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Victorian Systems in the Age of the Internet: take control of your Partnership Agreements

Partnership agreements spring up in a variety of instances when joint working occurs.  You have to have your wits about you when this happens, as the framework implied to partnership agreements by English law is shaky to say the least.

A freakish assortment of anomalous rules have materialised because, unusually, the roots of our legal system stem from 1066, predating the Industrial Revolution, the Renaissance, and even the Ottoman Empire!

The most recent statutory framework dictating how two partners interact without a partnership agreement was enacted by Queen Victoria in 1890 (tweaking and updating legislation from 1807, brought to pass by the legendarily unstable George III).  Whilst it is serviceable in some respects, the Partnership Act 1890 is hopelessly outdated in other ways.  Some of its more worrying eccentricities include:

Notice: a partner must give notice before they leave the partnership… but:

  1. this notice need only be a couple of hours, which could leave you up a creek,
  2. the assets of the partnership must then all be sold, and
  3. if you brought assets to the partnership (laptops, copyright material, or other property) they will be assumed to belong to the partnership and you may not be able to keep them.

Inequality: ensure you know who you are getting into bed with, because:

  1. the law assumes all profits are split equally - even if effort, time and investment are unequal,
  2. debts of a partnership are “joint and several”, meaning if a costly mistake is made by your partner and the partnership is sued, you could end up footing the whole bill or even going bankrupt whilst your partner could get away scot-free, and
  3. getting rid of problematic or under-performing partners is incredibly difficult.

“Fiduciary duties” are owed to other partners.  This means:

  1. having to act in the utmost good faith to other partners,
  2. never putting your own interests in conflict with other partners’, and
  3. never acting to benefit yourself or a third party without consent of the other partners (even if they are not affected!)

These examples are the tip of the iceberg.  In the absence of sensible statutory framework it is prudent to formalise any partnership agreement in writing.  Do this either from the outset, or at least whilst the going is good.  Should things turn sour without a properly drafted agreement, you may well end up out of pocket and discussing matters with “m’learned friends” in the notoriously cumbersome court system.

For a free consultation on the above or any commercial matter, please contact Oliver Asha, our Commercial Litigator on (DD) 01273 447067 (Switchboard) 08458 678 978 or via email to oliver.asha@acumenbusinesslaw.co.uk

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