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Business Partnerships – See a Lawyer to Know Where You Stand

Successful business ventures ultimately depend on good relations being maintained but, if there is a falling out, a professionally drafted partnership agreement at least means that you know where you stand. The clear and unambiguous wording of one such document enabled the High Court to finally resolve a dispute concerning a family farming partnership.

The partnership initially comprised seven members. The agreement on which it was based provided in detail as to what was to happen if any of the partners resigned, died or were expelled. Outgoing partners enjoyed a put option, requiring those who remained to buy them out. Conversely, the continuing partners had a call option, requiring departing partners to sell them their shares in the business. In both instances, the price payable was to be fixed by an accountant.

Put options were exercised after two of the partners resigned and another died. The price payable by the continuing partners in each case was agreed. However, a dispute arose as to whether the relevant sums were payable in instalments over time or immediately in the form of lump sums.

The agreement provided that 20 per cent of the purchase price should be paid to outgoing partners or their heirs straight away, so long as they vacated any dwelling house owned by the partnership. The remaining 80 per cent was payable over a 10-year period, in 40 quarterly instalments. However, it also provided that, if any of those instalments was in arrears by more than 21 days, the whole price would forthwith become payable (the acceleration clause).

In upholding claims brought by the two outgoing partners, and the executor of the estate of the other, the Court found on the evidence that the acceleration clause had been triggered and that they were entitled to receive full payment for their shares in the business immediately. The acceleration clause was clear and unambiguous, was workable and, on the facts of the case, made commercial sense.