Partnerships – ‘Parting is Such Sweet Sorrow’

Posted by the Family Law team on 5th January 2012

Someone contacted me recently for preliminary advice, but I was unable to help this potential client, so this post is by way of a warning!

If two or more people embark on a business venture without creating a company, then they have created a partnership.

Now the law regarding partnerships is found in the Partnership Act of 1890, and there’s a big problem. If there isn’t a written partnership agreement, then one of two partners can bring the whole thing to a grinding halt by saying “It’s been nice, but I’m off.” And one of three or more partners can cause real problems for the others by saying the same: “I want to withdraw from the partnership.”

When such an informal partnership comes to an end, the problem is this: the partner leaving usually thinks he’s entitled to something like half of everything – but the partner left behind thinks he should get more than half because he’s still trying to run a viable business; and so the arguments start. This is good news for litigators, but not so great for the partners, and probably not for the business either.

For the recent enquiry, the circumstances were such that the other partner terminated the agreement but had managed to keep control of most of the business’ critical assets. So that was more like “It’s been nice, and I’ve got the lion’s share, and I’m off”. It just wasn’t practical to go the expense of court proceedings.

If there’d been a written agreement, that could never have happened.

So – if you’re in a partnership and there’s no written agreement, or you’re thinking of starting a partnership – come and see someone in our commercial team. That’s the right time to agree exactly what happens if someone wants to bale out, and how it might be different from a mutually-agreed dissolution.

And if your partnership-without-a-written-agreement is encountering some relationship issues – you should speak to a litigator.