Advice needed! Partnership dissolution

[Drt129]

Hi all again.

My second post here and unfortunately my situation is growing more complex:

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

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

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.

We run a basic cash flow business, with some assets, mainly the purchase and storage of equipment to perform live music; website and social media profiles but are not registered with companies house, have no protection/copyright/trademark for our name, logo, promotional media - photos / video / or audio (we perform covers of artists using purchased backing tracks)

This partnership was formed by each completing SA401 (Registering a partner for Self Assessment and Class 2 NICs) to complete and return Partnership Tax Return (SA800)

In an update to one of my previous posts, my two partners calculated a business evaluation based on multiplying our profit for the last 3 years by 6 and 8 and taking the average as the value of a buyout. I wasn't comfortable with the valuation and it's viability, nor sure it was entirely appropriate for our situation as this wasn't carried out independently and chose not to buy them out.

Therefore we agreed to stop trading by the end of 2021, completing all contracts booked til the end of the year and cancelling/refunding all contracts booked beyond 2021 and have agreed to just split the final profit by 3.

We have agreed a date for dissolution of 1st February 2022 so that we have time in January to complete our final tax return, wind up the distribution ofprofit and assets, notifying customers etc

I understand that without an agreement and in accordance with clause 32 of the 1890 partnership act that the partnship can be dissolved by "any partner giving notice to the other or others of his intention to dissolve the partnership" for which one of my partners has written a Notice of Dissolution to all partners.

I understand that as part of our final tax return and on dissolution we need to notify HMRC that we are not trading any more.

However I have two serious issues with our outgoing negotiation:

1. Further to the notice of dissolution to the partners and HMRC, my two partners have without my collaboration, written and are trying and enforce the signing of a Dissolution Agreement detailing the dissolution, liquidation and construction provisions but detailing in clauses they added, that in the termination of business, I cannot forthwith use any of our promotional material, name, logo, associated social media accounts or contact any of our client base going forward

This seems over restrictive and retrospectively trying to apply legally binding rules to a partnership where we did not write or sign any legally bindng agreement in forming the business or how it will be run or dissolved. I have not signed the document.

- Other than notifying HMRC, do we as partners, legally require to writing and sign a Dissolution Agreement?
- can my partners write or enforce such restrictive clauses on unprotected content?
- I am very concerned that they will conditionally restrict access to my share of profits because one of the outgoing partners is the bank account holder and I personally do not have access

2. As a sole trader, I separately run an acoustic duo performing for events which shares a similar name to the above business, namely "Band name" + "Duo" which has shares no content, equipment or affiliation with the other business only other than sharing the name with the suffix "duo"

My partners have now made a claim that this is a breach of their intellectual property and as a consquence with relation to the closing our partnership, have locked me out of all our email and social media accounts restricting my access to our files and limiting my responsibilities in winding up the business.

- Do they have a claim to the name (which is not protected or trademarked)
- Can they legally restrict access? How can I regain access and control of our associated accounts?

I am stunned to say the least and unsure how to proceed confidently to carry out the closing of this business appropriately. It seems that even though my partners have chosen to leave on their own accord they are making it very difficult for me to carry on working, continuing the work I was part of or otherwise.

As always, any help or advice would be greatly appreciated at this stressful time

Thanks

Dylan

 

[Scalloway]

My word of advice would be get a solicitor. You will get pointers here from other posters but at the end of the day you need to sit down with somebody who knows the correct questions to ask and will go into far more detail than you will wish to share online.

 

[japancool]

I'm a little confused as to why they would want to restrict you if they have no intention of continuing with the business.

 

[eteb3]

I agree with Scalloway: this is a notoriously complicated area, even before things got disputed.

My own 'pointers', since I like to read up on it all: I recommend Morse, "Partnership Law".

one of my partners has written a Notice of Dissolution to all partners.

What was the date of dissolution stated? If none, the partnership stands dissolved as soon as notice is received (s. 32). (But since you all agreed to close out the existing contracts, that implies the partnership is not actually dissolved?)

It's a disputed point, but the general view is that dissolution ends the partnership contract between you, but doesn't (immediately) end your fiduciary duties: you still owe each other a duty of utmost good faith through the winding-up, and possibly after.

do we as partners, legally require to writing and sign a Dissolution Agreement?

No: the *notice* of dissolution can be oral and the partnership will still be dissolved. A Dissolution *Agreement* (not Notice) serves to vary the default dissolution provisions of the Act & the general law. You need a solicitor well versed in partnership law.

we did not write or sign any legally bindng agreement in forming the business or how it will be run or dissolved.

Then the Partnership Act applies, as you've said. Also the general law.

Do they have a claim to the name (which is not protected or trademarked)

Yes, you all jointly own the goodwill in the name the partnership used. Whether you all jointly own the goodwill in the similar-but-not-identical name "XYZ Duo" is another question; it will all turn on your particular facts. Since a partner may not make a private profit from their membership of the partnership without the other partners' permission, they may have a strong case. But if they knew you've been doing that work under that name and acquiesced in it, you may have a strong case.

I understand the partnership must be closed and that a new partnership or myself as a sole trader or limited company must be formed so I can continue business.

What usually happens is a 'constructive dissolution': the business continues, a new partnership forms automatically among the remaining partners, but the accounts are taken at the moment of dissolution. When the other two (other one?) walked away, they *may*, legally, have left the business for you (you two?) to continue. If they then got legal advice that they had just done just that, and didn't like the idea, they *may* have decided to backpedal and the Dissolution Agreement *may* be in order to undo the advantageous position they've put you in.

So having said all that, it really is as Scalloway says:

You will get pointers here from other posters but at the end of the day you need to sit down with somebody who knows the correct questions