PARTNERSHIP DISPUTES

Conflicts do, and often, arise between partners. Common examples include:

• Breach of fiduciary duties. Partners are by law obliged to act in good faith towards one another and are subject to numerous fiduciary duties. Those duties include a duty to act honestly, to not make an unauthorized personal profit, and to avoid putting themselves in a position where the interest of the partnership conflict with their own. Disputes often arise when a partner breaches those fiduciary duties. This would include for instance where a partner diverts business away from the partnership for their own gain resulting in the partnership suffering a loss.
• Disagreement over the strategic direction of the business. Partners often have different skill sets and strengths. Sometimes though there can be competing priorities within the partnership and disagreements can arise between the partners over matters relating to the strategic direction of the partnership and the level of investment which should be given to different elements of the business.
• Unequal contributions Conflicts can arise where a partner is simply unwilling to ‘pull their weight’. Their conduct may not necessarily amount to a breach of fiduciary duty but this can nevertheless be the cause of disagreement between partners and ultimately lead to a dispute.

A partnership may be implied in any situation where two or more people carry on business with a view to profit from it. It is always advisable to record the terms of that agreement in a formal written partnership agreement. A properly drafted partnership agreement comprehensively documents the partners’ intentions, rights, responsibilities, and leaves little room for disagreement. A partnership agreement is also crucial to address issues such as retirement rights since, without one, the entire partnership must be dissolved if a partner wants to retire.

Properly drafted partnership agreements will contain provisions detailing the obligations and responsibilities of the partners. If a partner fails to comply with their obligations the other partners may be able to take action against them for breach of the partnership agreement.

If you believe that you have a claim against one or more of your partners, it is important to obtain legal advice at the earliest possible opportunity. Once we have taken instructions and investigated your claim, we will provide you with our assessment of your claim including prospects of success. If you want to proceed, we will then send a letter before action (LBA) to the proposed defendant setting out the basis of your claim and what we believe is due. If the defendant does not settle your claim, we will then look to escalate matters and commence formal court proceedings. We will deal with the whole process on your behalf.

If you have received a letter before action from one of your partners, then it is important to act quickly and obtain legal advice. Once we have taken instructions and investigated your defence we will provide you with our assessment of your case and your options. We can prepare your letter of response and consider alternative forms of dispute resolution. If necessary, we can defend your claim in formal court proceedings.

If your partnership agreement contains a dispute resolution clause, we can advise on the contractual steps you must take in the event of a dispute. If your agreement is silent on the subject, we will still consider the suitability of alternative dispute resolution as a means of resolving any disputes. We are great advocates of alternative dispute resolution and would, in most cases, recommend that the parties enter some form of alternative dispute resolution as soon as possible.

Sometimes the relationship between the partners deteriorates to such an extent that the only viable option is for the partnership to be dissolved and the business wound up. There are numerous mechanisms through which a partnership may be dissolved. In such cases, we can advise partners on the best way forward for them.

Whilst partnerships offer valuable benefits to those in business, the nature of a partnership means that disputes often arise. The law governing partnerships is complex and requires a thorough understanding of contract law and the impact of the Partnership Act 1890. Accordingly, if you are in dispute with your partners you should seek specialist legal advice form Birch Law as soon as you become aware of a potential dispute. Please contact us today on 0161 669 4621 or sbirchall@birchlaw.co.uk for a free non obligation chat.