Going into Business with a Friend? Never Dispense with Legal Advice

If you are going into business with a friend or family member you trust, you may think there is no need to consult a solicitor so that arrangements between you can be formalised in writing. A High Court ruling, however, showed exactly why that is such a wrong-headed approach.

A man claimed that he had entered into a business partnership with a friend whom he had known since his schooldays. He said that he contributed £50,000 towards the purchase of a freehold property with a view to converting it into a supermarket. The plan was to sell the property and the business as a going concern after it had been trading for six months. He asserted that he had given up his secure employment in order to work as the supermarket's manager until the sale went through.

He launched proceedings after the property and business were not sold within the expected timescale and he was asked to leave the premises. The friend, however, gave a very different account of events and denied that there was ever a partnership between them. Asserting that he owed the man nothing, he said that he had merely given him a job at a time of need and now regretted having tried to help him.

Ruling on the dispute, the Court noted that, in the absence of a written agreement between the two men, it was in the unfortunate position of having to decide which of their contradictory accounts represented the truth. Preferring the man's evidence, the Court ruled on the balance of probabilities that they had reached an oral agreement to carry on the supermarket business in common with a view to profit. They had thereby entered into a partnership on the terms that the man alleged.

The friend had breached those terms in failing to account to the man for any profits made by the partnership from its trading activities, the subsequent lease of the premises and their eventual sale. The sums due to the man in the light of the Court's ruling would be assessed at a further hearing, if not agreed.