|
The end of a business partnership |
|
Many agricultural businesses are run as partnerships. There is no legal requirement to have a written partnership agreement and a simple partnership may manage well for a number of years without one. However, it is nearly always advisable to have a written agreement, if only to deal with the terms on which the partnership will end.
Partnerships end for many reasons. Some are created for a limited time or to complete a particular project. When the time is up or project finished, the partnership generally ends too.
Many partnerships, however, are created without a particular end point in mind. Events that could end such a partnership include:-
- A partner retiring;
- A dispute amongst the partners; and
- The death or illness of a partner.
If the partners enter into a partnership agreement at the outset, they could:-
- Agree how much notice should be given by a retiring partner. Without this, the usual legal position is that one partner can end a partnership immediately, simply by giving notice. This can cause tremendous problems for the other partner(s).
(Retirement here doesn’t just mean stopping work at the end of a working life. It covers any voluntary departure from a partnership at any age, and the retiring partner may continue to work.)
- Balance the interests of the surviving partner(s) and a deceased partner’s estate. Very often, it is best for everyone if the business is continued after a death, with payment being made to the estate (sometimes over a period of time) to reflect the deceased’s interest in the business.
- Enable a majority of partners to expel a partner if that partner has committed some breach of the agreement or otherwise behaved inappropriately. Certain anti-discrimination legislation now covers partners as well as employees, so great care needs to be taken in this area.
A partnership agreement should say what happens after termination. Must the partnership assets be sold? Or shared between the partners? How will debts be settled? What if the business has been operating from premises leased from a partner? Will the lease be sold, so an outsider occupies the land? Can a partner start up another business after he has left? Can he compete?
In our experience, these are questions that are better dealt with early in a partnership when partners do not know how the partnership is likely to end. If they wait, however, it may be too late to agree suitable terms. Instead, the partners are likely to be drawn into lengthy and expensive negotiations and, even, litigation.
For these reasons, we would always recommend that partners record their arrangements from the outset in a written partnership agreement.
Clare Richards
© Barker Gotelee
|
