Partnership Disputes FAQ
Does a partnership exist?
For a partnership to exist, a group of individuals must be carrying on business in common with a view to making a profit. Partnership disputes can arise without there being any formal documentation having been drawn up between the partners. This means that individuals can find themselves in partnership without even knowing they are and, when problems arise in the partnership, may find themselves in the middle of an often messy and costly legal dispute.
What are the terms of the partnership?
In the absence of a partnership agreement, the terms of the Partnership Act 1890 will apply. This is a very brief and vague piece of legislation which leaves a lot of matters to be determined.
If there is a partnership agreement, often the terms of these will change over time so it is important to be aware of any updates to the partnership agreement or other agreements that govern the partnership.
What about liability and decision making in a partnership?
Partners are jointly and severally liable for all debts relating to the partnership and liability is unlimited since a partnership is not a separate legal entity (unlike an LLP or limited company). In the event partners have changed over time, it is important to ascertain the identity of the partners at the time any liabilities were created.
Unless there is an agreement to the contrary, standard business decisions affecting the partnership can be made by a simple majority. Decisions regarding the nature of the partnership business require unanimity.
Removal of a partner from the partnership
Unless there is an express power of expulsion set out in a partnership agreement, there is no automatic right to expel a partner from the partnership. In such circumstances, it will be necessary for the partners to reach an agreement. If no agreement can be reached, it may be necessary to dissolve the partnership.
Dissolution of a partnership
Dissolution of a partnership is often complex and does not in itself terminate all rights and obligations of the partners. For example:
- Partners of the dissolved firm will remain bound by any obligations entered into prior to the dissolution;
- If proper notice of dissolution has not been provided, contracts entered into by one of the partners may legally bind all of the partners;
- After dissolution, the partnership relationship will continue insofar as is necessary to properly wind-up the affairs of the partnership and complete any outstanding transactions entered into prior to dissolution.