We review and negotiate the leaving terms for business partners. Working with individual partners or partnerships we enable people to move on. Solving tricky situations sensitively and efficiently is our skill.
We are always happy to talk to you in confidence. We do provide initial guides and fee estimates. Please do call us on 0207 438 1060.
Why select us to deal with partner departures
Partners leave partnerships by either resignation or involuntarily in which case there may be a legal dispute. In either case we will negotiate the partnership departure to achieve the optimum outcome.
- Our expertise includes tax and the range of commercial matters likely to arise including issues relating to restrictive covenants, personal guarantees and settlement of sex discrimination and equal pay claims.
- Our goal is to avoid litigation if possible. But, we do have the skills needed to handle litigation disputes such as injunctions and claims regarding commercial fraud.
- The specialist team responds quickly to issues. We have helped a wide range of professional services firms and will quickly arrive at the heart of the problem.
Terms for leaving a partnership voluntarily
Common to any type of partnership is the need for a settlement agreement documenting the rights, restrictions and liabilities arising on departure from the partnership. We are dealing with an increasing number of partnership settlement agreements reached after claims of sex discrimination and unequal treatment over pay. With the reputational damage caused so quickly using social media partnerships are keen to secure settlement to capture the opportunity for confidentiality requirements in return for a pay off.
Restrictions on the outgoing partners activities
There may be requirements set out in the partnership agreement. However, often the terms are outdated and not effective in protecting the interests of the remaining partners.
Typical clauses for a partnership settlement agreement
Usually the following restrictions have the most commercial value and hence are up for review and negotiation under a partnership settlement agreement:
- Non-solicitation of clients;
- Non-poaching of staff;
- Restriction on joining a competing business;
- Taking assets owned by the partnership such as intellectual property. Trade secrets are another area for review;
- Confidential information. The common law protections which exist if there is no written agreement are frequently inadequate; and
- Protecting the goodwill and brand. Curbing what the departing partner says about the partnership to its clients and competitors is something most partnerships want to manage closely.
Scope and extent of restrictions
The length of the restrictions is an area often negotiated. However, it is generally accepted by the courts that much longer restrictions can be placed on partners than employees. It is possible to put partners on garden leave to preserve the impact of the restrictions.
Removing a partner
For both partnerships and LLPs, there is no power to expel any partner unless it is included in the partnership agreement. If, as we often find, there are no provisions for forcing out partners it is important to critically and strategically asses the key risk areas. We have provided a summary below.
The first step is to analyse risk. This requires a consideration of:
- Are there sufficient legal grounds to formally remove a partner;
- What process should be followed;
- Is notice required ;
- Whether there are enforceable restrictions on the partner if he is expelled or forced out.
- The financial rights and obligations is the partners split and the partnership comes to an end.
Potential claims in partnership disputes
Much depends upon the facts and the contractual provisions. Generally 1 or more of the following claims may be available to partners:
In some cases, usually a more junior partner, may claim make a claim to the Employment Tribunal that their dismissal is unfair.
Breach of contract
If the partnership agreement is not explicit, and if the terms set out in the partnership agreement have not been followed, there is the risk of a claim on termination for breach of the partnership agreement. The same rules apply to partnerships as apply to any other form of commercial contract.
Dissolving the partnership
See our specific page on this issue
Partnership issues to consider before expelling a partner
If faced with a breach of partnership agreement claim, the issues to consider can include:
- Strength of the evidence;
- Standards expected of the particular partner and responsibilities – this will depend upon the reason for expulsion;
- Could the member present a petition to the court to wind up the LLP or partnership?
Liabilities arising after leaving the partnership
Former partners can be liable for claims arising on commercial agreements entered into whilst in partnership. Typical problem areas are dilapidation claims on leasehold property and claims under personal guarantees given whilst a partner. There are plenty of cases where former partners have been held to account. The issues apply equally to partnerships as they do to LLPs.
Removing liabilities where a partner leaves
We review the situation and highlight potential future liabilities. If a leaving partner is being replaced a novation agreement can be used. This is a tripartite agreement between the leaving partner, new partner and creditor where the creditor agrees to shift liability from the leaving partner to the new partner.
Indemnities from remaining partners following dispute and departure
In some cases it is not possible for a partner leaving the partnership to assign his personal liabilities because the documentation prevents assignment. In those cases we suggest the partner seeks indemnities from the remaining partners.
The partner who is leaving does need to review the professional insurance policy and notify insurers of his date of departure.
There will always be a risk of unplanned tax liabilities arising in respect of the period of partnership but payable sometimes years later. For example, the LLP may face PAYE liabilities if the partner fails the tests for self employment. The risk can be covered off with a tax indemnity. We are tax law experts so can advise on tax issues arising on partnership disputes, splits or where the partnership is dissolved.