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Partnership Disputes and Partnership Dissolution

Friday, 5 April 2013

A partnership may exist where two or more people carry on a business with a view to making profit, whether or not there is an actual partnership agreement in place. It is usual for an explicit partnership agreement to be entered into which covers the consequences of a partnership dispute and the mechanics of dissolution but, failing this, the Partnership Act 1890 provides the details.

Partnership Disputes

Almost inevitably, where a dispute exists between partners, the business will suffer so it is important to bring the dispute to an end as quickly and amicably as possible. The partnership agreement may provide that if a dispute arises, mediation and negotiation must be taken as a first step.

Even where this is not the case, it may be advisable to follow these same first steps as a way of preserving relationships between the partners and avoiding dissolution. However, where dissolution is unavoidable, there are several ways in which a partnership can be brought to an end.

Dissolution of a Partnership at Will

If a partnership at will exists it can be terminated by any partner giving notice to the other(s). This notice may have immediate effect and need not state any reasons for dissolution. It will only need to be in writing if the partnership was created by deed. However, circumstances where a partnership at will exists will be relatively rare.

Dissolution of a Partnership by the Court

Partners can also turn to the courts to dissolve a partnership. The court has the power to order dissolution on several grounds, including that it would be just and equitable to do so. The other grounds cover circumstances where a partner should leave, for example as a result of his conduct, but is reluctant to do so and cannot be expelled because the partnership agreement did not provide for this. However, cases where court intervention is necessary are rare as partnerships can usually be dissolved by express or implied agreement.

Dissolution of a Partnership by Agreement

If a partner plans to go to court to achieve dissolution it will normally be better for the partners to recognise that the partnership has broken down irrevocably and reach an agreement to dissolve it. As well as being more cost efficient, this may preserve the business as a whole as it is likely to be more flexible than a court imposed solution.

What Does Dissolution Mean

Dissolution means that the contractual relationship joining all the current partners comes to an end. When dissolution occurs by consent, the issues will be largely practical such as whether the business can be sold as a going concern. Inevitably, where dissolution occurs as a result of a dispute the issues will be more complex.

In any case, dissolution is a complex area of law and it is advisable to seek legal advice to ensure that the partnership affairs can be tied up as efficiently as possible. For more information please contact James Crichton via e-mail or by telephone on 0207 611 4848.