Partnership Disputes: A Comprehensive Legal Guide
Business partnerships rely on trust, shared goals, and clearly defined responsibilities. So when disagreements arise – whether over money, management, roles, or direction – they can quickly escalate and threaten the future of the business. That’s where legal advice becomes essential.
Whether you’re dealing with a breach of agreement, facing a partnership dispute, or simply looking to understand your legal position, this guide covers everything you need to know.
What is a partnership dispute?
A partnership dispute happens when the relationship between business partners starts to unravel. This can result from day-to-day tensions, misaligned expectations, unequal contributions, or a breach of partnership agreement.
Not every disagreement leads to a full-blown dispute, but if issues aren’t addressed early, they can escalate and put the business at serious risk. Early legal advice helps you understand your position, protect your interests, and take the right steps before the situation worsens.
How to prevent a partnership dispute
- Ensuring the partnership agreement is clear, legally sound, and tailored to your business.
- Defining each partner’s responsibilities, contributions, profit shares, and exit terms.
- Including a partnership dispute resolution clause (e.g. mediation before litigation) to handle disagreements constructively.
- Ensuring all partners understand and agree to the terms before signing.
- Keeping accurate financial and operational records to maintain transparency.
- Holding regular meetings to address any brewing issues.
- Reviewing and updating the partnership agreement (if needed) as the business grows or changes.
Different partnership structures
The type of partnership you’re in can significantly affect your personal liability when disputes arise.
Traditional partnership disputes
Under a traditional partnership (governed by the Partnership Act 1890), the business and its partners are legally one and the same. This means each partner is personally liable for the partnership’s debts, obligations, and legal liabilities – including those caused by the actions of another partner.
If a dispute leads to financial loss, litigation, or insolvency, individual partners may be held personally responsible. In serious cases, disputes can result in the dissolution of the partnership, with significant personal and commercial consequences.
Limited Liability Partnerships (LLPs) disputes
An LLP is a separate legal entity, created under the Limited Liability Partnerships Act 2000.
This structure generally protects partners (referred to as members) from personal liability, unless fraud or a personal guarantee is involved. Although LLP members enjoy greater protection, conflicts can still be damaging.
Common types of partnership disputes
- Breach of partnership agreement: Where one or more partners fail to follow the agreed-upon rules.
- Unequal workloads or contributions: Disputes over who is doing what, or whether one partner is “carrying” the business.
- Financial disagreements: Including misuse of business funds, failure to disclose earnings, or disputed expense claims.
- Strategic disagreements: Conflicts over direction, expansion, or investment decisions.
- 50/50 partnership disputes: When partners have equal authority but reach a deadlock on key decisions.
- Exit or retirement of a partner: Disputes over valuations, buy-outs, or ongoing responsibilities.
- Misconduct or breach of duties: Allegations of dishonesty, conflicts of interest, or failing to act in the partnership’s best interests.
How to resolve partnership disputes
Not all partnership disputes require litigation, and you should first explore proportionate, cost-effective options for resolving the conflict. This might involve:
Informal negotiation to resolve partnership disputes
Direct communication between disputing parties is often the quickest and least costly resolution method. As such, negotiation is often the first step in resolving partnership disputes.
Mediation to resolve partnership disputes
Mediation – a form of alternative dispute resolution (ADR) – is often the preferred dispute resolution mechanism in partnership agreements. It sees a neutral third party, known as a mediator, facilitate discussions between disputing partners to help them reach a compromise without going to court.
Arbitration in partnership disputes
In arbitration, disputing parties present their case to a neutral third party. This arbitrator reviews the evidence, listens to the arguments, and delivers a legally binding decision. Arbitration is often faster and more cost-effective than litigation. However, it is only available if both parties agree to it or if the partnership agreement includes an arbitration clause.
If the disagreement is about vision, strategy, or roles, rather than wrongdoing, we can help you explore constructive solutions such as adjusting responsibilities, updating the partnership agreement, or agreeing a voluntary exit. But where the other party refuses to engage, or the dispute places the business at risk, litigation may be unavoidable.
Partnership dispute litigation
- Initial case assessment: Reviewing the partnership agreement and relevant documents.
- Pre-action correspondence: Setting out claims and seeking resolution before proceedings.
- Issuing a claim: Filing proceedings in the appropriate court.
- Disclosure and evidence: Gathering and exchanging relevant information.
- Trial or settlement: Many cases settle before trial, but we are fully prepared to represent you in court where needed.
Legal remedies for a partnership dispute
Where a partner has clearly breached the partnership agreement, legal remedies may include:
- Injunctions: To prevent further breaches or harm to the business.
- Damages: Compensation for financial loss caused by a breach.
- Removal of a partner: Where the agreement or legal framework allows it.
- Dissolution: If the relationship is beyond repair, ending the partnership may be the only option.
Where no breach has occurred, but the relationship has broken down, possible options include:
- Negotiated exit: Where one partner agrees to leave the business under agreed terms.
- Buyout of a partner’s interest: Often guided by valuation clauses in the partnership agreement.
- Role restructuring: Redefining duties or responsibilities to reduce friction.
We’ll advise you on the most appropriate solution based on your goals and the commercial context.
Things to consider before starting a partnership dispute
- What does your partnership agreement say? Clauses in these contracts often determine your legal rights and what steps you can take.
- Have you fully complied with your own duties and responsibilities? If you’ve acted in a way that could be challenged, this may weaken your position or complicate your claim.
- What do you want to achieve? And how does this align with your business objectives?
- Can the relationship be salvaged? ADR may preserve the business and your reputation while avoiding the cost and publicity of litigation.
- What are the financial and legal risks? Litigation can be expensive, and outcomes are not guaranteed.
Defending against a partnership dispute claim
Being on the receiving end of a partnership dispute claim can be stressful and destabilising. Act quickly to protect your position and avoid making the situation worse through inaction or missteps.
Key strategies include:
Seeking legal advice early
Don’t ignore the issue or respond emotionally. A specialist partnership dispute solicitor will review the claim, assess the strength of the allegations, and advise you on the most appropriate response.
Understand the allegations
Carefully review what you’re being accused of. Understanding the legal and factual basis of the claim is the first step to forming a strong defence.
Checking the partnership agreement
The written agreement is central. It may define duties, decision-making rights, profit entitlements, or dispute resolution procedures. If it doesn’t exist, your lawyer will advise you.
Gathering evidence
Timely, well-organised evidence can make all the difference in strengthening your defence and rebutting false or misleading claims.
Considering counterclaims
You may have grounds to make a counterclaim. Raising these issues early can shift the balance of power in negotiations or litigation.
Exploring settlement options
In many cases, partnership disputes can be resolved without going to court. Mediation or structured negotiation may offer a quicker, more cost-effective outcome and protect the ongoing business, staff, and clients from unnecessary disruption.
Partnership dispute FAQS
This refers to a situation where two equal partners can’t agree on key business decisions. Without a tie-breaker mechanism in the partnership agreement, deadlock can arise, potentially paralysing the business.
Legal advice is strongly recommended. A partnership dispute lawyer can help protect your position, resolve the dispute, or advise on exit strategies.
You still have legal rights. However, as such disputes are usually more challenging, seek professional support immediately.
Only if your partnership agreement allows for it, the partner leaves voluntarily, or if there has been serious misconduct. We can advise on the correct process and potential risks involved.
Assets, liabilities, and obligations must be settled. We can help negotiate terms, protect your financial position, and guide you through the dissolution process.
Many disputes are resolved through negotiation, mediation, or arbitration. These options increase the chances of a successful resolution while minimising unnecessary legal costs and conflicts.
Costs vary depending on the complexity of the dispute and the resolution method used. ADR is usually more cost-effective than litigation, particularly where early settlement is possible.
Contact our partnership dispute solicitors today
- Expert partnership dispute solicitors: Our litigation lawyers have advised clients across industries and partnership structures.
- Commercially focused advice: We combine legal expertise with practical insights to protect your interests and minimise business disruption.
- Tailored strategies: Whether you want to stay in the business or exit cleanly, we’ll work with you to find a clear path forward.
- Cost transparency: We offer flexible fee arrangements and will always explain costs upfront.