A traditional partnership is not a legal entity but is a relationship between partners. It is defined in the Partnership Act 1890 as "the relation which subsists between persons carrying on a business in common with a view of profit". LPs and LLPs in contrast are corporate entities.
Some business people are not even aware that they are partners, but often find out that if they have been carrying on a business with one or more persons in order to make a profit, then there will be a partnership.
Partners must be able to trust each other in order to carry on business together, and they therefore owe a duty of good faith to fellow partners in all partnership matters.
Partnership disputes arise for a wide variety of reasons, even in successful businesses. It is important that they are resolved quickly.
In most cases, there will be a written partnership agreement (normally a partnership deed). In some cases, however, there will be no written (or oral) agreement. Then the first port of call will be the Partnership Act 1890. That Act sets out a legal framework which governs such partnerships.
The way that partnership disputes are resolved depends to a large extent upon whether there is a written partnership agreement (including a members’ agreement) or not.
Partnership disputes can arise for a wide variety of reasons. Typical disputes include:
- Issues arising from the lack of a partnership agreement in the first place
- Partition and division of partnership assets and property
- Misconduct issues
- Governance issues
- Partners doing less than their fair share
- The terms of departure of an individual partner, whether forced or voluntary (for example the partner may wish to withdraw capital invested which could cause financial problems for the business and the remaining partners)
- Winding up or dissolution of the partnership
- Enforcing or resisting restrictive covenants
Disputes can also arise between a partnership and third parties.
Methods of resolving partnership disputes include alternative dispute resolution such as negotiation, mediation, expert determination or arbitration. If necessary, court proceedings can be used, for example to obtain a court order dissolving the partnership and determining how net assets will be shared.
For further information, or should you require advice in connection with a partnership dispute, please contact David Ellis, Dispute Resolution on 01905 721600.