If you have entered into a business partnership, the best way to avoid a dispute arising is to ensure you have a comprehensive partnership agreement in place.
Partnership agreements are sometimes overlooked when a business is set up. Partners often believe they know how matters will be dealt with between them in the future and that they will be able to agree issues amicably as they arise. However, over time priorities can change and as a business grows, those involved may have different visions.
A well-drafted partnership agreement will put a framework in place that allows the enterprise to develop but ensures that everyone involved knows what they is expected of them. Being able to refer to a binding document often goes a long way to avoiding disagreements and misunderstandings.
What Happens If You Do Not Have A Partnership Agreement?
If you do not have a partnership agreement at all then the provisions of the Partnership Act 1890 will apply. The default conditions it contains can be problematic. For example, it provides that all partners can take management decisions and that they will all have an equal say in business decisions, any partner can end the partnership at any time, no partner can be required to leave the partnership and all partners will be jointly liable for the debts of the partnership and any wrongful acts of any partner.
What To Put Into Your Partnership Agreement
If you have a bespoke partnership agreement drawn up, you can choose different provisions to suit your circumstances. Matters that are commonly dealt with include the following:
- Who owns the partnership assets
- Who has authority for making the various decisions that need to be made
- Allocation of profits and losses;
- Who will be liable for losses and debts;
- How new partners can join the partnership;
- The process for partners who wish to leave;
- The process for removing partners;
- The process for resolving disputes.
How To Deal With Partnership Disagreements
If a dispute does arise between partners, it is important to try and resolve it quickly before it escalates and becomes damaging to the business and to relationships. Taking legal advice from an advocate with dispute resolution experience can be helpful. They will be able to suggest ways of approaching the disagreement that can avoid the situation deteriorating.
They will also be able to negotiate on your behalf and where necessary, support you through alternative dispute resolution, such as mediation. As well as being a faster way of resolving difficulties than a court hearing, mediation also has the benefit of preserving a relationship and allowing you to reach mutual agreement so that everyone involved can move past the dispute.
Reviewing Your Partnership Agreement
A partnership agreement can be put into place at any time, provided all partners are in agreement. If you do not have an agreement or if the one you do have is inadequate and is not robust enough to deal with your business needs, it is advisable to have a new one drawn up.
You should work with your partners to identify key issues and areas that could cause contention in the future. By talking things through calmly in advance then putting the agreed points into a written document you stand the best possible chance of avoiding a dispute further down the line.
An important part of the agreement is having a set process for resolving disputes, so that if one does arise you have a clear path for dealing with it.
At Quinn Legal our company and commercial team can advise you in respect of partnership matters, to include advising on what should be included in your partnership agreement, drawing up the agreement and resolving disputes.