Partnership disputes

Nobody goes into business expecting that the business relationship will sour, but sadly there are often disagreements which at first blush may seem intractable. 

Partnerships are a common business structure especially amongst small and medium sized businesses, but some are set up without formal or indeed any written documentation which means as they grow and if there is a dispute, then there might not be any agreed procedure as to how to resolve it. 

Partnerships are governed by The Partnership Act 1890 and Limited Liability Partnerships are regulated by the Limited Liability Partnership Act 2000. 

Often it is changes over time and personality differences that lead to a partnership dispute. Where there is a written partnership agreement which isn’t followed or where one partner leaves and another takes over their role, then disagreements might happen over roles, responsibilities and the direction of the business. 

Over time the scope of the work of the business may also change into something which is very different from what the business was set up to deliver which again can lead to disagreements. 

Where there isn’t a written or oral agreement then when it comes to finances and profits, the presumption is that all partners will be entitled to share the profits equally. This is often where disputes can occur where partners may have joined at different times in a financial year or may have made different financial contributions to set the business up or to help it grow. 

Partners also owe each other fiduciary duties which means they should act in good faith and the best interests of the partnership. Sometimes there might be issues around misconduct, conflicts of interest or dishonesty which understandably can all damage trust. 

Another area which commonly causes a dispute is where one partner wants to retire or leave and where there hasn’t been a conversation regarding succession planning and what happens to their share of the business. 

Where a new partner is joining then they usually do not take on any liability prior to them becoming a partner and an existing partner/partners might find this frustrating if they have ongoing liabilities to deal with. 

Whatever the cause, a dispute can escalate quickly, and this may affect day to day operations or lead to the dissolution of the business. It is important to take early professional advice which sets out your options which may include entering negotiations or using mediation, as resolving disputes early and effectively might be key to the business surviving. 

For more information about resolving a dispute contact the Litigation team at Gullands led by Philip Grylls, p.grylls@gullands.com