Our business disputes team are often asked to advise on disputes arising from business partnerships. Solicitor David Paull outlines some of the key factors that need to be considered in any partnership dispute.
The benefit of having a partnership agreement
If you run a business with one or more partners with a view to making profit then you will be legally classified as trading in partnership. This is the case even if you do not have a written partnership agreement.
It is best practice for the partners to enter into a written partnership agreement at the beginning of the partnership. This is frequently overlooked when partnerships are created. However, the partners can formalise their business arrangement by entering into a partnership agreement at any point. If there is no partnership agreement (or terms have not been expressly agreed or cannot be inferred) then the default provisions of the Partnership Act 1980 will apply.
Without the certainty of a written agreement partnership disputes often arise and this can result in the partnership coming to an end. A partnership agreement enables the partners to agree the key terms of the business relationship themselves rather than having to rely on the Partnership Act. This minimises the risk of an expensive and damaging dispute arising and can include a dispute resolution procedure to be followed if a disputes does occur. Furthermore a partnership agreement can provide a procedure for the removal of a partner by mutual agreement or otherwise and the process in buying out the outgoing partner.
Another issue that often arises is that the court does not have the power to expel an offending partner. Therefore the only option available to the court is to dissolve the partnership in its entirety. That may well not be in the partnership’s best interests and indeed gives the outgoing partner considerable leverage when negotiating terms on leaving the partnership if the remaining partners want to continue the partnership. A partnership agreement can avoid this scenario entirely.
When a partnership dispute does arise consideration should be given to using ‘alternative dispute resolution’ (known as ADR) as a means of resolving the dispute quickly and cost effectively, avoiding the inconvenience and expense of formal court proceedings. We are firm advocates of ADR and have an excellent track record of using it to great effect.
Negotiations that are overseen by an independent mediator tend to be more constructive that informal discussions. And the range of settlement options at a mediation are far greater than those available at a contested trial. Parties will have greater flexibility and can often achieve an amicable and practical settlement without the complete breakdown in relations that too often arises from court proceedings.
Options for funding a partnership dispute
We appreciate that litigation is expensive and your ability to fund a legal action may be compromised by the impact of the partnership dispute on your own finances. However, we do offer a free case assessment to determine whether we can pursue the case on a no win, no fee basis or under a deferred private funding arrangement, where you pay the legal costs on the conclusion of the case.
If you would like us to carry out a free assessment of your partnership disputes or any other business dispute then please contact our specialist business disputes solicitor, David Paull on 01823 345654. If you would are looking to set up a business and require advice on what business structure to choose, require a Partnership Agreement to be drawn up or any other business advice then please contact Emma Reid on 01271 372128.