What to do when a practice partnership goes wrong
Nicola Draper of Draper Hinks discusses why partnerships go wrong and outlines how to exit with dignity and cash.
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Good advice Nicola
In my experience whilst accountants are well aware of the benefits of formal partnership agreements this does not translate well into real life. So many firms have draft agreements or worse, they have modified the terms of their agreement but have not recorded the variations. Lawyers have told me that in such cases the agreement may be wholly void. This is worse than only having a draft unsigned agreement as at least in those cases everyone is aware that the agreement cannot be relied upon.
Signed agreements get superseded bye events and cease to be enforceable for example if a new partner joins the practice without the agreement recognising this.
In practice the partners often are more focused on billable client work than on ensuring that their own practice and their livelihoods are protected from the prospect of 'bad leavers'. Some partners may also assume that they wouldn't want to go to law to resolve things if the relationship breaks down. In effect they ask, in such cases: "So what's the point of sweating blood to get a fully effective comprehensive partnership agreement in place anyway?"
One reason for ensuring a firm has an effective signed agreement in place is to have the facility to stop a 'bad leaver' from profiting from their breach of the understandings/agreement all others are prepared to accept.
Mark Lee
Tax Advice Network