End of a partnership

[butterfm]

Hi,

I'd appreciate any advice with regards to ending a business partnership and the legal entitlement with regards to assets, business profit etc.

The business is a couple of years old and started with both partners working equal hours and putting the same initial investment into the business. After a relatively short amount of time the other partner started doing less hours and eventually got pregnant and took maternity leave. The other partner has worked more hours in and out of work for a long time and has run the business solely while the other partner was on maternity leave.

There has now been an opportunity to move the business to a larger premises which will mean a lot more work and time and also some more investment to get the premises ready to move into.

One partner has decided they don't have the time to commit to moving the business and is happy to fold the partnership and spend more time with her family and new child however we want to know the best and fairest way to end the partnership.

Would it be reasonable to share half the money that is in the bank with the other partner and also give them back their initial investement to cover half the assets in the business ?

My wife (who is one partner) is moving to new premises and will likely open the business as a limited company and under a different name however all staff and likely all customers will move with my wife. The existing business will cease to exist.

We want to be fair with the other partner however we are worried she may come with unreasonable demands. Where do we stand legally. If she makes unreasonable demands can my wife end the partnership and ask for half the money in the bank and assets and leave the business with the partner ?

The business has no debts but sadly no partnership agreement either.

Thanks,

 

[ilclifford72]

Is there a partnership agreement? If not there is specific legislation (Partnership Act) that will apply, though one of the legal experts would have to confirm that.

 

[butterfm]

Hi,

No there is no partnership agreement.

Thanks

 

[internetspaceships]

To be honest with no partnership agreement there's very little concrete advice anyone can give you but to mediate it between yourselves. Good luck, I don't envy you.

I did find your post confusing though regarding the partners. Do you have an accountant and hadn't he or she recommended a Partnership Agreement?

 

[jules12345]

Well ask her what she is happy with - get it in writing and there you go.

Before the PA applies if there is no partnership agreement you have to prove there is/was a partnership. This ia a legal process that will look into a number of things to determine whether indeed there was a partnership in place.

It doesn't really matter in regards to ending the partnership as long as each party/partner is happy. However you still remain liable if indeed there is a partnership even after the partnership has ended and that is in regards to any client that your partnership entered into an arrangement with. So you all remain liable (obviously if there indeed a partnership).

In setting up a LTD company the out going partner who wont have a part to play in that will still be liable for negligence or foul play and to any client that joined for your services as a partnership she will probably want to protect herself in some way by indemnity etc etc.

So if you were to deal with old customers they are all going to need new contracts with the Ltd company, and that will mean liability is totally with the ltd company.

Why not get rid of her and keep the partnership going with the two of you...?



Regards
Jules

 

[butterfm]

Jules,

Thanks for the info it's very helpful. We are hoping to meet with her when she returns from holiday and sort out he details. Hopefully things will be amicable.

I think in her head she is reluctant to give this up because she knows going forward it will be sucessful however in reality she can not give the time or effort to the business now, nevermind the effort that will be required to move and expand. She went into the busines with he best intentions but has neve contributed a reasonable amount of time or effort to the partneship and therore t's not fair that she should benefit as it grows going forward if she can't contribute fully.

My concen is that she will try and factor in the future potential that she is missing out on and demand something unreasonable to leave. If she does this and we are unwilling to agree to her terms then where do we stand ?
Could my wife effectively just give up her part in the partnership and request 50% of the assets etc ? The other partner can not run the business without my wife so it would fold anyway if this happens.

Going forward the idea is that we either form a new Ltd company or I go into parrtneshp with my wife and continue the business as is. I have a full time job so my wife would run it day to day but I already have a lot of involvement in the business with no financial reward so it make sence for me to become an official partner.

My only concern with keeping the exitence of the current business is that she will try and come back at some later date with a claim on the business as it bcome more successful. What is required to enure that this can not happen if she accepts the terms ? Is it as simple as putting sething in writing and getting her to sign it (i.e. would this legally binding ??) or should it be done by solicitor ?

My concerns may be unfounded and it may all get agreed without any issues but i'm just trying to get a feel for our options should there be disagreement. I don't want it to drag out because we need to get moving to the new premises relatively quickly.

 

[ilclifford72]

To be honest with no partnership agreement there's very little concrete advice anyone can give you but to mediate it between yourselves.

Legal advice is always good in this situation but there fact no specific partnership agreement is in place is not necessarily a problem, providing a partnership can be proved to exist.

I am somewhat surprised that no partnership agreement is in place though, since the lack of one under the Partnership Act 1890 means partners have unlimited liability and that is never a good thing (any good accountant will have highlighted this). However the Partnership Act contains specific processes around dissolving a partnership.

http://www.hmrc.gov.uk/manuals/bimmanual/bim72505.htm

Contains some very useful information.

 

[jules12345]

option 1 - Dissolve the partnership and open a new one or a ltd company.

option 2 - try to get to her leave pay her off and shes gone (get it in writing through a sol). She will want liability indemnity for any new clients etc. The point being that you have built up a rep with the partnership as it is. She is only entitled to her share of the profits and perhaps start up money up until the moment she leaves.

Better to get a sol to get the leaving terms drawn up etc and if you are a wife and husband partnership then you dont really need an agreement - wife and husband partnerships IMHO are always the best unless you begin to hate each other.

She cant have a value on the future of the partnership - if she does make claim just dissolve it.

Under s26 and s32 C of the PA 1890 one or more partners may give notice to dissolve the partnership at any time. Takes effect from the date in the notice or if no notice from when all partners RECEIVE notice (send recorded). These sections can be overriden if in an agreement.

That is the law on dissolution ^^^. Also read s.37 s.38 s.39 and s.44. There is also some practice in regards to informing your clients of the partnership - s.38 gives continued authority for partners to bind the firm after dissoltion for the purposes of winding up. s.37 stops liability from any new debts incurred AFTEr dissolution usually entails a public notice in the law gazette which stops any further liability say if the upaset partner tries to bind you all by incurring further debts in the name of the partnership.

Im trying to find the law in regards to contacting clients but its late so maybe someone else can elucidate the correct procedure.

Regards
Jules

 

[francisfleming]

This is a some agreements document while joining together and start the business called as partnership agreement.


Partnership Agreement

• The name of the partnership and the names of each of the partners.
• A general description of the type of business that will be conducted.
• The powers and duties of the partners, including any limitations or restrictions.
• The financial contributions each partner will make.
• How profits and losses are to be divided.
• How partners can leave the business and how new partners can be added.
• What steps must be taken to dissolve the partnership.