”A partnership is the relationship which exists between persons carrying on a business in common with a view to profit” (Gooley, 2003). Partners may decide to commence their partnership business with either a written or a verbal agreement. The written agreement generally known as a Partnership deed lays down the basic principles for running the business such as division of work, sharing of profits and losses, settlement of liabilities, appointment and removal of partners, settlement of disputes, dissolution of partnership and the like. ”In the absence of such an agreement, the Uniform Partnership Act, a set of laws pertaining to partnerships that has been adopted by most states, governs the business” ("Partnerships Law & Legal Definition", 2016).
According the Uniform Partnership Act, partners have to share profits and losses in equal proportion and cannot draw a salary from the business in the absence of a written agreement. Similarly, upon dissolution of the partnership, finances and capital can be taken back by the respective partners in the proportion of their contribution. Property brought in by the partners is also deemed to be the property of the Partnership and is therefore distributed equally among the partners at the time of dissolution. When a written agreement is missing, partners are required to act in utmost good faith and remain loyal to the partnership. Implied or oral agreements are very difficult to maintain and prove as they are subject to human loyalty and judgement.
In the given case, terms of the partnership agreement are implied and a written document does not exist. When disputes between partners arise in such cases, there are two possible solutions to the problem viz. resolution among the partners or dissolution of partnership. Resolution is considered to be the best method to solve disputes where there is no written agreement in existence. Mediators or solicitors can be hired when the partners are willing to cooperate and settle the dispute amicably. ”Through alternative dispute-resolution procedures like negotiation, mediation, and arbitration, it is often possible to reach resolutions that address the business partner's integrity issues and/or decision-making authority while still preserving the enterprise” ("Partnership Disputes", 2016). Partners may either resolve to alter their profit ratios or revise the powers and responsibilities given to each partner. Controlling shares of the other partner/s may also be bought or sold by the remaining partner/s in order to settle the dispute.
When mediation turns unfruitful and conflict among partners cannot be resolved, the next best choice is to dissolve the partnership. Partners may draft a Partnership Dissolution Agreement and work out the terms, conditions and procedure for winding up on their own. This is quite helpful when written agreements are not in place and the partners do not wish to apply to the Court.
Court interference is the last resort when partnership disputes reach an impasse. The Court on receiving an application by the partners may order the dissolution of partnership. The partners are thereafter required to file a statement of dissolution with the State’s secretary and send personal notices to their creditors. The Court may also pass an order of injunction against the partner who is at fault, to provide temporary relief. In exceptional circumstances, the partners may also be ordered to continue with the partnership.
Absence of written agreements thus, proves quite expensive and tedious as against having a written one. The plan of action which is possible to be followed in the given case is that the dispute should be resolved amicably. If, however, a resolution cannot be reached the next plan of action should be to approach the Court and settle the dispute as per the Uniform Partnership Act, 1997.
References
Gooley, J. (2003). Partnership (p. 1). Retrieved from http://sydney.edu.au/lec/subjects/associations/notes/Summer%202010-11/Topic%203%20-%20Partnership.doc
Partnership Disputes. (2016). Berliklaw LLC. Retrieved 24 April 2016, from https://www.berliklaw.com/partnership-disputes.html
Partnerships Law & Legal Definition. (2016). Definitions.uslegal.com. Retrieved 24 April 2016, from http://definitions.uslegal.com/p/partnerships/
