Partnership Pitfalls – Removing Partners

A Partnership, governed by the Partnership Act 1890, is not a separate legal entity and partners have unlimited liability. Partners can be removed either through expulsion, if allowed by a Partnership Agreement, or through negotiation.
UK Litigation, Mediation & Arbitration
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A Partnership is a relationship that exists between two or more persons carrying on business in common with a view to make a profit. Partnerships are governed by the Partnership Act 1890 ("the Act"). A Partnership is not a separate legal entity and the Partners generally have unlimited liability.

If a Partnership has no written Partnership Agreement, then the provisions of the Act shall apply.

Removing a Partner from a Partnership

There are only two ways to remove a Partner from a Partnership:

  • Expulsion – but only if you have a Partnership Agreement which allows for this; and
  • Negotiating a voluntary departure.

Expulsion

Section 25 of the Act states "No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners." Therefore, a Partner cannot be expelled without a Partnership Agreement expressly allowing for this. Grounds for expulsion usually include e.g. conduct that is likely to harm the business, breaches of key clauses of the Partnership Agreement, bankruptcy etc.

If there is a Partnership Agreement allowing for expulsion, the clause should dictate what steps are required to be taken to implement the expulsion. The Courts tend to interpret such a clause strictly. If there is any ambiguity in the clause, the Court is likely to interpret this against the persons seeking to exercise the power to expel.

It may come as a surprise that even the Court is unable to force a Partner to leave a Partnership where there is no Partnership Agreement allowing for expulsion.

Negotiation

If there is no Partnership Agreement containing an expulsion clause, then the only option left to you is to negotiate the Partner's voluntary departure or to dissolve the Partnership (which is another conversation entirely).

When negotiating the departure of a Partner, it is important to consider the value of the assets of the Partnership and the business generally as the departing Partner is likely to seek a payment from the Partnership in respect of their share in the Partnership. Funding such a payment could have long-term implications on how the Partnership continues to trade.

If you are considering the removal of a Partner, or if you are concerned about being expelled from a Partnership, we would always advise you to seek legal advice so that you are fully aware of your options and legal rights. We have a wonderful team of lawyers who can assist you and answer any questions you may have.

This article was written by Richard Slater, partner and Helen Prince, solicitor, in our Commercial Dispute Resolution team. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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