PARTNERSHIPS are all-pervasive in business now. We have Dental Partnerships, Medical Partnerships, Accountancy Partnerships, Solicitors Partnerships, Multi-Disciplinary Partnerships, to name but a few.
Partnerships may be for a fixed purpose, a single undertaking or a one-off project such as a property development.
The law has failed to keep up with such a proliferation. Partnerships are governed by the Partnership Act, 1890 and this 19th Century Act with its “quaint” references to “lunatics,” fails to deal adequately with business relationships of the 21st Century and is long overdue updating.
The 1890 Act defines a Partnership as: “the relation which subsists between persons carrying on a business in common with a view of profit”. In Twomey on Partnership, Mr. Justice Twomey states that such a relationship is consensual and based in contract.
What happens when Partners in a commercial relationship fall out? Can Partners be forced to continue? The answer is to be found in the Partnership Agreement or in the 1890 Act.
The provisions for dissolution contained in the 1890 Act operate subject to any agreement between Partners. Therefore, if a Partnership Agreement explicitly provides for dissolution, this may be relied upon to validly dissolve the Partnership. Indeed, Twomey states that provisions for dissolution must be explicitly excluded from a Partnership Agreement otherwise the Partnership Agreement may be relied upon. If the Agreement does not explicitly exclude the right to dissolve, the provisions of the Partnership Act 1890 must be relied upon.
On the other hand, there must be an express agreement between the Partners which provides for the expulsion by a majority of Partners, of another Partner. Unfortunately this means that the nuclear option must be adopted and the Partnership dissolved without the express provision.
Section 26(1) provides that where no fixed term has been agreed upon for the duration of a Partnership, any partner may determine the partnership at any time by giving notice to all the other partners.
Section 32(c) provides that a Partnership entered into for an undefined time is dissolved by any partner giving notice to the other or others of an intention to dissolve the partnership, subject to any agreement between the partners in the Partnership Agreement.
Twomey on Partnership sums up the right to dissolve as follows:-
“The right is a default, rather than a mandatory right and therefore applies to every partnership, unless expressly or implicitly excluded by the partners. The rationale for having such a powerful default right is down to the fundamental nature of the right of every partner to decide with whom and for how long he wishes to be a partner.”
Section 35 of the 1890 Act provides for the grounds by which a Court may dissolve a Partnership as:-
Once Dissolution of the Partnership has occurred, Partners have continuing obligations “so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution…”.
Thankfully, “No” is the answer to the sanctity of Partnerships, but when Business Partners end up in an unhappy marriage it can be difficult enough to navigate a way out.
For more information contact Robert Browne >