Business Clinic: Can I be in two partnerships at the same time?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help. Here Rob James, a partner in law firm Thrings, advises on an unusual partnership question.

See also: Business Clinic: Can we ask our tenant to change the way they farm?

Q: I am in a family farming partnership and am investing in another completely separate business in which we are also planning to form a partnership.

Is there any legal issue with being in two partnerships at the same time?

A: As generally with matters pertaining to a partnership, it is free for the partners to agree whatever terms they wish between themselves to govern the internal relationship and the rights and obligations between them.

Accordingly, it may be that this particular scenario is expressly provided for in any partnership agreement and capable of a straightforward answer.

However, given the nature of the question, the inference is that there is either no partnership agreement or it is silent on this particular issue. Accordingly, one needs to examine the legal position using basic principles.

One of the core principles of partnership law is the duty of good faith. This can be translated to mean a duty to conduct oneself in a certain way in all dealings and transactions.

To put it another way, one cannot profit privately at the expense of the partnership.

Competition question

If the new business is in direct competition with the existing one, it is likely that you would be in breach of your obligations towards your fellow partners.

The legal test is concerned with whether it is a business of the same nature and a competing one. You must account to the current partners for any profits made in the new partnership.

This will be the case except where you have the consent of the other partners, and in this context you need informed consent.

If the new business is not in competition with the existing partnership, that is a different case and there is no duty to account.

As for what you are allowed or not allowed to do, there is nothing preventing you, in the absence of any express prohibition, from undertaking work outside the partnership, provided you are not competing with the partnership or using partnership property.

A further potential issue you need to be mindful of is the potential use (or misuse) of any confidential information belonging to the partnership, because this could be considered an asset of the partnership.

As with any query of this nature, the ultimate answer will be dependent on the individual circumstances of each case, and it is always advisable to seek expert legal input.

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