Doug Preece answers the FT business question on what happens when a family business with no partnership agreement falls apart

February 20, 2012

 

My brother and I own an accounting business in which we are both partners. Unfortunately we have had a family dispute and after attempts to resolve the situation failed, my brother has decided to resign from the partnership with immediate effect. We don’t have a partnership agreement as it didn’t seem necessary. I assume the business is no longer a partnership as I will be the only partner left, so what do I need to do to continue trading and protect my business should he try to claim a share of the profits later on?
You do not have a written partnership agreement but you and your brother may have operated on the basis of a number of understandings which could amount to a partnership agreement.  There are default rules under the Partnership Act 1890 which apply unless you and your brother have reached agreement to the contrary.  Your partnership has been brought to an end.  That would normally mean your brother could require the partnership business to be sold.  The sale proceeds after settling all the liabilities of the partnership would be split on the basis agreed between you for sharing profits of the business.  If you prefer to continue trading the business, you will need your brother’s agreement to this.  Reaching agreement on this is likely to be part of an overall agreement by which you agree with your brother what his share of the business is worth and make arrangements to pay him his agreed share.  If you are unable to reach agreement, then as a last resort, either you or your brother could apply to court for the matter to be resolved.  If you continue trading without reaching agreement, your brother can claim a share of profits attributable to the use of his share of the partnership assets.     
Doug Preece partner in the professional practices group at Fox Williams LLP   

 

This question and answer featured in the Financial Times 

Quetstion:
My brother and I own an accounting business in which we are both partners. Unfortunately we have had a family dispute and after attempts to resolve the situation failed, my brother has decided to resign from the partnership with immediate effect. We don’t have a partnership agreement as it didn’t seem necessary. I assume the business is no longer a partnership as I will be the only partner left, so what do I need to do to continue trading and protect my business should he try to claim a share of the profits later on?


Answer:
You do not have a written partnership agreement but you and your brother may have operated on the basis of a number of understandings which could amount to a partnership agreement.  There are default rules under the Partnership Act 1890 which apply unless you and your brother have reached agreement to the contrary.  Your partnership has been brought to an end.  That would normally mean your brother could require the partnership business to be sold.  The sale proceeds after settling all the liabilities of the partnership would be split on the basis agreed between you for sharing profits of the business.  If you prefer to continue trading the business, you will need your brother’s agreement to this.  Reaching agreement on this is likely to be part of an overall agreement by which you agree with your brother what his share of the business is worth and make arrangements to pay him his agreed share.  If you are unable to reach agreement, then as a last resort, either you or your brother could apply to court for the matter to be resolved.  If you continue trading without reaching agreement, your brother can claim a share of profits attributable to the use of his share of the partnership assets.     

 

 

 


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Douglas Preece
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dpreece@foxwilliams.com

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