There are two types of partnership dispute: those governed by written agreements and those not governed by written agreements.
A partnership without a written agreement is known as a ‘partnership at will’. A partnership at will relies on the terms set out in the Partnership Act 1890.
Your partnership rights in the event of a dispute depend upon whether your partnership is governed by a written partnership agreement or is a partnership at will.
These partnerships operate under a written agreement that has normally been drawn up by a solicitor and is regularly reviewed and kept up to date.
Partners’ duties and rights will be set out in an agreement, and there may be a reference to professional standards. Management structures and profit-sharing arrangements may also be specified.
Partnership agreements often lay out the processes for partner exits and the calculation of pay-outs. Most partnership agreements include restrictive covenants to prevent or limit exiting business partners from taking clients or employees with them.
It is often necessary to include a clause stating the Partnership is not dissolved when a partner serves a dissolution notice, which is a crucial factor.
A formal partnership agreement will normally set out the procedure for managing disputes, from the steps to take when minor issues occur to the processes to follow for the expulsion of a partner. The processes are likely to refer to dispute resolution mechanisms, including mediation.
Most business partnership disputes can be resolved by following the procedures set out in a partnership agreement. However, disagreements can arise over the interpretation or application of an agreement, so it is essential that legal advice is sought. When a provision in an agreement is not followed correctly, it can be expensive and damaging to the Partners and the Business.
It is best to seek legal advice as soon as a partnership relationship begins to deteriorate to prevent matters from escalating.
At Davisons, our specialist solicitors can view your situation objectively and advise you on the processes to follow. In addition, they are also able to draft Partnership Agreements tailored to the Business and advise on what should be included to protect the Partnership.
A partnership without a written agreement is often called a ‘partnership at will’ and is governed by the terms of the Partnership Act 1890. This is a very old piece of legislation, so it is not advisable to rely on it to protect your partnership rights.
Under the Partnership Act 1890, partners are entitled to participate in the management of the Business, share profits equally and not be expelled by the other partners. They are also entitled to an indemnity in respect of business liabilities.
Critically, under the Act, a partner is entitled to dissolve a partnership even if the other partners do not agree. This can result in serious financial, legal and practical consequences for the other partners. There is nothing under the Act to protect a business by preventing a leaving partner from taking clients with them. There is also no provision to expel a partner or add a new partner to the Business.
With this type of partnership, there is no set dispute resolution process. This means resolving business partnership disputes is more likely to lead to a costly, drawn-out process through the Courts.
If you have a partnership at will, it is recommended to seek legal advice as soon as possible to prevent a dispute from escalating.
Disputes are often settled through partnership dispute mediation. With mediation, an external and impartial mediator facilitates discussions between disagreeing parties so they reach a compromise. This is usually a swift and low-cost way of resolving business partnership disputes, avoiding complicated and expensive litigation.
Our dispute resolution solicitors at Davisons can support you through the Mediation process and ensure your partnership rights are protected.
To deal with issues early, partnerships are increasingly opting for early neutral intervention, which is similar to mediation, except it tends to happen at an earlier stage, and discussions are more flexible, mostly taking place over the phone.
Early neutral intervention aims to help each party to understand the concerns of the other so conflict can be avoided. This early step can help to maintain goodwill and lead to a range of different outcomes that would have been more difficult to achieve if matters had escalated.
If court action is unavoidable, our experienced team of litigation solicitors at Davisons can work with you to build a strong case. Our solicitors have a proven track record in achieving successful outcomes for our clients due to our strong advocacy skills, ability to provide clear advice, reach the best judgments, and make quick decisions.
At Davisons, we know that it is stressful when a breach of contract occurs, but we aim to reduce anxiety by resolving disagreements swiftly.
We have extensive experience across a broad range of sectors and professions and an in-depth understanding of the commercial, legal and regulatory context of different types of partnership. Whatever your situation, we can provide you with the expert advice you need.
