Partnership disputes

Partnership disputes can arise even in the most successful businesses. Differences of opinion, breakdowns in trust or allegations of misconduct can quickly escalate, placing strain on relationships, threatening business continuity and exposing partners to significant personal and financial risk.

At Gannons, our dispute team advise partners and professional practices on resolving complex and sensitive partnership disputes. We understand that these disputes are rarely just legal issues — they are commercial, reputational and often personal crises requiring decisive and strategic action. Our focus is always on protecting value, preserving businesses where possible and achieving outcomes that allow our clients to move forward with certainty.

How we can assist

We provide comprehensive support at every stage of a partnership dispute, from early strategic advice through to preparing for formal proceedings, where required, with specialist litigation support brought in.

·       Strategic legal advice - We begin with an assessment of your legal position, partnership documentation (if any), financial arrangements and objectives. This includes identifying risks under the Partnership Act 1890, advising on duties and obligations and developing a tactical strategy aligned with your commercial goals.

·       Urgent applications and protective measures - Where urgent action is required, we can advise on the steps available to protect your position. This can include advice on applications for injunctions to prevent misuse of partnership assets, freezing orders to prevent dissipation of funds, orders restraining competitive activity and other interim relief.

·       Negotiation and settlement - Many partnership disputes can be resolved without full litigation. We conduct commercial negotiations aimed at achieving commercially sensible outcomes, including structured exits, buy-outs and revised partnership arrangements. Our approach is pragmatic but firm, ensuring your interests are fully protected.

·       Formal proceedings - Where proceedings are unavoidable, we advise on the legal and commercial strategy and will bring in litigation specialists.

·       Alternative dispute resolution (ADR) - Courts increasingly expect parties to engage in ADR. We advise clients in relation to mediation, arbitration and expert determination, often achieving faster and more cost-effective resolutions while minimising disruption to the business.

Common causes of partnership disputes

Partnership disputes typically arise from fundamental disagreements about business direction, financial matters or partner conduct. The most common triggers include:

·       Management and financial disputes – Disagreements over strategic decisions, day-to-day operational control, profit sharing, capital contributions,  expense allocations and access to financial information frequently lead to conflict.

·       Breach of duties – Allegations of unauthorised transactions, conflicts of interest, diversion of business opportunities, misuse of partnership assets or failure to account properly for funds are common and often serious.

·       Performance issues – Disputes may arise where a partner fails to meet obligations, engages in misconduct, damages the firm’s reputation or breaches partnership terms.

·       Succession planning - Poorly drafted or outdated retirement provisions often lead to disputes over notice periods, valuation of interests, buy-out provisions and ongoing restrictions.

·       Valuation disputes - Valuing a departing partner’s interest is a frequent flashpoint, particularly in professional practices. Issues may include fair value methodologies, goodwill inclusion, work in progress treatment, minority discounts and valuation timing.

·       Payment and exit terms – Disagreements may arise over how and when sums are paid, restrictive covenants, client relationship transfers and outstanding fee arrangements.

·       Involuntary departures - Attempts to expel partners often give rise to disputes, particularly where expulsion grounds are disputed or procedures have not been followed strictly. Common issues include expulsion grounds, notice periods, compensation arrangements and return of partnership property.

·       Post-departure restrictions - Disputes commonly arise over non-compete clauses, non-solicitation of clients and protection of confidential information.

No written partnership agreement?

Many partnerships operate without a formal written agreement. In such cases, the Partnership Act 1890 applies by default, often producing outcomes that do not reflect the partners’ intentions.

Under the Partnership Act 1890:

·       Profits are presumed to be shared equally, regardless of contribution.

·       Any partner may in certain circumstances dissolve the partnership at will.

·       There is no automatic mechanism for expulsion

We can assist clients by:

·       Gathering evidence - emails, texts, bank records, meeting notes, client correspondence and invoices showing actual arrangements.

·       Prove actual conduct – establishing how profits were actually shared, who made decisions, capital contributions and historical partner treatment.

·       Witness evidence - from employees, clients, accountants and advisers about partnership operations.

Risk of partnership dissolution

Escalating disputes can trigger dissolution under partnership agreements or at law. Dissolution is often commercially destructive and can have serious consequences:

• Dissolution can result in the partnership's debts and liabilities having to be dealt with as part of the winding-up process.
• Business assets may need to be realised, potentially resulting in a loss of value depending on the circumstances.
• Client and supplier relationships and goodwill may be affected during the dissolution and winding-up process.
• Professional indemnity insurance arrangements and coverage may be affected, depending on the circumstances and policy terms.
• Person guarantees may become enforceable depending on their terms and the underlying obligations.

Possible court orders if proceedings go to trial

If partnership disputes proceed to trial, the courts may have powers to make a range of orders, including the following:

·       Financial orders - monetary compensation, account of profits, restitution for misappropriated funds, interest awards and, where applicable, orders relating to costs or security for costs.

·       Dissolution orders - partnership dissolution, winding up with asset realisation, directions concerning the appointment of a person to assist with the winding up and distribution of partnership assets.

·       Injunctive relief - restraining orders, non-compete injunctions, asset preservation, confidentiality protection and mandatory performance orders.

·       Valuation orders - independent expert appointment, methodology directions, access to records, goodwill determination and work in progress assessment.

·       Other orders - orders concerning partnership assets, accounts, records and the conduct of the partnership.

Frequently Asked Questions

When should I seek legal advice?

As early as possible. Early advice can prevent escalation, protect your position and avoid missteps that weaken your leverage.

Can a partner force another partner out?

Only if the partnership agreement allows it and procedures are followed strictly. Otherwise, attempted expulsion may be unlawful.

Can disputes be resolved without court proceedings?

Yes. Many disputes settle through negotiation or mediation. Courts expect parties to consider ADR seriously.

How are partnership interests valued?

Valuation depends on the agreement or the applicable legal principles and often involves disputes over goodwill, work in progress and methodology.

Are restrictive covenants enforceable?

They may be, but only if reasonable and protecting legitimate business interests. Courts scrutinise such clauses carefully.