves reviewing the partnership agreement to guide the process and can be handled through negotiation, mediation, or, as a last resort, litigation.
What is a Business Partnership?
A business partnership exists where two or more partners personally share responsibility for a business. A partner may be an individual or another legal entity, such as a limited company. Partnerships can be governed by a formal written partnership agreement, or, if no agreement exists, the default rules in the Partnership Act 1890 apply.
Why might a business partnership dispute arise?
Disputes often develop when partners have different expectations, contrasting views about strategy, or unequal involvement in the business.
Common reasons include:
- loss of trust between partners
- disagreements on financial or operational decisions
- concerns that one partner is contributing significantly more time, effort or money
- breaches of the written partnership agreement
- breach of fiduciary duties
How Are Partnership Disputes Usually Handled?
A formal written partnership agreement is a helpful starting point in considering any dispute between the partners. This document should set out the rights, roles and responsibilities of each partner along with information as to how profits will be shared and decisions made. It may set out a process to be used in the event of a partnership dispute. It may provide the power for the majority of partners to expel a partner in certain circumstances and it may provide calculations as to when / how an exiting partner’s interest is to be paid. In the first instance we will ask whether you hold a formal partnership agreement and, if you do, you will need to provide a copy in order for us to advise you.
What happens in a business partnership dispute if there is no partnership agreement in force?
In the absence of a written document, your partnership will be a “partnership at will”, which means it will governed by the Partnership Act 1890, the terms of which are implied into the partnership. Under the Partnership Act 1890, for example, all partners will be jointly and severally liable for all debts and obligations of the firm; and no partner can be expelled from the firm unless a power to do so has been expressly agreed between the partners.
In either event, consideration will need to be given to the fiduciary duties owed by each partner to the partnership. Fiduciary duties include acting in good faith, taking care in all partnership matters and prioritising the partnership’s interests above their own.
Do you need a Partnership Agreement?
If you are in a business partnership and do not have a partnership agreement in place then you are at risk of unresolved partner disputes, the automatic dissolution of the partnership upon a partner’s death or exit, and the business being governed by default rules of the Partnership Act 1890, which may not align with the partners’ intentions. Find out more about our partnership agreement services.
Do I need legal advice when there is a business partnership dispute?
It is sensible to obtain legal advice where a partnership dispute exists or is contemplated. Obtaining advice early may increase the prospects of the issues being resolved through negotiation, alternative dispute resolution or mediation. Other means of resolving a partnership dispute include: dissolution of the partnership; expulsion of a partner (if there is express agreement between the partners as to a power to do so); arbitration; or Court proceedings.
If you are involved in a partnership dispute, or anticipate a dispute in the near future, please call our team who will be happy to assist.
Partnership Disputes Frequently Asked Questions
Fiduciary duties are legal and ethical obligations to act in the best interests of another party, known as the principal or beneficiary. These duties require a fiduciary to act with loyalty, good faith, and competence, and include obligations like avoiding conflicts of interest and not making a secret profit from their position.
A breach may entitle the other partners to seek remedies such as compensation, injunctions, removal (if permitted under the agreement), or even dissolution of the partnership. The appropriate remedy depends on the seriousness of the breach and the terms of the agreement.
Many disputes can be settled through negotiation, mediation or alternative dispute resolution (ADR). These methods are quicker, more cost-effective and help preserve business relationships. Court proceedings are typically considered only if all other options have been exhausted.
Seeking Legal Advice in a Partnership Dispute
If you are involved in a partnership dispute or believe one may arise, our specialist solicitors are here to help. Contact HSR Law today for a confidential discussion about your situation and your options for moving forward.
We have specialist partnership dispute solicitors with many years of experience in assisting business partners achieve amicable and satisfactory outcomes to their partnership disputes. With clear and commercially focussed advice from skilled negotiators with strong mediation experience we are here to help.
Your Partnership Disputes Team
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