How Can I Resolve a Partnership Dispute? 

There is a wide range of business structures that affect how your business is run. For example, you may be a small business and operate as a sole trader. Alternatively, you may form a partnership with another party to help further grow your business. Within this partnership, experiencing a commercial dispute could harm the financial health of the business as well as its future development. This article will explain some key ways to resolve partnership disputes in the UK.

What is a Partnership Dispute?

Firstly, you may have a business partnership if you run a business with one or more people, using this joint venture to make a profit. Importantly, a partnership is a type of legal relationship. In the course of running the business, key disagreements may arise where: 

• changes occur over time, particularly if partners have not followed formalities;
• because partners have different ideas about the future direction of the business; or
• partners disagree on how to run the business.

These disputes can be difficult if your partnership is a general partnership or a limited liability partnership (LLP). This is because, in this case, you and the other partner(s) all have equal rights and duties. 

How Can I Resolve a Business Partnership Dispute? 

The first point of reference when a dispute arises is your written partnership agreement. 

This should detail the rights and obligations of you and the other partner(s), encouraging transparency between all parties involved. For example, the agreement may enforce negotiation or include a dispute resolution clause that outlines that you should try to resolve the conflict through alternative dispute resolution (ADR). Key ADR methods include:

• arbitration; or
• mediation.

You may also consider undertaking ADR voluntarily without it being in the partnership agreement, as it is more flexible and less costly than formal litigation. However, going to court is sometimes necessary if your dispute has failed to progress. Since it is a last resort, you should seek expert legal advice to help you understand your options. 

The Partnership Act 1890

Some business partnerships do not have a written partnership agreement. If this applies to your partnership, it means that the Partnership Act 1890 (the ‘Act’) automatically applies to your business, and you should refer to it when undergoing a dispute. As such, it is helpful to enlist the assistance of a dispute solicitor to interpret this law. 

Where a dispute arises, and the Act governs your partnership, you should take a default position to try to resolve it, although you can agree to vary these with your partner(s). These default positions include, for example:

• that you and your partners will share profits and losses equally;
• that any of you, as single or people or jointly, may be sued by another for debts the partnership has, as you are all jointly and severally liable for them;
• restrictive covenants to limit specific actions, such as one of you starting a business that competes with the partnership; and 
• that you and your partner(s) owe fiduciary duties to each other. 

Fiduciary duties are based on the need for utmost loyalty to involved parties. Examples include:

• prompting the success of the company;
• ensuring none of you compete with the partnership unless the others permit it;
• keeping accurate accounts; and 
• delivering up profits that have been received.

If a partner fails to uphold their fiduciary duties, another may be able to make a claim against them. 

Guide to Resolving UK Business Disputes

This guide outlines how to resolve commercial disputes.

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Key Takeaways

Partnership disputes occur, for example, because you disagree with a partner on how the business should run. If you are part of a partnership dispute, your agreement should detail how to approach it. Key dispute resolution methods include:

• negotiation; 
• alternative dispute resolution (ADR); and
• litigation.

Where a written partnership agreement does not exist, the Partnership Act 1890 governs how you deal with the business dispute. This contains default positions that may apply. 

If you need help understanding partnership disputes in the UK, LegalVision’s experienced disputes and litigation lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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