Advice needed! Options for ending a partnership

[Drt129]

Hi all

My first post here and really appreciate any help or advice on this one:

I am a partner of a small live entertainment business (providing live music for events) which has I have been running as a 3 way partnership for approximately 6 years

Due to Covid and moving on to new ventures, my two partners are looking to leave the business (at separate dates). I personally would like to continue business as we have work still incoming and comittments / contracts for services yet to be rendered up to 2023

We did not write our own partnership agreement and therefore only have the 1890 Partnership Act as reference for what we can and cannot do going forward.

I understand that with any partners leaving, the partnership must be closed and that a new partnership or myself as a sole trader must be formed so I can continue business.

Our main assets include, website/domain, live music equipement, lighting and backing track audio files (the "show" that we sell), all promotional material (video/photos/audio) etc

I would like some advice on what we are able to do in terms of closing the partnership if and how I can personally take on the commitments and risk going forward.

With the 1890 Partnership in mind:

- Do we just take a 3 way split of current profit?
- Do I have to buyout my partners? How is this calculated?
- How do I port over the current comittments / contracts that we have deposits for?
- We have assets/equipment purchased by business - how is this split?
- How do we calculate market value of any assets required to continue business?
- What other assets could be valued? We do not have a trademarked or protected name / logo etc
- Are leaving partners entitled to any future profit?
- Can leaving partners request a fee prospectively for brand / reputation or historic work in forming the business? How is this valued?

Any help or advice would be greatly appreciated at this confusing time!

Thanks

Dylan

 

[brucegreig]

The short answer to nearly all your questions is, I think, "by negotiation".

The three of you can just agree amongst yourselves. It sounds like it would be reasonable to distribute current profits equally, dissolve the partnership, and you pay the other two some amount to keep the assets / brand / customer base / deposits / etc. The amount you pay is entirely down to negotiation.

If you don't agree, then eventually one partner might sue for their share of the partnership assets and a court would dissolve the partnership and an accountant would value the assets and the court would agree who gets what. But that would be expensive (tens of thousands probably).

But that's the backdrop to the negotiation - lots of money gets eaten up in legal and accounting fees if you can't agree.

Future profits: again down to negotiation. You could agree that rather than paying £x now for the assets, you agree to pay y% of the next few years' profits instead. But the default position should be that once the partnership is dissolved by agreement, the old partners don't have any claim on your profits you make as a sole trader in future.

Customer contracts might be a problem. If they have a clause saying that they can be re-assigned, then you could assign them from the soon-to-be-dissolved partnership to you. But probably they don't say that. You could wing it - if you trade under the same brand, customer probably won't be very bothered that the service is now provided by Dylan not by the partnership. Or write to each customer and tell them you are assigning the contract from partnership to Dylan.

You'll probably want at least some accounting advice to make sure you don't create a tax issue from transferring assets from partnership to you. And you might want legal advice on the customer contract issue, and the departing partners will want to be sure you are taking on all the business liabilities, etc.

Rocket Lawyer has a good template here. You could take a look through it, that should tell you whether you are comfortable winging it, or it might flag up things you realise you need a lawyer to advise on: https://www.rocketlawyer.com/gb/en/documents/dissolution-of-partnership-deed

 

[Drt129]

Hi @brucegreig

Many thanks for taking the time to reply to my post and really appreciate the detail of your advice

Our current situation is working out what, if any, are the guidelines to our negotiations.

Without a partnership agreement detailing a division of entitlement, how best should we calculate the value of the business? Is there an appropriate formula etc

Physical assets I understand that we can work out based on a market value but how might or are we even able to value things like the website, brand, customer base / contacts, company name / logo (which are not protected/trademarked) etc

My partners are deciding to leave on their own accord with changes in career etc and am put in a position of becoming redundant as from their perspective the business should come to an end if they leave.

I would like to carry on (whether that is under our current name or new one) as we still have work coming in and contracts to fufill but need confidence in my negotiation as to what I can/ they can demand as fair entitlement to securely part with my colleagues and port over as much of the business to me.

Any direction for who else I may need to speak to for accounting or legal advice would be greatly helped and of course, by opening this conversation here I am trying to find out about what we can and can't do without resorting to legal intervention.

 

[The Byre]

Bruce has nailed it. I can only add to what he has written to say that the key to a successful negotiation is preparation. Followed by more preparation!

And not just for your position, but for THEIR positions in their chosen new careers. Know everything and be prepared for any and every position they may take - and be prepared to give ground and know which bits of ground you will be able to give.