Business partnership disputes

Protecting yourself and your business from partnership disputes

If you are concerned about how a partnership dispute could affect you and your business, it is crucial that you seek legal advice as soon as possible.

In any instance when two or more people are involved, it is inevitable that at some point a dispute will arise. However, it is not the occurrence of the dispute that can cause problems for a business, but how well partners have protected themselves from liability costs, and the business from dissolution.

Prepare yourself with a partnership agreement

The repercussions of a legal dispute can be extremely damaging to a business, and putting preventative measures in place should be at the top of your to-do list when setting up a business partnership in order to protect both yourself and your business in the future.

A partnership agreement is the best way to keep your business from running into an unfortunate scenario later on; without one you will be automatically subject to the rules according to the Partnership Act 1890. A partnership is formed whenever two or more people go into business together, if no partnership agreement is formed this is often referred to as a partnership at will which is governed by the Partnership Act.

According to the Partnership Act, your business will be subject to the following rules:

  • Partners share equally in the profits no matter how much time, effort or capital they have invested in the business.
  • Partners cannot retire, leave the business or die without the business being dissolved, assets divided and a new business formed. This can be confusing for clients and both costly and time consuming for partners.
  • Partners cannot be forced from the business; even in the case of bankruptcy or imprisonment the business is required to dissolve if one of the partners is absent.

A partnership agreement allows all partners involved to lay out how they would like disputes to be resolved, and how certain decisions regarding the partnership should be made. Thoroughly preparing in this manner can avoid the occurrence of a dispute entirely in most cases, as there is already a pre-agreed upon, legal plan as to how business arrangements and disputes should be resolved.

A partnership agreement can be designed to suit your business and how your partnership will work best, giving you the opportunity to create a bespoke partnership agreement according to your needs.

Your liability within a partnership

Under the Partnership Act you are also liable for all the business’s profits and losses, this means that as well as benefiting from any monetary reward, you are also liable for any losses. This liability extends to any personal assets you possess, which is why it is vital to protect yourself by ensuring that you have in place a partnership agreement that separates your own finances from that of the business.

Business partners can choose to set up or convert to a limited liability partnership (LLP) in order to achieve this, allowing for partners to limit their share of the investment and therefore their liability.

Similarly to a general partnership agreement, establishing this bespoke set of agreed upon rules for your business partnership to adhere to can be greatly beneficial to the avoidance of future disputes or difficulty. An LLP partnership agreement allows you to dictate profit and loss division, the duration of the partnership, the hierarchy of the partners if you one day intend to bring in employees, and how you will act in the instance of a partner wishing to leave.

Seeking legal dispute advice

The majority of business partnerships will find themselves in the middle of a dispute that is difficult to resolve, and when they do it is important to seek legal advice as soon as possible to discuss your position with a legal professional as soon as possible.

Manchester based firm Ralli Partnership Law, are experts in this area and able to offer reliable advice on your best way forward. Eimear McCartan, partnership solicitor at Ralli, said:

“Partnerships often differ from other business entities because partners not only make a financial commitment to the business but also an emotional investment. This means that partnership disputes can become very messy and difficult to untangle, particularly if there is no partnership agreement in place between the parties. A clear, defined exit strategy and dispute resolution procedure can be invaluable in times of strife within a partnership.”

Latest posts by Guest Blogger (see all)