Business partnerships – what are the legal risks?
We have advised many partnerships at all stages of their existence ranging from inception to dissolution and there are key points to consider when embarking on such a venture.
In a partnership each party will typically commit money, time, IP and sometimes physical equipment to the business and will want to ensure that their legal interests are protected. With any partnership set up outside of a limited company or LLP structure, the partners also risk personal liability for debts and other legal risks.
Protect your interests, plan for the future and factor in future differences or a fall out
Unfortunately, there is no sure-fire way to prevent a dispute from arising in the business world, even between business partners who once shared a common goal and, in many cases, were friends or family. Therefore, it is important that all parties do everything possible to protect their interests and also identify mechanisms to resolve in a quick and cost efficient way any disputes that may arise.
A key way to minimise risks and establish the partnership on a sound legal basis is to have a clear, well thought out partnership agreement in place. We have drafted and advised on a large number of partnership agreements so have the skill and experience you need. Our experience means we focus on the most important issues saving you money and time.
Please do get in contact with our partnership lawyers.
Partnership Agreement Solicitors
Before you even start, each partner should review what they are contributing to the partnership and also what they want to get out of the partnership. Key issues usually include :
- Who will do what and how much each will invest financially
- Control on a day to day basis and restricting the opportunity for 1 partner to act unilaterally such as sign cheques, draw money, commit to contracts, borrow money or employ staff.
- Agreement on drawings and liabilities.
- Cross indemnities – creditors can generally choose to pursue owners individually and not equally if there is a business partnership outside of a limited liability company or LLP. If that happens and only 1 partners gets pursued he/she/they will need the opportunity ot recover the appropriate share paid from other partners not pursued or who pay less to creditors.
- Events which would lead to termination of the partnership such as bankruptcy, fraud, criminal conviction or ill health or death.
- Whether the partners are entitled to pursues other business interests and what might amount to a conflict of interest.
- Whether the partners want to restrict the ability for other partners to join or the criteria if it is envisaged others might join – this is particularly relevant with professional partnerships such as lawyers, accountants, architects, dentists or GP Partnerships.
- Dispute resolution mechanism – relevant for many situations including deadlock between partners, procedure for valuation or sale of assets and potentially dissolving the partnership in the event of a major dispute. Essential to minimise the risk of very expensive litigation.
Limited liability partnership – a good idea?
When preparing to set up your partnership you will want to ensure that you minimise your personal liability in relation to the business. There are two types of partnership – a standard partnership and a limited liability partnership (LLP). In a standard partnership, each partner is jointly and severally liable for the debts and liabilities of the partnership whereas in an LLP each partner is not responsible for the liabilities of another partner.
An LLP offers partners a similar level of security as shareholders of a limited company.
As with a limited company there are some different tax considerations when comparing a unincorporated partnership with an LLP and some other differences.
We generally recommend to clients that they very careful consider the pros and coins of trading as an unincorporated business partnership due to the risks. We would be happy to discuss with you so please do get in contact.
In business things change and relationships change. A highly charged dispute between business partners which goes all the way to a trial generally represents the worst outcome for everybody. In some cases strong legal action is required if a partner is behaving in a highly damaging way such as stealing from the business, our lawyers can act rapidly and strongly to protect clients.
However, if there is a strategic disagreement as to the future or 1 partner has lost interest in the business as examples it is far better to look for a negotiated outcome. This can often be best achieved through 3rd parties and can be a useful and proportionate use of lawyers.
If you need legal advice on a partnership dispute, please do get in contact.
Business Partnership Solicitors
Whilst there is a great deal to consider when setting up a partnership our highly experienced and commercially astute Corporate Commercial team can assist with the appropriate structure and in ensuring that the rights and obligations of the partners are properly reflected in partnership agreement.
In the unfortunate event that a dispute arises between partners, our experienced Dispute Resolution team is able to advise accordingly and to handle the dispute on your behalf.
By taking the best advice at the right time we can help you achieve your goals.