In a thriving business partnership, trust and respect form the foundation for success. Disagreements between partners can sometimes arise and lead to partnership disputes. It’s crucial to find ways to prevent these disputes from becoming personal.
Our Legal Director, Mr Usman Anwar, specialises in assisting partnerships and limited liability partnerships (LLPs) of all sizes spanning various industries in resolving disagreements effectively. At Anwar Legal, our main focus is to tenaciously protect our client’s interests while minimising any adverse effects on the business arising from the dispute.
What is a Partnership?
A partnership is a legal relationship between, two or more persons, carrying on business with a view to a make a profit, as per Section 1 of the Partnership Act 1890.
Partnerships are not separate legal corporate entity such as a limited company. In fact, the partners have personal liability for all actions of the business partnership event after the partnership is dissolved. This is important because an individual partner (entering into a contract with a third party) is acting on behalf of all of the other partners and can bind them to a contract without their express agreement.
Partnerships are either governed by the Partnership Act 1890 or established under the Limited Liability Partnerships Act 2000 as a limited liability partnership.
What if I don’t have a Written Partnership Agreement?
In most cases, the partners will set out the terms of the partnership in writing. If the partners have no written partnership agreement then the law will imply terms and duties on the partners in accordance with the Partnership Act 1890. Some of the implied duties of the partnership may include:
- Partners must share the profits equally (irrespective of their initial investment).
- Partners must share the losses equally.
- A Partner has no right to retire. If a Partner retires or dies, the Partnership needs to be dissolved.
- Adding a new Partner to the Partnership requires unanimous consent of all the Partners.
- There is no power to expel a Partner from the Partnership.
What is the Partnership Act 1890?
The law on business partnerships have been around for many years. The Partnership Act 1890 is a set of rules which governs the Law of Partnership.
People who enter into partnership are collectively called ‘a firm’ and this helps third parties to identify a partnership, rather than a limited company. Often you may see letters or emails which are signed ‘For and On Behalf of [Name of the Partnerhsip]’.
What Are The Causes of a Business Partnership Dispute?
There are multiple scenarios where a partnership dispute may arise which we have listed below:
- Too Much Authority By One Partner – you may feel in the Business Partnership one partner is acting like the ‘Big Boss’, rather than treating all partners as equals in the decision-making process.
- Performance or Profit Sharing Disagreement – you may feel in the business partnership that you have invested a large capital and the other partners or not ‘pulling their weight’ and contributing to the growth of the partnership as much as you.
- A Difference in Business Objectives and Aims – there is a significant disagreement between the partners in terms of the direction of the partnership and the future goals of the business. There appear to be acrimonious and bitter arguments that are crippling the business partnership.
- Misconduct or Personal Disagreements – one partner may feel like the other partner has committed a serious breach of duties such as: (a) taking ‘secret profits’ (b) use of illegal substances, (c) fraud, (d) theft of business opportunities by setting up competing business and more.
What Are The Remedies for a Business Partnership Dispute?
Each Business Partnership Dispute is different, depending on each set of circumstances and the allegations against the offending partner. Below is a list of possible remedies which are available to the partners:
- Written Partnership Agreement – If a written partnership agreement exists, then the dispute resolution clauses should be examined. The partnership agreement should set out the rights and obligations of the partners, the procedure for dealing with misconduct, retirement and/or absence from the partnership. If there is no written Partnership Agreement, the partnership will be governed by the Partnership Act 1890.
- Mediation/ Arbitration – The written Partnership Agreement may provide that any dispute is to be referred to mediation/ arbitration. Such a step is considered to be faster, cheaper, and more flexible than court proceedings. Also, this would avoid any negative press/ social media posts about the partnership dispute which may impact clients, losing staff, and the profitability of the Partnership.
- Dissolution of the Partnership – it may be partners are unable to continue the business, and therefore, the partnership needs to be dissolved and the assets to be distributed in accordance with the written partnership agreement.
- Court Proceedings – if the partners are unable to resolve the differences in the intervention of the court is the best option. The type of proceedings will vary depending on the matters in issue, but will often include injunction proceedings, for example restraining an exiting partner from breaching restrictive covenants.
Partnership Dispute Resolution
Any party involved in a Partnership dispute should carefully consider whether early mediation is a possibility to negotiate a settlement. Mediation can be highly successful. For more information, read our blog Mediation and Alternative Dispute Resolution (ADR).
Still not convinced? Read some of our business client’s success stories and testimonials on how they settled their business disputes using our legal service.