What Constitutes a Partnership Dispute in Business?

Even successful businesses can have partnership disputes, and they can occur for a variety of reasons.

The important thing is to resolve them as quickly as possible to protect the business, its clients and the partners involved.

But what constitutes a partnership dispute in business?

Partnership disputes occur when there are disagreements between partners in an enterprise. These can arise from a failure to agree on a business’s direction, or as a result of a partner’s misconduct.

Disputes may emerge out of an unbalanced partnership, where one partner contributes significantly more than another. Or, there can be a breach in the original partnership agreement, leading to a partnership dispute.

Why Do People Go Into Partnerships?

For many people in business, forming a partnership is the logical option to take.

If they are running a business with a relatively low turnover, for example, a partnership can provide the ideal legal structure for them.

The partners share the profits, liabilities and decision-making. They may have different skills that complement each other, enabling them to work together effectively.

From a start-up perspective, the more partners there are, the more capital they can put into the business, enabling greater flexibility and potential for growth.

Partnerships are a shared responsibility, thought partners may take on different tasks within the business, according to the skills they have.

Partners also share the decision-making, pooling their experience, skills and resources for the benefit of the business.

Partnerships are flexible, and they can be easier to form, manage and run. They are subject to less strict regulations than companies, as only the partners decide how the partnership will operate.

Of course, this depends on all the partners being in agreement. If they are not, then this can lead to partnership disputes.

What are the Disadvantages of Partnerships?

Partnerships are jointly run, which means all the partners must agree on the decisions they take. While this level of control can provide flexibility, it can also lead to disagreements.

The danger of disagreements between partners is the main disadvantage of partnerships.

Disagreements can disrupt partnerships and, if they deepen, they can damage the business.

Disputes harm the relationships at the heart of partnerships, and this can have a profound impact.

This is why there should always be a partnership agreement in place when forming the partnership, which details procedures in the event of disagreements or if the partnership dissolves.

Without an agreement in place, if problems arise from a dispute, the partnership will be subject to rules under the Partnership Act 1890.

What Does the Partnership Act Say?

Under the Partnership Act, businesses are subject to the following rules:

• The partners will share equally in the profits of the business, regardless of the time, money and effort they have put into it
• Partners cannot be forced from the business, and even in the case of bankruptcy or imprisonment, the business must dissolve if one of the partners is absent
• Partners cannot retire or leave the business without dissolving the business, dividing the assets and forming a new business, including the death of a partner

If partners put an agreement in place, this should state how to resolve disputes, and how to make certain decisions regarding the partnership.

What Are the Causes of Partnership Disputes?

There are several causes of partnership disputes. A partnership agreement may cover some, but not all of them.

Misconduct on the part of a partners can involve various behaviours and actions, from rude and aggressive behaviour to fraud, or stealing business opportunities.

There may be issues with substance abuse or addictions.

A common cause of partnership disputes is when one partner is not pulling their weight.

These sorts of situations can arise for different reasons. The market may have evolved and the type of work the business now earns is only suited to one partner’s skills. Or there may be chronic health issues, so a partner cannot contribute fully to the business.

Sometimes, it may simply be the case that a partner has lost interest, and is spending less and less time at the business.

More general partnership disputes can arise from disagreements about ongoing issues in a business, such as:

• Company objectives – for example, one partner wants accelerated growth and spending, while another is more risk averse, and wants a better work-life balance.
• Responsibility and authority – who is responsible for which areas of the business, and what is the chain of command?
• Use of income – where to spend it, for example, on marketing, office accommodation or equipment and vehicles
• Choosing suppliers – Where to source products and services from

Businesses evolve, and when change happens, it can put a strain on partnerships if people disagree on the direction things are taking.

Many of these issues may, ultimately, be resolvable by the partners themselves, but if there is a complete breakdown in professional relationships, then no amount of mediation or negotiation may be enough to prevent dissolution of the partnership.

What If There is a Dispute Over Winding Up a Partnership?

Partnerships are much easier to dissolve than companies.

If there are no written terms that the partnership will continue when a partner leaves, then a partner can give written notice or simply resign.

Winding up involves collecting all the assets of the partnership, paying off debts then distributing what is left between the partners.

However, disputes can arise when it comes to winding up. Partners may not agree on various matters concerning the dissolution and winding up.

There can be disagreements over what assets should be repaid into the partnership; whether a property belongs to the partnership; or if one of the partners is blocking the winding up process.

When Should You Involve a Solicitor?

Disputes can escalate, and this can have a big impact on a business, and on the individuals concerned.

Even with a partnership agreement in place, there may be issues that are difficult to resolve.

And if a partnership has run its natural course and it is time to dissolve it, having expert legal advice and guidance can ensure this runs as smoothly as possible.

When they escalate, partnership disputes can become personal, which raises the stakes emotionally and may lead to rising financial costs.

Involving a solicitor with expertise in commercial litigation and dispute resolution can help contain the damage, ultimately reduce costs, and reach a satisfactory conclusion for everyone involved.

Sometimes, it is important in disputes to have someone act swiftly and decisively on your behalf, whether this is to dissolve a partnership or claim damages.

What matters is that you understand your options, and that sound, practical advice guides your decisions.

For more information about commercial litigation and dispute resolution, please call 0808 088 6004, or fill in our online contact form, and we will be in touch as soon as possible.