Partner rights and duties in partnerships without a written agreement

General partnerships frequently operate without a formal written partnership agreement. In those circumstances, the relationship between the partners is governed by the Partnership Act 1890 (the “Act”). While the Act provides a legal framework, can lead to outcomes that partners neither expect nor intend, particularly when disagreements arise or trust breaks down.

At Gannons, we regularly advise partners involved in disputes where no written agreement exists. Understanding the duties partners owe to one another, how majority decisions can be taken and the remedies available where those duties are breached is critical.

Equality of partners under the Act

A key distinction between partnerships and companies is that, under the Act, all partners are treated as equal, unless varied by agreement, whether expressly or implied from conduct or course of dealing. This applies regardless of differences in capital contribution, seniority or day-to-day involvement in the business.

In practice, disputes often arise where:

• two or more partners act together and outvote another partner
• one partner becomes excluded from management or decision-making
• partners disagree about profits, strategy or use of partnership assets

Although a partner may find themselves “in the minority” on particular decisions this does not reduce their legal status or limit the fiduciary duties owed to them by the other partners.

We advise partners on how the statutory principle of equality applies to their situation, assess whether decisions have been taken lawfully and identify where majority conduct may amount to a breach of duty.

The duty of utmost good faith

One of the most important features of a partnership governed by the Act is the duty of good faith and the fiduciary duties owed by each partner to the others. This requires partners to act honestly and in accordance with their duties to the partnership and one another.

This duty affects how partners must:

• deal with partnership property and funds
• disclose information to one another
• handle conflicts of interest
• conduct themselves when opportunities arise

Partners are not entitled to pursue their own interests at the expense of the partnership or another partner and may need to obtain fully informed consent before acting in situations involving conflict.

We assess whether the conduct of one or more partners falls short of their fiduciary and other duties, explain the legal consequences and advise on the most effective remedies available.

Access to financial information

Under the Act, every partner has the right to access and inspect the partnership’s books, accounts and financial records. This right is fundamental to the proper management of the partnership and the relationship between the partners.

Disputes frequently arise where one or more partners:

• control the partnership’s bank accounts
• refuse to provide financial information
• delay or obscure access to records

For example, two partners manage the finances and provide only summary figures to the third partner, refusing access to underlying bank statements and invoices. This lack of transparency may amount to a breach of duty and an interference with the partner's statutory right to inspect the books.

We assist partners in enforcing their right to information, reviewing financial records for irregularities and taking formal steps where disclosure is refused.

Decision-making and majority conduct

The Act allows ordinary business matters to be decided by a majority of the partners. However, majority control is not unlimited. Decisions must still be taken:

• consistently with fiduciary duties
• in good faith
• for proper partnership purposes

Certain matters — such as changing the nature of the partnership business or admission of a new partner — require unanimous consent.

For example, two partners agree to redirect partnership resources into a side venture that benefits them personally, excluding the third partner. Even if taken by a majority, such a decision may constitute a breach of fiduciary duty and may be challengeable.

We advise clients on whether particular decisions fall within legitimate majority control or amount to an abuse of power and advise on the appropriate steps where partners have acted improperly.

Appropriation of partnership opportunities and account of profits

Sections 29 and 30 of the Act address situations where a partner:

• derives a personal benefit from partnership transactions; or
• appropriates a partnership opportunity without consent.

In such cases, the partner may be required to account to the partnership for any profits made.

For example, a partner becomes aware of a new client opportunity through the partnership’s business but contracts with the client personally instead. Even if the partnership could not easily pursue the opportunity itself, the partner may still be required to account for the profits earned.

We advise partners on whether an opportunity properly belongs to the partnership, advise on claims for an account of profits and bring in specialist support to seek injunctive relief to prevent further breaches.

Remedies where the partnership relationship breaks down

Where breaches of duty occur and trust has broken down, the Act provides a number of remedies, including:

• an account of profits
• injunctions restraining improper conduct
• claims for compensation
• an application to court for dissolution where it is no longer just and equitable for the partnership to continue

In many partnerships without a written agreement, the business may operate as a partnership at will, meaning that dissolution can also arise where notice is given by a partner. This can be a powerful step and needs careful strategic consideration.

Dissolution is often a last resort, but in some cases, it may be the only effective way to protect a partner’s position.

We advise on the full range of remedies, including the risks and commercial consequences of dissolution and will bring in litigation support where formal court representation is required.

The risks of operating without a written agreement

Without a written partnership agreement:

• the statutory rules will apply, including provisions relating to equality between partners
• majority voting applies to ordinary business decisions
• there is no implied right to expel a partner
• disputes often escalate quickly, with limited internal mechanisms to resolve them

Many disputes arise simply because partners assumed there were agreed arrangements which were never formally recorded.

We advise on your legal position under the Act, help resolve disputes within the existing framework and, where appropriate, assist in drafting a partnership agreement to reduce future conflict.

How we can help

We advise partners in general partnerships across England and Wales where no written agreement exists, including professional firms, family businesses and commercial trading ventures.

Our approach is practical, commercially informed and focused on achieving the outcome that best protects our clients’ interests.