Dangers in Inadequate Partnership Agreements

November 26, 2013

in Corporate & Business

Employment: ConfidentialityIn April this year the Court of Appeal revisited issues under the Partnership Act 1908.  This legislation has withstood more than one hundred years of scrutiny by the Courts but still applies to remind partners in business of the need for robust Partnership Agreements to determine the rights of Partners especially on dissolution of their Partnership.

The case involving the late Mr Hubbard of South Canterbury revolved around a loosely drawn memorandum purporting to be the basis for a partnership of a farm business with a Mr Holman.  The Court found that in the absence of a specific provision in a Partnership Agreement there were no rights of pre-emption on the dissolution of the Partnership.  That is to say the surviving Partner has no right or obligation to purchase the interests of the deceased or retiring Partner.

Under section 42 of the Act the rights of Partners are defined.  The Partnership property is to be realised, debts paid and the net balance divided between the parties in accordance with their interests in the Partnership.  In the case referred to while draft agreements were prepared no consensus on key terms or final written agreement were ever completed and accordingly there was no obligation to sell the interests of the deceased party to the survivor.

This case underscores the critical need for robust Partnership Agreements or Shareholder Agreements in the case of a Company which should be completed prior to commencing business.

We believe it is therefore critical to take legal advice before engaging in such business activities and Farry and Co. are experts in this area and can advise you in all aspects in relation to any commercial related activities.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Michael Nidd


03 477 8870 or 09 379 0055



The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

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