Partnership Disputes Explained

When a partnership agreement is signed and executed, partnership disputes can often arise for various reasons. What is typically required is a negotiated discussion to determine the future of the partnership, however, these negotiations can often become acrimonious, typically when legal and personal matters are involved. 

It is vital that an expertly drafted partnership agreement with a dispute resolution clause is included, this will provide clarity on the necessary steps that should be taken to ensure that all other means of resolving the dispute outside of the court have been exhausted. If no written agreement has been drawn up, the Partnership will be governed by the Partnership Act 1890. 

It is advisable to first check whether the partnership agreement includes a clause to consider the companies procedure for dispute resolution. Alternative Dispute Resolution is normally encouraged due to its ability to provide quick adjudication and confidentiality when compared to traditional litigation. It offers a variety of cost-effective methods referred to as Arbitration, Mediation, or an Early Neutral Evaluation.

Mediation

Mediation involves a trained mediator who aims to help both parties reach a mutually agreed settlement. The mediator will assist in discussing the current issues, negotiating and if the mediation is successful, the agreement will become legally binding. 

This process allows both parties the ability to express their concerns and even the chance to restore communication. It should be noted that the aim is only to encourage the parties to come to an agreement, however, there is no legal obligation to accept the outcome.

Arbitration

Arbitration can be an efficacious way to resolve a partnership dispute by a qualified mediator, a hearing will be held to obtain a legally binding judgement by a third party and is fairly similar to the process of litigation. It is considered a faster, less expensive alternative and is good for commercial disputes given its confidentiality and narrow opportunity to challenge the award, providing a more finite decision.

Early Neutral Evaluation

A more pragmatic approach may be to pursue an Early Neutral Evaluation where an impartial evaluator will consider the case and determine both the strengths and weaknesses. 

Like other forms of ADR, Early Neutral Evaluation is both cost effective and quicker than traditional litigation. The evaluator ensures that parties are equipped with a practical view of where they stand and is a good starting point to consider how best to settle the disagreement.

Buyout of Partnership

Partnership agreements may contain provisions that allow for a buyout, this enables one partner to obtain the shares of the exiting party and is considered a convenient means to resolve a dispute with minimal impact on the company. Specified terms and conditions of the buyout should be incorporated within the partnership agreement and should be consulted both before any further action is taken to consider the legal standpoint and avoid jeopardising their position.

If you have any queries about this article or wish to discuss this issue further then please contact our litigation team on 01733 346 333 or submit on online enquiry using the form below.