Unfortunately it is not uncommon for disputes to arise between business partners. These are often very messy, drawn out and end up being expensive commercial litigation matters. Some recent matters that we have been involved in have again highlighted this.
Too often there is no partnership agreement or the one used has not been designed to meet the specific circumstances of the type of business involved or the specific needs of the partners. A properly drawn up partnership agreement can assist in better managing disputes between partners and can help in resolving issues before the relationship of the partners breakdown irreversibly. If the issues can’t be resolved a properly drafted partnership agreement will provide a dispute resolution mechanism. This may require the parties to attempt mediation of their dispute before launching action in a Court.
When a business partnership is breaking down or a partner decides to leave the business there are often disputes about the value of the partnership and how this should be valued. A properly drafted partnership agreement will have a mechanism for valuing the business of the partnership and the value of a returning partners’ interest. Setting this out in the partnership agreement will limit the scope of future disagreements.
Some poorly drafted agreements have no real mechanism for a retiring partner to get out the business and receive payment for their equity. Too often we see agreements whereby a partner gives notice to the other partners that they wish to retire and giving the remaining partners an option to buy them out. If the remaining partners do not agree to buy them out the only option for the retiring partner is to sell to a third party. The practical reality is that no third party is going to buy into a business operated by people that they don’t know. The remaining partners also do not want to work with people they don’t know. A properly drafted partnership agreement will contain a mechanism for a retiring partner to get out and to receive their equity.
It is unfortunately all too common that when setting up a business people take short cuts and try to save money by not doing a partnership agreement. We often hear “Oh we don’t need an agreement, we have been mates for years”. Just about every lawyer has a horror story about a partnership that has gone bad that has seen friendships end and created bitter family feuds. Prevention is a lot better and in the long run a lot cheaper than the cure.
Commercial litigation about partnership disputes could easily cost between $50,000 and $100,000 to litigate. S+P Lawyers can prepare properly drafted partnership agreements starting from $1,416 including GST. Our fees for business structuring services are set out in the Fees section of our website at http://www.splawyers.com.au/fees/ .
If you want to discuss drafting a partnership agreement contact Ben Carroll who is based in our Lismore Office. If you are in the unfortunate position of being caught up in a partnership or business dispute contact either Ben Carroll in our Lismore Office or Allan Cowley (Accredited Specialist in Commercial Litigation) in our Byron Bay Office.
Both Ben and Allan can be contacted on 1300 277 000 or via email firstname.lastname@example.org . Our contact details and address information can also be accessed via our website at http://www.splawyers.com.au/contact/ .