Tom Bodkin, a corporate and commercial solicitor at Borneo Martell Turner Coulston Solicitors in Northampton.
Why planning ahead for a smooth exit helps to avoid any unexpected pitfalls. Solicitor Tom Bodkin explains.
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Published in association with
IF YOU are a partner who is planning to leave your partnership, you will want to ensure that the departure process is as seamless as possible. Whether expected by your colleagues or unexpected, it will have an impact on the whole partnership.
Consequently, the departure should be managed with careful consideration and with the benefit of legal advice to ensure a positive outcome for all.
“As an outgoing partner, you can sometimes find yourself in a disadvantageous position where it can seem like it is you versus the partnership,” said Tom Bodkin, a solicitor in the corporate and commercial team with Borneo Martell Turner Coulston. “As such, it is vital that you prepare well in advance.
“There are many things to consider, from repayment of your capital account to restrictions on your future trading. To avoid pitfalls and disputes, you should appoint an expert solicitor as soon as possible and discuss all the issues with them.”
Tom discusses what is involved in leaving a partnership, what to look out for and why planning ahead can help lead to a smooth exit.
What happens if there is a partnership agreement in place?
If your partnership has the benefit of a written partnership agreement, this will be of great help.
It is likely that the agreement will contain clauses detailing the exit process and the procedures involved. Naturally, these must be followed or you will find yourself in breach of contract.
What happens if you do not have a partnership agreement?
In the absence of a written partnership agreement, the provisions of the Partnership Act 1890 will apply. This can cause serious difficulties when a partner exits a partnership as the Act does not provide for such a situation other than by way of partnership dissolution.
Dissolution is not usually in either party’s interests. In these circumstances, it is paramount that all the partners get together to thrash out some agreed terms of departure and then set these out in an agreement.
When you are attempting to exit a partnership which does not have a partnership agreement in place, it is even more important to reach out to a trusted legal professional. The path forward will not be as clear-cut and therefore the possibility for disputes arising is heightened.
Key legal issues to look out for
Some of the key legal aspects to look out for when leaving your partnership include:
- Tax obligations. What are the tax liabilities and who is responsible for paying them?
- As an outgoing partner, you will want an indemnity from the remaining partners protecting you against any liability for future trading liabilities of the partnership.
- Restrictive covenants. This can become a central issue, particularly if you as an outgoing partner are looking to set up a new business in the same industry either alone or with others.
- Deed of retirement. This deed allows all the agreed departure terms to be documented and made legally binding.
How we can help
If you are thinking about leaving your partnership, for an informal conversation, contact Tom Bodkin in the corporate and commercial team on 01604 622101 or email
- This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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