Nobody goes into a new business venture with a partner thinking it is all going to go horribly wrong at some point. Unfortunately, it is not uncommon for things to start deteriorating in your business relationship. This can happen for a number of reasons including how profits are distributed, the perception that one party is putting all the work in or disagreements regarding the direction the business should take. You may even find yourself in the position where you just can’t get along with your partner anymore and you find yourself at the point where you are considering suing your business partner. In this article, business partner owes me money, we consider the options open to you and the mechanism involved.
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For a free initial discussion on how we can help you if your business partner owes you money, get in touch with us today. We will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help stop matters escalating if relations are strained between you and your partner, saving you money and also avoiding the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or complete our online enquiry form and a member of the team will get back to you.
What is a Business Partnership?
Even though you may not have formally signed any legal contracts, the mere act of being in business with someone else can be considered a partnership in legal terms.
People often prefer to set up a partnership as opposed to a limited company because it is considered more straightforward to set up and you don’t have to go through the process of registration or filing returns at Companies House. However, there are still many things to consider before going into business as partners.
If there is no written partnership agreement, the Partnership Act 1890 comes into effect. This Act contains rules setting out how a partnership operates. It is strongly advised to have a well-drafted partnership agreement drawn up as opposed to relying upon the Partnership Act. This will prove to be especially useful if a dispute arises.
Resolving disputes
Assuming you have a partnership agreement, this should determine what happens in certain situations. However, often it doesn’t and even when it does, it is advisable to seek the services of an experienced commercial litigation solicitor. There are options open to you in resolving the dispute without the need to go to court and these can include negotiation, mediation and arbitration. These are quicker and cheaper than going to Court and are the preferred way to settle disputes.
If no agreement can be reached, you will need to go to Court to formally request that your partnership is dissolved and determine how the net assets will be shared. However, this is a time consuming and expensive option and should be considered an option of last resort.
What happens if my partner owes me money?
This will depend upon how your partner took the money from the company. If it was paid as salary (with tax & NI being paid as appropriate) your partner doesn’t technically owe you or the company anything.
If it was paid as a dividend, then that should have been paid in proportion to share ownership, so if he owned more shares in the company, he was entitled to a higher dividend. If this is the case then you cannot now ask for money back.
If neither of these is true, then it could be treated as a director’s loan, and the company (other directors and shareholders) should ask for repayment of the loans if the dispute cannot be resolved and the company is to be wound down. If the director contests this, then back tax and NI will need to be paid on the amount.
The profit-sharing arrangements in a partnership are a matter of agreement between the partners.
Those arrangements are then reflected in the partnership tax return and then in the individual partner’s personal tax return with each individual being taxable based on those figures.
If your business partner is refusing to pay over profits owed to you then he is potentially in receipt of a profit share in excess of that disclosed to HMRC, which is illegal.
However, HMRC will have little interest in the dispute between you and your business partner and will seek to collect tax based on the profit share reflected in the partnership and personal tax returns. They will not give you any relief unless the whole partnership tax return is redrafted to reflect the revised profit-sharing ratios.
It is worth noting, however, that if your business partner has submitted a partnership tax return that does not reflect the reality of the position due to the additional profit share he is retaining he will have made a fraudulent disclosure to HMRC.
Ultimately if your business partner is not prepared to be reasonable it may be necessary to involve your solicitors
Dissolving your partnership
If you find yourself in a position where you are suing your business partner, it is quite likely that the dissolution of the partnership may be on the horizon.
In the UK, there are two different ways to dissolve a partnership:
General dissolution – If you believe that the business is no longer viable and you wish to end the business partnership entirely, a general dissolution – involving the winding up of the business – is likely your most appropriate course of action.
Technical dissolution – If you still believe the business is viable, this could allow you to extract your share of the business in cash without ending the business.
What Other Things Do You Need To Consider?
Once you decide to dissolve the business and irrespective of whether or not you have a partnership agreement in place, you need to obtain expert legal advice. This is to ensure the terms of any existing agreements are adhered to and you are paid all the monies owed to you.
How we can help
We have a proven track-record of dealing with partnership disputes. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact our Commercial Litigation Solicitors
It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of reducing risk, saving you money and ensuring you achieve a positive outcome.
To speak to our Litigation solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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