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Incomplete Partnership Arrangements Lead to Court Appearance

When new partners are being introduced into a partnership, it is wise to finalise the arrangements quickly in case the partners fall out. Any lack of formality in the business arrangements can lead to trouble, as a recent case shows.

The case concerned two GPs who were in practice together. They decided to invite three other doctors to join their practice and requested their solicitors to prepare a new partnership agreement.

While the terms of that agreement were being finalised, the two partners fell out, which led to one of them being effectively barred from the practice. He applied for an injunction which would allow him to return to the practice. The other partner then issued a notice dissolving the old partnership and claimed that a new partnership (a 'partnership at will', because the terms of the partnership had not yet been agreed) had been commenced with the new partners.

The excluded partner claimed that the new partnership was not yet in existence and the notice terminating the partnership was therefore invalid. The new partners had not yet legally joined the partnership.

The remaining doctor and the new partners argued that the old partnership had been dissolved and that they had created a new partnership which excluded him.

The dispute ended up in court, where it was decided that the partnership between the original partners had been validly dissolved and a new partnership (the terms of which had not yet been finalised) was in existence between the remaining old partner and the new partners. They had never intended to retain the original agreement, and in any event it was possible for them to dissolve the existing partnership, without the excluded partner's consent, and set up a new one.

The case illustrates the importance in similar circumstances of putting the documentation in place quickly. Where new partners are invited to join an existing partnership and are working as partners before the partnership agreement is finalised, there is a good chance that the court many conclude that a partnership at will has commenced.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.