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What happens if your partner is sent to prison?

18 November 2013

If your business partner is convicted of a crime and jailed, this presents a number of practical problems.

First and foremost, depending on the seriousness of the crime there is likely to be some reputational damage to your business when word gets out. Both current and potential investors may wish to distance themselves from the situation, leaving you with inadequate funding for the business.

There is also the question of how much the jailed partner can now realistically contribute to the running of the business. Their work will likely need to be split among the remaining partners, while if there were only two of you to begin with you may suddenly find yourself doing all the work for only half the reward.

The importance of a partnership agreement

In these circumstances, it is vital to have a strong partnership agreement in place which will allow you to quickly deal with the situation and continue the smooth operation of the business.

There are a number of ways you can prepare for a partner being sent to prison. You may wish to consider a simple expulsion clause, which gives the other partners the power to remove a partner convicted of a crime, whether this is directly to do with the business (e.g. embezzlement) or not.

Alternatively, you could include provisions that would allow for the buying out of a jailed partner, but it is important to specify all the circumstances under which this action can be taken.

If you would like advice on the best way to put together a partnership agreement that will safeguard the future running of your organisation, Ralli Partnership Law solicitors can help.

Our experts can be contacted on 0161 832 6131, or by completing the online contact form.

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