Partner has resigned with no notice - still on going works

[A mills]

I have been in partnership in a company for the past 3 years and over the past 2 years it has been a financial struggle with unpaid invoices and disputes very disruptive for cash flow.
We have been resilient in pushing forward as much as possible but our commercial side of the business has now no further projects in the diary meaning less forecasted income to help the business.
I have been pushing the domestic side of the business as this still has a steady flow of work coming in but both areas need to be producing income or the overall business will suffer and ultimately be running at a loss
I have actively been looking for a second job to bring in some income but had no intention on giving up on the business but I have now received a email of resignation from my partner stating that he has stepped away as a partner
Unfortunately the position of the company was looking at coming to a end and I had asked to get together with my partner to discuss future decisions
There are still projects that have been agreed to be completed and the process of sorting things related to the general running of the business at the moment

I now feel like they have just tried to wash there hands with it?

Any advice would be great

 

[Ozzy]

It sounds like it was a wise decision for them to resign on the face of it. Do you need them to keep going, or can you get on and try and turn the business round yourself?

That is the practical side, legally if it is a formal Partnership you will need to dissolve the partnership and consider continuing as a sole trader.
Alternatively maybe it is worth you also considering calling it a day too?

 

[A mills]

Unfortunately due to what’s involved with current projects/contracts it’s not viable to continue by myself as I can’t cover all the roles involved
Certainly this would mean that the company would end but a decision to do this as a partnership is what I would expect and not a sudden email with no notice
So if we are 50/50 partners and he has resigned we would legally need to dissolve the business

 

[Ozzy]

So if we are 50/50 partners and he has resigned we would legally need to dissolve the business

If it is a legal partnership and if there is no Partnership Agreement in place saying otherwise, then yes.

 

[A mills]

It is or was a legal partnership but I’ve not been part of a partnership agreement during this period of business - I’m currently looking into this but can imagine from what your saying the company will have to dissolve regardless of the other partners intention to pass over all dealings to myself

 

[A mills]

There is no partnership agreement in place
I have been told that there was no legal partnership? And that the partner has passed over his 50% shares to me and has stepped away, is this possible or is there more involved

 

[Ozzy]

If the business is a “partnership” then there are no shares to transfer, but if it is Limited Company then there is and also you don’t need to shut it down.

As you are not sure then the advice will be very different depending on which structure the business is. You may need to take any paperwork you have to your accountant and/or solicitor for some advice. One means you must close and transfer of assets works one way (and there are no shares) and the other means you don’t need to dissolve the business and the assets belong to the business so no transfer of assets should be needed and there are shares to transfer.

 

[Newchodge]

You are using words that have specific legal meanings, which may confuse things.

Prior to the split were you working in a ltd company, registered at Companies House and with shares and Directors?

 

[eteb3]

as soon as you’re in partnership with someone for business purposes, the Partnership Act 1890 imposes the terms of your agreement, insofar as you don’t agree to something different.

Any agreement that varies the statutory contract needn’t be written, though obviously much easier to prove it if it is - but oral agreements and usual practice also qualify, in case that’s helpful.

Under the Act (which you can find online very easily), any partner can end the partnership at any time.

EDIT Crossed with newchodge: indeed, if this is legally a registered company, not what is legally a partnership, none of this post applies

 

[A mills]

You are using words that have specific legal meanings, which may confuse things.

Prior to the split were you working in a ltd company, registered at Companies House and with shares and Directors?

Yes we were - does this help

 

[A mills]

This is the reply I was given regarding the thought on being partners -

There was no legal partnership you were co directors both having 50% off the company, they are two different things. .***** stepping down and giving you Their shares just means it's yours now, weather you decide to continue trading or dissolve the company is now your decision

 

[eteb3]

Is there a shareholders' agreement, besides the company's articles?
What did your co-director's letter say, exactly?
To whom was it addressed - to you or the company?

what we generally hear in these situations is someone resigns as a director but keeps their shares

 

[A mills]

Is there a shareholders' agreement, besides the company's articles?
What did your co-director's letter say, exactly?
To whom was it addressed - to you or the company?

what we generally hear in these situations is someone resigns as a director but keeps their shares

It was letter of resignation was addressed to me and there is no mention of shares within the letter
It only stated that passing complete ownership to me
And As of 29/02/2024, and in accordance with our Articles of Association I am no longer a Director
The email was received yesterday on the 01/03/24

 

[Newchodge]

Yes we were - does this help

You did not have a partner in the sense of a partnership and in relation to the partnership act.

Your co-direstor has resigned, they have given up their shares, the company is no longer anything to do with them.

Your move next.

 

[eteb3]

I agree it’s the OP’s move

they have given up their shares

But on this I’d suggest OP has no more than an estoppel in their favour atm. Should ask resigning person to complete a share transfer form.

If OP wants that

To apply leverage and make resigning party stay to clear up the mess, could argue resigning party is in breach of duties to the company - especially if model arts, which make it difficult for a single director to validly act.

 

[Newchodge]

I agree it’s the OP’s move


But on this I’d suggest OP has no more than an estoppel in their favour atm. Should ask resigning person to complete a share transfer form.

If OP wants that

To apply leverage and make resigning party stay to clear up the mess, could argue resigning party is in breach of duties to the company - especially if model arts, which make it difficult for a single director to validly act.

I don't think that simply resigning as a Director, in the absence of any wrong-doing, can ever be a breach of duties to the company.

 

[eteb3]

The Resolver (passim) would disagree, if I’m recalling correctly, if the company suffers as a result.

Again I’m a bit hazy on the details without looking them up, but reasonably confident single-member companies with model arts have a disability due to ambiguous drafting which a judge in the last couple of years decided prevented a single director from acting - because s/he can’t reach quorum. So dumping the company into that situation is arguably a breach of duty

 

[WaveJumper]

Perhaps if trying to walk away from a lot debt, perhaps OP needs a conversation with @The Resolver

 

[A mills]

Perhaps if trying to walk away from a lot debt, perhaps OP needs a conversation with @The Resolver

Yes that will be the most obvious reason I can see
The company has lots of overheads and have been stung by large contractors over the past couple of years so have been trying to cover owed monies to suppliers etc whilst still trying to make enough money to cover everything else

It has just got to the point where the journey is due to end and I had had this conversation with my business partner and then I got the resignation email - this just made me feel like they were trying to get away quick and leave me to try and deal with the problem

 

[Newchodge]

Yes that will be the most obvious reason I can see
The company has lots of overheads and have been stung by large contractors over the past couple of years so have been trying to cover owed monies to suppliers etc whilst still trying to make enough money to cover everything else

It has just got to the point where the journey is due to end and I had had this conversation with my business partner and then I got the resignation email - this just made me feel like they were trying to get away quick and leave me to try and deal with the problem

I think your feeling was right. However, they have now done it and it is up to you to decide what, if anything, you now want to do with the company. Assume you are on your own and go from there.

 

[eteb3]

single-member companies with model arts

Oops I meant single-director companies

 

[IanSuth]

Check the status of any personal guarantees - if there are some remind the ex partner he can't walk away form those just by telling you he has given you his share

 

[Lisa Thomas]

Please clarify what type of entity this is.

Are you trading as:

1. an unregistered partnership
2. a limited company registered at companies house
3. a limited liability partnership registered at companies house

 

[WaveJumper]

Please clarify what type of entity this is.

Are you trading as:

1. an unregistered partnership
2. a limited company registered at companies house
3. a limited liability partnership registered at companies house

I thinks its a ltd company registered at CH

 

[Lisa Thomas]

Thanks WJ. OP keeps referring to a partnership and his partner which makes me wonder if it's an LLP.

Either way, the Directors/remaining director need/s to take insolvency advice.

It sounds as if the 'partner' has resigned as a director, leaving the other director to sort the company out.

That doesn't get them off the hook as regards any potential personal liabilities under a personal guarantee or from any misconduct, though!.

 

[VJR Business Support Ltd]

OP - There has been some great advice given and you are in a challenging situation.

My advice would be to gather all the financial information and then look at the impact of each possible outcome.

Whatever you decide to do there will be implications, which is why, whilst you've been given some good advice, it's worth speaking with an expert.

My question to you is, is the business viable? Debt aside is/ was it making a profit?
Could the debt be managed by a finance loan? These are all things to consider once you've had both legal and financial advice.

 

[The Resolver]

The Resolver (passim) would disagree, if I’m recalling correctly, if the company suffers as a result.

Yes indeed. If they both agreed to set up a company and share Board responsibility and provide skills then to withdraw without good reason MAY amount to a breach of contract. It depends on all the circumstances. Obviously time is relevant but not here where the resignation was around only 3 years since set up. There is not liability simply because of the resignation but it depends on the circumstances. The fact that the business if failing can be relevant especially if it can be shown that it is trading whilst insolvent and the remaning Director is not prepared to dissolve the company. Also Directors cannot be expected to remain indefinitely.

I would like to say more but we need clarity as to whether this IS a limited company or a Limited Liability Partnership (albeit unusual for a trading company) . PM me the name and I will look up the entry at Companies House