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LLP had no power to expel one of its partners

Posted: 14th April 2011   In: Dispute Resolution, Corporate Commercial

The High Court has ruled that a limited liability partnership had no right to expel one of its partners because there was no binding agreement giving it the necessary powers.

The case involved a recruitment agency in which the three members had marketed themselves as partners since 2004.

They then started to consider becoming a limited liability partnership and there were discussions about how fees should be allocated.

The agency was incorporated in 2007 and there was an agreement that 25% of all fees should be paid into the business to cover running costs. There was no written agreement about procedures for expelling a partner and the issue had not been formally discussed.

One of the members considered himself as the senior partner, although there was no formal acceptance of this by the others. This self-styled senior partner became dissatisfied with the work of one of the other two partners and dismissed him.

He also refused to refund the dismissed partner’s 25% contributions to the running of the business.

The High Court has ruled that this was unlawful and unfairly prejudicial because the lack of a formal agreement meant there was no power of dismissal.

The court held that without such an agreement, the only way to remove a partner was to buy him out or dissolve the partnership.

Please contact us if you would like more information about the issues raised in this article.