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Take advice when ending a business partnership

An expert in commercial litigation has warned business leaders to seek professional advice when looking to end a partnership agreement – the basis of many companies.

Andrew Holden, of the Litigation team at regional law firm Napthens, reports that there are a number of pitfalls to be aware of.

Although many partnerships now choose to take advantage of limited liability through the incorporation of a limited liability partnership, there are many long established companies still operating under the old model of a business partnership which offers no such protection.

Partnership agreements are commonly used to govern this form of business relationship but in the absence of such agreement, the Partnership Act 1890 will set out the basis upon which such a relationship will be governed.

Andrew warns that if a partnership begins to experience difficulties such as disagreements between the partners or cash flow problems then conflicts can arise and partnerships ended with adverse financial consequences for the partners.

He explained that often agreements have tight rules over how they can be dissolved, partners removed or assets transferred and warned that partners should seek legal advice to ensure that nothing is overlooked.

Andrew said: “It is fairly common for business partners to have disagreements, and sometimes these can escalate to the point where they feel they can no longer work together.

“In many cases those involved assume they can simply bring their partnership to an end and with it avoid any personal liability, but this is often not the case.

“For instance, commercial leases may be in the names of individual partners and/or the rent guaranteed by individual partners. Therefore, even though the partnership may be brought to an end, the landlord will continue to collect the rent and have personal claims against the partners if it is not paid.

“Bringing a general partnership to an end therefore should be a managed process with the partners working together to minimise any personal liabilities they may owe to suppliers.

“The court will step in and assist with the winding up of a general partnership on petition from the partners but this may itself be costly.”

Litigation - solicitor - Andrew Holden