Just good friends? The status of app developer partners.

23 November, 2016

It’s a common scenario in many small scale ventures and start-ups, in the tech industry as in others, where two or more friends work together fairly informally, buying materials and investing small amounts here and there where required, sharing meagre profits equally or as per an “understanding”.

 

Friends can and do fall out however, and a lack of clarity and formality over your relationship can leave one or more parties feeling very aggrieved, with the result that the dispute ends up in costly legal proceedings. Take the recent Scottish case of Worbey and Farrell[1] as a recent example. They invested in a venture with a friend, Steven Elliot, to create two dating apps (Wapo and Wapa), but failed to document on what basis they were investing.  The Court decided that there was no evidence they were in partnership together.  A finding of partnership would be important because this could entitle the friends to a share in profits, whereas a mere investor would not automatically have this.  A partnership can arise simply by two or more people working in business together, but it’s much easier to prove an intention to create a partnership if you have something in writing.  It works the other way though, too.  As well as automatic entitlements to profits, partnership also creates automatic unlimited liability for the debts of the partnership as a whole – so if you don’t want to be liable for what your business partner does or doesn’t do in relation to the business, a properly drafted investment agreement is essential.

 

If you have any questions related to partnership agreements, please get in touch with Chris Langridge on +44 (0)1892 506 090 or at chris.langridge@crippspg.co.uk.  If you need advice relating to app developing, please contact Kathryn Rogers on +44 (0)1892 506 147 or at Kathryn.rogers@crippspg.co.uk.

[1] (1) Worbey & (2) Farrell v (1) Campbell; (2) Wapo Y Wapa Limited; & (3) Trustee in Bankruptcy of Steven Elliot [2016] CSOH 148,