A partnership is defined in the Partnership Act 1892 (NSW) as the relationship which exists between persons carrying on a business in common with a view to profit. It involves two or more people entering into a contractual agreement amongst themselves.
Partnership disputes may arise where there is a breakdown in the relationship between partners, a mutual decision to part ways, or perhaps even a dispute as to the conduct of the business or the direction it is heading.
Similar to shareholders disputes or directors disputes, they often arise between partners who do not have proper agreements, such as a Partnership Agreement, which should consist of dispute resolution clauses and determines what should happen in certain circumstances, such as when a partner wants to retire.
Partnerships are often made between friends or family members, who rely on their friendship, relationship and trust with the other partner as justification for not having or requiring a Partnership Agreement. When the relationship breaks down or their circumstances change, that’s when they wish they had seen a lawyer BEFORE entering into a partnership, which could have avoided or minimised the dispute.
Our specialised team of Sydney business lawyers at Rockliffs can assist you in resolving your partnership dispute.
What kind of partnership disputes are there?
In a partnership, disputes often arise due to the following reasons:
- A partner wants to retire, and there is no defined mechanism for them to get out of the business and receive payment for their equity in the business;
- A partner has been underperforming;
- A breakdown in the relationship between partners, due to management or personality conflicts;
- Conflicts of interests between partners, where their interests are no longer aligned.
How do I resolve a partnership dispute?
As a partnership dispute is likely to adversely affect your income earning capacity and disrupt your business, it is important to seek legal advice. The dispute may also give rise to issues such as restraints of trade and non-competition, which need to be considered and discussed with your lawyer.
Normally, in determining a partnership dispute, the first step would be to look at the Partnership Agreement for a dispute resolution clause. If there is no Partnership Agreement or it does not have an adequate dispute resolution procedures relevant to your dispute, the Partnership Act may fill that void. In other situations, the partners may challenge the Partnership Agreement or simply refuse to follow the agreement or the Partnership Act.
The most frequent remedy when you are unable to agree is for the parties to be involved in alternative dispute resolution procedures. There are many benefits with ADR, instead of approaching the Court’s for their intervention. They are generally quicker and cheaper and the parties are able to control the outcome.
For more information on alternative dispute resolution, click here.
Duties of Partners
In Australia, business partners, whether their relationship is governed by a Partnership Agreement or not, owe a mutual fiduciary duty to each other. The fiduciary duties imposed are duties of loyalty, which means a partner would be able to:
It is important to know these duties and the legal obligations that arise from fiduciary relationships.
How can we help?
If you are having a partnership dispute and would like to have a discussion with one of our experienced business and commercial lawyers, get in touch with Rockliffs today.