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Entering Into a Partnership? Get it in Writing!

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

Business partners who failed to define their working relationship in writing – instead reaching agreements orally over bottles of red wine in a pub – paid the price when a dispute over money erupted and made its way to the Court of Appeal.

Partner A had joined partner B in her professional practice and had contributed capital to the firm’s account. On his retirement, partner A sought the return of those sums. Partner B denied that it had ever been agreed that he would be entitled to the contents of his capital account on his departure.

No agreement as to their partnership, or the terms of partner A’s retirement, had been put into writing or executed. However, in ruling in partner A’s favour, a judge found that a contract had been agreed, partly orally and partly by conduct, to the effect that he would be entitled to recoup his capital investment on leaving the firm.

In rejecting partner B’s challenge to that decision, the Court of Appeal noted that the judge had had the benefit of hearing the witnesses and ruled that his findings of fact could not be faulted. His conclusions were strongly supported by such documentary evidence as was available. In reaching its decision, the Court expressed surprise that two professional people had not formalised their agreements in writing and had chosen to litigate the matter rather than resolve their differences through mediation or arbitration.

The moral of the story is that in any partnership, company, LLP or other business organisation, you should have a clear written agreement as to what will happen in the event that the business ceases or those involved decide to part company with one another. Failing to do so is in all too many cases a false economy. We can advise you on your individual circumstances.

 

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