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Breakdown of Partnership

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I have 2 clients who decided to work in partnership in a hair and beauty salon. Against my advice, they never wrote a partnership agreement. Now, you've guessed it, the relationship has broken down and there are complications arising.

Both individuals had signed a lease agreement in joint names for a salon, the lease of which is coming to an end at the end of November. They have taken on a new lease in new premises, again in joint names. Partner A originally said that they would sign a separate lease in the old salon just in her sole name. Partner B said that was fine and that she would take on the new salon and get it transferred into her own name. They would then dissolve the partnership and continue as sole traders.

Now partner A is saying that she does not want to work in the old salon and will instead work in the new salon (don't forget this is in joint names) alongside partner B. This is obviously going to cause friction and I have been asked to give advice as to how to resolve the situation.

In the absence of a Partnership Agreement, can partner B simply say that the partnership has now ceased, close the partnership bank account and put up with the inconvenience of them working in the same premises?

Any suggestions would be most welcome.

Replies (5)

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By thevaliant
09th Nov 2021 19:49

Not an accountancy question at all, and whilst we could suggest 'see a solicitor' in all honesty the best thing the two partners can do is talk to each other first THEN see a solicitor if things don't go as planned.

In reality, they need Counsellor Troi (though she was a bit [***] herself and never really gave any good advice).

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Replying to thevaliant:
By SteveOH
09th Nov 2021 19:55

Counsellor Troi? Sounds as though that's something to do with Star Trek?

On a serious note, I *did* suggest that they both get into a room and not to leave until they'd thrashed it out between themselves.

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By David Ex
09th Nov 2021 20:02

SteveOH wrote:

In the absence of a Partnership Agreement, can partner B simply say that the partnership has now ceased, close the partnership bank account and put up with the inconvenience of them working in the same premises?

What a nightmare! Bank account presumably has mandate for who can do what. Beyond that, no-one can force them to operate as a partnership but the usual practical issues of operating independently from one premises will arise (incl VAT, of course).

Absent a partnership agreement, what is the default reference? The old Partnership Act?

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Replying to David Ex:
paddle steamer
10th Nov 2021 09:34

The Partnership Act 1890 is one of the better and clearer pieces of legislation.

One of the very old publications in my bookcase is my "Scots Mercantile Law Statutes 1984", it even has my name, University of Aberdeen and 1984 & 1985 handwritten on what is left of the cover which is badly torn with pieces missing, it also, unlike the Hitchikers Guide to the Galaxy, is really short, only having 50 sections over nine and a half pages.

Section 30 may be on point for either who wishes to operate in own name whilst still a partner, and of course if not a partner, due to resignation, hard to see how the resigned party has much right to use partnership property, like say the newly leased unit.

Have they considered an amicable break up with blind sealed bids to the former firm for the right to carry on the lease to the newly leased premises, each puts in best premium they will pay, highest wins, that sum is paid to partnership and is then distributed per partnership law?

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By ireallyshouldknowthisbut
10th Nov 2021 09:03

I would offer financial advice only.

Explain to them both (on the same zoom etc) that you can carrying on acting independently but you will not favour either of them. You will happily relay financial facts and figures but ultimately will not 'pick sides' or offer opinions.

If they come to you for advice it will be copied to both of them.

I would provide some counsel in that the best exit from here is as friends and not as enemy's and that you would do better working with each other and not against each other etc etc etc. All that sort of rubbish, and then run away.

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