Leaving a partnership

We review and negotiate partnership exit terms, working with individual partners and partnerships to achieve practical, commercially focused outcomes. We handle complex and sensitive situations with discretion and efficiency, helping parties move forward.

We are happy to discuss your situation in confidence and provide an initial guide to the options available, together with an estimate of fees. Please call us on 0207 438 1060.

Partnership dispute solicitors

Partners may leave a partnership voluntarily or be required to leave, sometimes giving rise to a legal dispute. In either situation, we help negotiate departure terms and manage the associated legal, commercial and financial issues.

• Our expertise includes tax and commercial matters arising on departure, including restrictive covenants, personal guarantees and employment-related issues.
• We aim to resolve disputes without litigation where possible. Where court proceedings or urgent remedies are required, we can help develop a strategy and work with appropriate specialist litigation support, including in matters involving injunctions and commercial fraud.
• We respond promptly and have experience helping professional services firms address complex partnership disputes and departures.

Terms for leaving a partnership voluntarily

Whatever the type of partnership, an exit agreement can document the rights, restrictions and liabilities arising when a partner leaves. Clear terms can help reduce uncertainty and prevent future disputes.

Partnership departures may involve allegations of discrimination, unequal treatment or disputes over remuneration. A negotiated settlement may address financial terms, confidentiality and other post-departure obligations, while taking account of the parties’ legal rights and reputational concerns.

Typical clauses for a partnership settlement agreement

The following provisions are often important when reviewing and negotiating a partnership settlement agreement:

• Non-solicitation of clients.
• Restrictions on recruiting or poaching staff.
• Restrictions on joining or establishing a competing business.
• Ownership and use of partnership assets, including intellectual property and trade secrets.
• Confidential information, including whether existing contractual and common law protections are sufficient.
• Protection of goodwill and brand, including appropriate restrictions on statements made about the partnership to clients, staff and competitors.

Scope and extent of restrictions

The scope and duration of post-departure restrictions are often key negotiation points. Restrictions must be assessed in the context of the partnership agreement, the circumstances of departure and the relevant legal principles. Restrictions imposed on partners may be treated differently from those imposed on employees, but they are not automatically enforceable simply because the departing individual is a partner. Garden leave or similar arrangements may be available where the agreement permits them.

Removing a partner

For partnerships and LLPs, the ability to expel a partner depends on the applicable legislation and the terms of the partnership or LLP agreement. Where the agreement does not contain an effective expulsion power, forcing a partner to leave may carry significant legal risks. A careful assessment of the available options is therefore essential before taking action.

Partnership dispute

The first step is to assess the legal and commercial risks. This includes considering:

• Whether there are sufficient legal grounds to remove a partner.
• The procedure required under the partnership or LLP agreement and applicable law.
• Whether notice must be given.
• Whether any restrictions would be enforceable following the partner’s departure.
• The financial rights and obligations of the partners, including any consequences if the partnership is dissolved.

Potential claims in partnership disputes

The available claims depend on the facts, the agreement and the legal status of the individual. Potential issues include:

Unfair dismissal - In certain circumstances, an individual described as a partner may have employment rights and may be able to bring an unfair dismissal claim. This depends on their actual legal status and whether the statutory requirements are met.

Breach of contract - If the partnership agreement is unclear or its terms have not been followed, a departing partner may bring a claim for breach of contract. The general principles governing contractual claims may be relevant.

Dissolving the partnership - Disputes may result in an application to dissolve the partnership or, where applicable, wind up an LLP. See our page on partnership dissolution.

Partnership issues to consider before expelling a partner

Before taking steps to expel a partner, it is important to assess:

• The strength and reliability of the available evidence.
• The standards expected of the partner and their responsibilities, having regard to the grounds for removal.
• Compliance with the partnership or LLP agreement and any applicable legal requirements.
• Whether the partner could seek a court order for dissolution or, in the case of an LLP, present a winding-up petition.

Liabilities arising after leaving the partnership

Former partners may remain liable for obligations arising from commercial agreements entered into while they were in the partnership. Common examples include dilapidation claims under commercial leases and liabilities under personal guarantees. These issues can affect both traditional partnerships and LLPs.

• Liabilities - We review the circumstances and identify potential ongoing or future liabilities. Where a departing partner is being replaced, a novation agreement may transfer a contractual obligation to the incoming partner, provided the relevant creditor agrees.
• Indemnities -We advise on indemnities from the continuing partners to address liabilities that may remain with the departing partner. Where personal liabilities cannot be assigned or transferred, an indemnity may provide a contractual route to recover covered losses from the parties giving it.
• Notifying insurers - A departing partner should review the relevant professional indemnity arrangements and notify insurers of their departure where required. The need for run-off cover and any notification obligations should also be considered.
• Tax - Unexpected tax liabilities may arise in respect of a period during which the individual was a partner, even if the liability becomes apparent or payable years later. For example, an LLP may face PAYE liabilities if the salaried member rules apply. Appropriate tax indemnities and provisions in the exit agreement can help allocate these risks between the parties. We can advise on tax issues arising from partnership disputes, changes in membership, splits and dissolution.