Protecting The Partnership

Partnership Agreement

PROTECTING THE PARTNERSHIP
General partnership law requires any partner carrying on a competing business to the partnership to pay the partnership all profits made in that competing business.

Unless otherwise expressly agreed, a partner leaving the partnership is free to establish a competing business as close to the partnership’s premises as he likes. He can also provide services to partnership customers, although he cannot actively solicit partnership customers away from the partnership.

As these are quite limited protections for the partnership firm, it is common for partnership agreements to cover certain scenarios both whilst a partner remains a partner and for a period after he leaves.

Non-Compete
The partners of a partnership are likely to know the business inside-out, including its customers and suppliers. In order to protect the business of the partnership, a partnership agreement should include non-compete provisions. The partners can agree that for a reasonable period after the partner leaves he is not permitted to set-up a rival business or otherwise compete with the partnership. This restriction should apply to a defined territorial area and for a defined time after the partner leaves.
No Poaching Customers or Staff

In an effort to protect the business of the partnership, partnership agreements often contain provisions to prevent partners from:

  • poaching staff employed by the partnership;
  • poaching customers of the partnership; and
  • interfering with the suppliers of the partnership (e.g. procuring that a supplier no longer supplies goods to the partnership).

These provisions should apply while the partners remain in the partnership and for a reasonable period after they leave.

Confidentiality

A partnership agreement can impose an express duty of confidentiality on the partners in relation to partnership information, including information relating to:

  • Customers and suppliers of the partnership;
  • The business and the partnership itself; and
  • The terms of the partnership agreement.

This duty of confidentiality should continue after a partner ceases to be a partner.