Partnership disputes

Individuals cannot enter into a business through a company without deliberately intending to. Equally, they cannot trade on their own as a sole trader without meaning to.

However, individuals may, unwittingly enter into a partnership without having anticipated its consequences. Where there is a relationship between people carrying on a business in common with a view to profit, there may be a partnership.

Thist lack of formality and the absence of a written agreement can often lead to disputes. Although there isa fallback in legislation in the Partnership Act of 1890, this is a very brief piece of statute that leaves many matters to be determined between the parties. This, in turn, may lead to further disputes. Expertise in this area is, therefore, critical.

The changes to partnerships over time may also lead to disputes. Even where partnership agreements have been entered into, and a written contract exists, if formalities and agreements are not followed, the departure of one partner or the joining of a new partner may lead to partnership disputes. Individuals believe they have a partnership governed by a written contract; when in fact they have only what is an unplanned partnership at will and a worthless piece of paper. 

A "partnership at will" is a partnership that can be terminated by any partner outside of the terms of the agreement. This means that the survival of the partnership and its ongoing work could be at risk.

Disputes between the partners can, therefore, arise commonly when new partners have joined, and formalities have been overlooked. Still, the consequences of those potentially small disputes can be enormous for the future of the partnership.

The scope of a partnership may also broaden and change over time across a range of businesses far beyond what was intended when they were initially set up. The development of limited liability partnerships has also led to a new range of partnership disputes.

That, in turn, can often lead to disputes between partners when individuals wish to take businesses in different directions; or when, for example, succession planning becomes a significant issue. Our expertise covers dealing with a wide variety of partnerships across a wide range of sectors and a wide variety of industries.

While a partnership business must be carried out to make a profit, profit does not necessarily have to be made. Charitable and not-for-profit concerns cannot constitute partnerships as they cannot have the intention to make a profit. However, there are few restrictions on the scope of businesses, industries and sectors that a partnership may cover.

Owning property in common or sharing a gross return does not of itself create a partnership, but sharing net profits is evidence of a partnership existing. How the capital of the partnership; such as the property owned by the partnership, and its profits and losses are dealt with are unsurprisingly common causes of dispute.

In the absence of a written agreement, all partners are entitled to share equally in the profits of the business and must contribute equally towards the losses, whether in capital or income. In practice, that does not cover the myriad situations that arise in partnerships. Where, for example, new partners have joined or various capital contributions have been put in place, partnership disputes may often occur.

The desired retirement of a partner and/or succession planning is a common cause of disputes. A partner can retire by their own volition; however, the consequence of this upon a partnership, either under a written agreement or in the absence of a written agreement, may be drastic.

New partners do not usually take on the liability for anything done before their admission to the partnership. But a partnership may have existing liabilities, and there may be significant disputes over the scope of liabilities taken on and the liability of the new partner for these.

The scope of a partnership; its unplanned or undocumented effects; the objective of the partnership; or how it will distribute profits; may all be the cause of disputes. A partnership dispute may also often arise because partners have a general breakdown over the running of the business and how to go forward. The unique characteristics of partnerships may lead to drastic consequences for partners once a dispute takes hold.