In certain situations, a time may arise where a business partner wishes to take action to remove or expel a partner. The most common reason is unlawful or other activity by a partner that could damage the business.
However, if you have a general partnership under the 1890 Partnership Act and you do not have a partnership agreement or partnership deed, expelling a partner is not possible.
Unfortunately in this case your only option may be ending the partnership. If you do not have a partnership agreement to the contrary, you will need to dissolve the partnership and reform as a new entity. There is no doubt that dissolving a partnership is difficult, but Ralli Partnership Law can help you around the complexities of this.
Advice on expelling a partner
Avoiding these legal issues when ending a partnership is a major reason why all partnerships should have a partnership deed or agreement. Whether you’re in the process of setting up, or your partnership has been running for some time, you can enlist a solicitor to draw up a solid partnership agreement that protects the best interests of the business. This includes provisions for circumstances such as retirement, death or unlawful behaviour or a partner, enabling the partnership to continue in their absence.
Limited Partnerships and Limited Liability Partnership (LLPs) are similar and Ralli recommends that written agreements should be in place to regulate the conduct of the partners or members. Under the Limited Liability Partnership Act 2000 it is impossible to expel members without an express agreement.
If you have decided you need to expel a partner from your partnership, the following issues should be taken into consideration before you proceed.
- Your partnership agreement – Your ability to remove a partner, and to what extent you can remove them, depends on the wording of your partnership agreement. Provision for expulsion may only be enforceable if wrongdoing has occurred.
- Property and profits – The ownership of property within a partnership is often cause for contention. Dividing up this property and profits upon expulsion or dissolution needs to be treated with extreme caution.
- Employment rights – In a limited liability partnership, expulsion could leave you open to claims such as discrimination or unfair dismissal, which if the court finds the partnership’s affairs are being conducted in an unfairly prejudiced manner could lead to the winding up of the LLP.
Contact us for advice
Ralli Partnership Law holds extensive experience of the dissolution of a partnership and the expulsion of partners under partnership agreements. Even with a partnership agreement it is not always easy to expel a partner, but with careful negotiation it is usually possible to reach an amicable agreement when ending a partnership. Where this is not the case, we also have strong experience of litigating partnership disputes.