Partnership Disputes

General partnerships are common, easy to form and can even be formed by accident. However, the rules relating to general partnerships can prove difficult to navigate.

A general partnership is formed when at least two people come together and carry on a business in common with the goal of making a profit. It isn’t necessary to actually make a profit — it’s just the intention to do so that matters. Partners owe each other a duty of good faith, which can significantly impact on what partners can do and how they may be required to account to other partners for their actions.

A general partnership can be formed without the partners even realising it. There’s no need to register a general partnership at Companies House. It’s a matter of fact as to whether such a relationship exists, so disputes can easily arise.

This kind of partnership is made up of its members (partners). Unlike with a company, it doesn’t have a separate legal identity but is often referred to as ‘a firm’. Partners generally have unlimited liability.

The rules that regulate general partnerships date back to 1890 and can have unexpected consequences. The default position is that partners have equal shares of profits and any liabilities, though that may not reflect the true nature of the commercial relationship between the partners or their capital investments. Also, it’s generally very easy for a general partnership to be terminated by just one partner.

For these reasons, partners often draw up written agreements to determine how the partnership should operate. These replace at least some of the general rules from 1890 and set out how the parties actually want to regulate the relationship.

We’re experts on the rules and how to interpret the written agreements that partners often enter into. We can cut through the complexity to help you achieve the right result for your situation.

Limited liability partnerships (LLPs) are becoming increasingly common, especially in the professional services sector. Introduced by the Limited Liability Partnerships Act 2000, an LLP isn’t quite a partnership or a company but something that sits between the two.

An LLP has a separate legal identity from its members. It can enter into contracts and own property in its own name. Like a company, it must be formed by being registered at Companies House and resembles a company in how it deals with outsiders. However, an LLP is similar to a general partnership in the way that it’s managed and its internal arrangements, potentially offering far greater flexibility.

Since an LLP is responsible for its own debts, its members have limited liability and aren’t generally liable to contribute to the assets of the partnership (although there are exceptions). Partners are technically ‘members’. An LLP must have at least two ‘designated members’ who have particular responsibilities and functions within the organisation. The rights and duties of members — both between themselves and with the LLP — are often set out in a written agreement. This deals with issues like profit shares, management responsibility and the appointment and retirement of members. This agreement is a private document, confidential to the members of the LLP.

In the absence of a written agreement, default rules apply to regulate the relationship between members. However, it’s unlikely that these default provisions will be suitable for most LLPs.

We provide the expertise you need to understand the rules and written agreements that regulate LLPs, providing the insight you require when it matters most.

Limited partnerships are less common than other forms of partnership but are often used as specialist investment vehicles.

They’re formed under the Limited Partnerships Act 1907 and are similar to general partnerships in many ways — so there’s a considerable overlap in the rules that apply. However, there are number of important exceptions.

As with a general partnership, a limited partnership must be formed between two or more people who carry on a business in common with the goal of making a profit. However, a limited partnership must be registered at Companies House to benefit from limited status.  

A limited partnership will have two different types of partners:

• General partner — at least one ‘general partner’ with management responsibility and unlimited liability for the partnership’s debts and other obligations.
• Limited partner — at least one ‘limited partner’ who invests in the partnership but doesn’t take an active role in its management. Their liability is limited to the amount of capital they invested.

As with general partnerships, it’s common to have a formal written agreement that sets out the relationship between partners and how the partnership will operate. This agreement is a private document and doesn’t need to be filed at Companies House. In the absence of a written agreement — which would be particularly rare for limited partnerships, as they’re generally used for specialised purposes — default rules apply to regulate the relationship between partners.

A limited partnership in England and Wales doesn’t have a separate legal identity. The partners owe each other the same duty of good faith as those in general partnerships.

We deliver the knowledge, insight and action you need to understand the complexities of limited partnerships and achieve your commercial goals.

You don’t necessarily need to go to court to resolve a partnership dispute. While court proceedings can be the most common and obvious route, there are other options available which may be more suited to your case.

In some cases, partnership agreements may require the partners to first pursue alternative means of resolving a dispute, such as arbitration or mediation. Alternatively, the partners may choose to try and resolve their dispute using one of the alternative forms of dispute resolution in the hope of avoiding the cost and formality of court proceedings.

Even where court proceedings are started, very few cases ever get to a final hearing, as many disputes are resolved outside of court. As experienced litigation lawyers, we have the expertise to advise you on all the available options and what would be the best way forward in your particular case.

Throughout your case, we’ll work with the aim of ensuring that you get the resolution you require as quickly and cost-effectively as possible. If that ultimately means dealing with the case through to a court hearing, we’ll be right there with you — fighting your corner every step of the way.

Funding is a key consideration when facing a partnership dispute. The legal fees can prove expensive for everyone involved and an individual partner can be at a significant disadvantage when facing the collective resources of the rest of the partnership. 

Understanding the financial issues at play before pressing ahead with a dispute will help you to choose the most suitable option for your circumstances and ensure that you have the funding to see things through, whatever happens.

When looking at your options for pursuing and funding a partnership dispute, we have the expertise you need to navigate the wide range of funding options and help you choose the right one for your circumstances.

Where a partner has breached the terms of a partnership agreement, it may be necessary to expel them from the partnership. While this course of action may seem extreme, sometimes there’s no alternative — especially if having them stay on could negatively impact the operation of the business.

Partnership agreements may also contain clauses that state a partner can be forced to retire after the expiry of a set period (e.g., six months), without any particular grounds. If a partner is to be expelled (or forced to retire), this must be permitted by the partnership agreement.

If you can’t remove the partner in question under the terms of the partnership agreement, the best solution available may be to dissolve the partnership. This isn’t a step that you should take lightly, as it could carry certain undesirable consequences.

In other circumstances, a partner can be sued for the losses they caused if they breached the partnership agreement. This may be the case if a partner fails to properly account for monies they’ve received, for example.

In urgent cases, it may be necessary to ask the court to order an injunction to make an order — for example, to forbid a partner from doing something. This may be the case when a partner wants to leave for a competing business and ‘steal’ clients whom they are not allowed to take.

We have the skills to face the expected and unexpected and can help you to explore your options when facing a partnership dispute and resolve the matter as quickly and efficiently as possible.

Leaving a partnership can be a stressful and difficult process. The routes to leaving — and the consequences of doing so — depend on the type of partnership you’re in and the terms of any written agreement that’s in place between the partners.

There are significant risks to consider when talking about general or limited partnerships. If a partner simply walks away, this could have unforeseen consequences, such as a dissolution of the partnership. There are also likely to be important financial consequences, such as the need to value a departing partner’s share of the business.

Whether you’re the partner who’s leaving or one of the continuing partners who wishes to carry on with the partnership’s business with the minimum amount of disruption, one thing is vital: you need to get the right advice, at the right time — usually before you decide to act.

Our team has the experience to guide you through the process of exiting a partnership and help you to achieve the right outcome.

Dissolving a partnership can have major consequences. The issues that you need to consider will depend on what kind of partnership you’re in. 

The dissolution of a general partnership sees the relationship between partners comes to an end. This can happen very easily and sometimes even by accident — particularly where there’s no partnership agreement in place.

There are two types of dissolution of a general partnership:

• Technical dissolution — this happens where there’s a change in partners, but the business carries on. Usually, third parties will be unaware that this has happened.
• General dissolution — this is the process that leads to a winding-up of the business and assets of the partnership. Once that process is complete, the partnership’s liabilities will be paid off — subject to enough money being available to do so — with any remaining assets being divided between the partners. The partnership will then no longer exist.

A general dissolution can happen in a number of different circumstances, including:

• unanimous agreement of the partners
• in accordance with the terms of the partnership agreement (if there is one)
• the expiry of a fixed-term or purpose for which the partnership was established (or by a partner giving notice)
• in circumstances of illegality or fraud of a partner
• by Order of the court on various grounds (including where a dissolution would be ‘just and equitable’).

The rules that relate to the dissolution of limited partnerships are similar to those for general partnerships (with certain important exceptions). 

However, the position for limited liability partnerships (LLPs) is completely different. Like with a company, an LLP has a separate legal identity and therefore a formal process generally has to be undertaken for it to be dissolved.

Whatever your circumstances, the dissolution of a partnership can be a complex process and you’ll need expert help to navigate it. Our team can ensure that your dissolution is completed as quickly and efficiently as possible.

Retirement is the process of leaving a partnership. This can be a voluntary and amicable process or one that’s forced or contested. There are separate rules to consider where a partner or a member dies, goes insolvent or (in the case of a company) is dissolved.

A partner may leave a general partnership by:

• retiring (if all the other partners agree or in accordance with the terms of a partnership agreement)
• being forced to retire (if, for example, there are specific provisions in a partnership agreement relating to this).

A ‘member’ of a limited liability partnership (LLP) may leave:

• as agreed with the other LLP members
• by giving reasonable notice to the other LLP members
• by being forced to leave the LLP in line with the terms of an agreement between the members.

Retiring from a partnership may bring unforeseen consequences, such as a general partnership being dissolved. The resulting position — both in terms of the right to leave and the effect this has — will depend on the relevant general law and the terms of any written agreement between the partners.

We’re here to support you — whether you’re the partner who’s leaving or one of the continuing partners who wishes to carry on with the partnership’s business.

Getting good advice can ensure that you receive what you’re entitled to when leaving a partnership.

There’s no general right to simply ‘retire’ from a general or limited partnership, unless there’s a provision relating to this in a partnership agreement. This means that the mechanism for valuing a partner’s interest when they retire will generally be covered by the terms of such an agreement.

A partner’s entitlement will often include:

• their profit share (up to their end date)
• the outstanding balance of their current and capital accounts
• a share of the value of the partnership assets.

The partnership agreement will often also include a mechanism for determining the price to be paid for the partner’s interest, unless it can be agreed.

When it comes to limited liability partnerships (LLPs), the law is vague. A well-drafted LLP agreement will therefore usually set out the financial consequences of a member's retirement. These often state that an outgoing member's share in the LLP will be transferred to the remaining members, with the outgoing member being paid out on a similar basis to that set out above.

Disputes over the valuation of an outgoing partner’s interest can be technical and hard-fought. They require a detailed understanding of the law and how the terms of partnership agreements apply in practice. 

Our team has the specialist knowledge needed to help you to get the right valuation — identifying and instructing an appropriate expert accountant to act on your behalf where necessary.