Partnerships and limited liability partnerships are common business structures, particularly for professional services firms, family businesses and small to medium sized enterprises. While many partnerships operate successfully for years, disputes can arise when expectations differ, relationships deteriorate or the business faces financial or strategic pressure.
When a partnership dispute emerges, it can threaten not only the business itself but also personal relationships, finances and reputations. Understanding the legal options available when business relationships break down is essential for protecting your position and achieving the best possible outcome.
Common causes of partnership disputes
Partnership disputes often arise from a combination of legal, financial and personal issues. Common triggers include disagreements over profit sharing, decision making authority or business direction. Disputes may also arise where one partner believes another has breached their duties, misused partnership assets or acted in competition with the business.
In many cases, problems stem from unclear or outdated partnership agreements. Where agreements fail to address key issues such as retirement, expulsion or dispute resolution, disagreements can escalate quickly. In the absence of a written agreement, partnerships are governed by the Partnership Act 1890, which may produce outcomes neither party expects or wants.
Early steps to take when a dispute arises
When tensions begin to surface, early legal advice can make a significant difference. Understanding your rights and obligations at an early stage allows you to assess risk, preserve evidence and avoid actions that could weaken your position.
It is also important to review the partnership or LLP agreement carefully. These documents often set out procedures for resolving disputes, decision making thresholds and exit mechanisms. Acting outside those provisions can expose partners to legal claims or financial loss.
Negotiation and informal resolution
Not every partnership dispute needs to result in court proceedings. In many cases, negotiation can lead to a practical solution that preserves value and avoids the cost and disruption of litigation. Informal discussions, often supported by legal advisers, can help clarify issues and identify areas of compromise.
Mediation is another commonly used option in partnership disputes. A neutral mediator can assist the parties in reaching a mutually acceptable resolution while maintaining confidentiality. Courts actively encourage mediation and may penalise parties who unreasonably refuse to engage in alternative dispute resolution.
Enforcing rights under the partnership agreement
Where negotiation fails, partners may need to enforce their rights under the partnership or LLP agreement. This may include seeking remedies for breach of contract, breaches of fiduciary duties or misuse of partnership assets.
In LLPs, disputes may also involve breaches of statutory duties owed by members or designated members. Claims can include financial compensation, injunctions or declarations clarifying the parties’ rights.
Expulsion and removal of partners
One of the most sensitive areas in partnership disputes is the removal or expulsion of a partner. The ability to expel a partner depends entirely on the terms of the partnership agreement. Without an express expulsion clause, removing a partner can be extremely difficult.
Attempting to force out a partner without proper authority can lead to significant legal consequences, including claims for wrongful exclusion or breach of duty. Careful legal analysis is essential before taking any steps to remove a partner.
Dissolution of the partnership
In some cases, the relationship between partners has broken down irretrievably and dissolution becomes the only realistic option. Dissolution may occur in accordance with the partnership agreement or under the Partnership Act 1890.
Dissolution involves winding up the partnership’s affairs, settling debts and distributing assets. Disputes often arise over valuations, liabilities and entitlement to goodwill. These issues can be complex and emotionally charged, particularly where partners have invested significant time and resources into the business.
Court proceedings and remedies
If a partnership dispute cannot be resolved through negotiation or mediation, court proceedings may be necessary. Claims may be brought in the county court or High Court depending on the value and complexity of the dispute.
The court has wide powers in partnership disputes. Remedies may include financial compensation, orders regulating the conduct of the business, injunctions preventing certain actions or orders for dissolution and accounting. In some cases, interim relief may be sought to protect the business while the dispute is ongoing.
Litigation can be costly and time consuming, so it is important to weigh the commercial objectives carefully and explore settlement opportunities throughout the process.
Protecting the business and your position
Partnership disputes are as much about strategy as they are about legal rights. Decisions should be guided by the impact on the business, client relationships and long term objectives. Clear communication, careful planning and experienced legal advice are key to achieving a favourable outcome.
How Penerley can help
Penerley advises partners and LLP members on all aspects of partnership disputes, from early stage advice and negotiation through to mediation and court proceedings. We understand the commercial and personal pressures involved and provide clear, pragmatic guidance tailored to each situation.
If you are experiencing difficulties within a partnership or want advice before matters escalate, contact Penerley today. Our experienced business law team is ready to help you protect your interests and find the right solution.
