Repayment of partnership premium PA 1890 s. 40
If a fixed-term partnership dissolves early, the court may order repayment of an entry premium, unless caused by the payer's misconduct or barred by agreement.
Where one partner has paid a premium to another on entering into a partnership for a fixed term, and the partnership is dissolved before the expiration of that term otherwise than by the death of a partner, the Court may order the repayment of the premium, or of such part thereof as it thinks just, having regard to the terms of the partnership contract and to the length of time during which the partnership has continued; unless the dissolution is, in the judgment of the Court, wholly or chiefly due to the misconduct of the partner who paid the premium, or the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium.
Text in force at .
Source: legislation.gov.uk — The National Archives (legislation.gov.uk), reproduced under licence Open Government Licence v3.0.
What it actually says
When someone pays a sum of money upfront to join a partnership set up for a set period, that payment is known as a premium. If the firm is brought to an end before that full period finishes, the person who paid the money might receive some or all of it back.
The court determines whether to direct a refund and how much should be returned. In making this decision, attention is given to the terms set out in the contract and how long the business actually operated before dissolving.
No refund is granted under this rule if the dissolution happened because of the death of a partner, or if the early closure was entirely or mainly caused by the wrongdoing of the partner who paid the premium. Likewise, no return is ordered if the partners signed a dissolution agreement that contained no provision for returning the money.
When it applies
- A new partner pays money upfront to join an accounting firm for a fixed duration, but the firm dissolves early by court order.
- A dentist joins a practice under a fixed-term agreement after paying a capital sum to the founding partner, and the practice closes before the agreed end date.
- A solicitor pays an entrance fee to enter a law firm for a set term, but the partners agree to dissolve the firm before that term expires.
What this section does not say
- Dissolution resulting from the death of a partner, which is excluded from premium repayment under this section and addressed under pa1890s.33.
- Premium refunds where the partner who paid the sum brought about the early dissolution through their own main misconduct.
- Early dissolution of a partnership where the partners signed a dissolution agreement that expressly makes no provision for returning the premium.
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This page reproduces the text of PA 1890 s. 40 in force at the date shown and explains it in general terms. It is not legal advice and takes no account of the circumstances of your case, which can change the answer completely. For a live dispute, for limitation periods, and before taking any step in court, consult a qualified lawyer in England and Wales.