When a partner leaves a partnership or LLP, it's vital to consider all aspects of their departure to avoid any undesirable and potentially costly consequences.
Whether the reason for leaving is voluntary or compulsory, we can help you establish a watertight agreement that addresses all eventualities and advise you on your specific concerns.
If you are a firm or a departing partner, we will aim to get a practical solution that works for both sides.
What to consider when leaving a partnership
The first thing to do when leaving a partnership is to look at any partnership agreement that exists between you and your partners. This will form the basis of establishing what share of the partnership profits and assets you are entitled to or, potentially, what share of the partnership’s losses and liabilities you are responsible for. If there is no partnership agreement, the Partnership Act 1890 provides a default position.
The next thing to look at is the accounts. These should show what capital you have contributed to the partnership and whether you have undrawn profit or liability for losses. Looking at the accounts is also likely to lead to questions about whether certain assets used in the partnership are included in the accounts as partnership assets and whether they are valued correctly.
Can you draft partnership agreements?
Yes we can, although a partnership is not necessarily always the right vehicle to trade through. We will first consider with you what entity is most appropriate. For instance, in many cases, a limited company or limited liability partnership may be better, so you do not personally bear responsibility for losses as you do with a partnership.
Once we have established what the best vehicle is for you to trade through, we can draft the necessary documents to reflect what you have agreed with your business partners.
Can I just leave a business partnership?
Yes, you can give notice of retirement from a partnership (which in this context simply means leaving it; not necessarily that you will start to draw your pension!). Whether you should or not is a different question because there will be financial implications of leaving and potentially implications for the continuing partners. These are the matters that will be different in every case and which we will advise you on.
Why should I prepare for a business partner leaving?
It is always sensible to think about what will happen if a partner wants to leave when you enter the partnership in the first place and then provide for it in your partnership agreement. A partner leaving will, unless you have an agreement that provides otherwise, bring that partnership to an end. If other partners wish to continue the business, they will do so using the old partnership’s assets and will have to account to the outgoing partner for the use of them.
In addition, when a partner leaves, they will be entitled to be paid for their share of the partnership and so there will be money to be found to pay for that. Thinking about how that will be funded before a partner actually serves notice is therefore sensible. For instance, there could be a notice period required that enable the continuing partners to have time to raise the required funds and then a period of time over which to pay. There should also be provisions about how the entitlement of an outgoing partner is calculated. The default regime under eth Partnership Act will not always produce the result you would want so it’s better not to leave it to chance.
Speak to our team
If you're involved in a partnership and require expert legal advice to draft a partnership agreement or negotiate an exit strategy, our skilled legal team has years of experience acting for partners being removed from a partnership, partners wishing to leave a partnership and partners wishing to end a partnership.
Contact us today by completing the form below and one of our highly trained solicitors will be in touch.
Key Contact
Nick Clarke
Senior Partner | Head of Dispute Resolution
Nick became the firm’s Senior Partner in 2019, having been with Aaron & Partners for over 20 years, and he sits on the firm’s management board. He also leads the Dispute Resolution team.
