Partnership troubles

[joeuk78]

I am in a partnership with someone with no written contract. The business has been having problems and needs to be downsized, which can be done fairly easily.

My partner has grown tired of this situation and wants out. At present we each owe around £6K to the partnership. We were going to anull the partnership and I would absorb his 6K debt as a kind of purchase price for his half. He has a personal loan of £5K which is being repaid by the partnership and he is now saying he wants the business to continue paying that also, in effect getting £11K for his half, alternatively he is threating that the partnership will have to be dissolved which will mean bankruptcy for both partners. Is this correct? It sounds like blackmail to me.

[barry.hynd]

Hi Joe,

I think the main fact is that there is no written contract so I dont see how in effect you could legally be a partnership. Maybe someone will correct me here. I'd let him away with the 6k if youre confident of turning things around but the £5k is his debt so I wouldnt be keen to take this on.

[Alpha]

Joe

This is not really something that people can give advice on with what you have written.

The only sensible advice is to see your accountant or a solicitor who will then need the full details of the situation and may be able to offer a compromise agreement.

examples

I'm not sure how the circumstances have arisen whereby you both owe the partnership £6k.

There must (presumably) be assets in the business that have value which, in the absence of any agreement to the contray, you own 50% each of so to continue the business (and I presume you need the assets to continue) you would have to offer to buy your partners share of the assets.

if there are debts in the partnership again they would need to be shared, and therefore offset against the market value of the assets.

It may be that you cannot reach agreement and have to dissolve the partnership but that should not mean bankruptcy for both partners (unless the partnership owes so much that the two of you could not personally pay it off!)


The moral of this though is ALWAYS have a written partnership agreement

In the absence of one you are both joint and severely liable for the debts of the partnership.......If one partner cannot pay then the other will be liable.

[joeuk78]

So in essence, if there is no agreement the assets/liabilities are essentially owned/owed by both parties.

So if one does a runner of wont pay, the other is liable. What I mean is that it isn't 50:50 unless both of the partners agree.

So, regarding the personal loan, this could be considered a buying of the other partners half of the assets?

[Alpha]

Possibly

It depends on valuations etc and at the end of the day what you agree to.

I would still make sure that any agreement that you make is done through a solicitor.

[bwglaw]

Joe

In the absence of a Partnership Agreement the Partnership Act 1890 comes into effect. This means all partners are jointly and severely liable for all assets and liabilities. If one partner runs off, in effect, the partnership can become dissolved and it would be for you to take control as a sole-trader.

You can take out a personal loan to buy out another partner. I would seek advice from an accountant/solicitor before doing so. You do need to have what is agreed, in writing so that the other partner cannot make a claim at a later date.

Lets say that your partnership owes £10,000. In the absence of a Partnership Agreement this will be split between all partners equally. In your case, two partners. If you wish to buy out the other partner you have to buy out his share of assets and liabilities.

Lets say you have £3,000 worth of assets. This is split between both partners, at £1500 each. This can be deducted from the other partner's share of liabilities bringing the value of the partnership to £3500. This could be a way you can make an offer to the other partner to buy him out.

Do not be too ready to take on all liabilities because what you offer will mean the other partner can effectively walk away from and leave you with the mess.


So in essence, if there is no agreement the assets/liabilities are essentially owned/owed by both parties.

So if one does a runner of wont pay, the other is liable. What I mean is that it isn't 50:50 unless both of the partners agree.

So, regarding the personal loan, this could be considered a buying of the other partners half of the assets?