Today we are going to discuss on how to fire an ineffective Partner of an LLP. A Limited Liability Partnership (LLP) is one of the most common business structures in the UK, US, and Australia. In India, the LLP was given legal recognition by way of the Limited Liability Partnership Act, 2008.

As defined by the Limited Liability Partnership Act, a LLP is:

…a body corporate and a legal entity separate from its partners. It will have perpetual succession. While the LLP will be a separate legal entity liable to the full extent of its assets, the liability of partners would be limited to their agreed contribution.

WHAT IS A LIMITED LIABILITY PARTNERSHIP AGREEMENT?

A Limited Liability Partnership Agreement is an agreement entered into by the partners of an LLP to determine their rights and duties on each other and the LLP.

WHO IS A PARTNER?

An individual or a corporate body can be a partner in a LLP. However, such individual or corporate body should be of sound mind, should not be insolvent and should not have applied for being adjudicated as an insolvent.

HOW CAN A PARTNER OF AN LLP BE REMOVED?

The primary grounds on which a partner can be removed or rather disqualified from continuing as a partner is if he is found to be of unsound mind or has been adjudicated as an insolvent or has filed an application to be adjudicated as an insolvent.

However, when it comes to firing a partner, a completely different course of action has to be adopted.

It has first to be borne in mind that the Limited Liability Partnership Act, 2008 does not lay down any provisions for the firing of a partner of a LLP. The sole document that regulates this is the LLP Agreement entered into by the partners at the initial stage of the partnership. The LLP Agreement should, therefore, contain provisions that specify the criteria and procedure that should be adopted in case the need to fire a partner of the LLP arises.

WHAT IF A LIMITED LIABILITY PARTNERSHIP AGREEMENT HAS NOT BEEN ENTERED INTO?

A major problem arises if an agreement is not entered into or if the agreement does not specify any course of action to fire a partner. Since the LLP Act also does not suggest anyway, reliance has to be placed on alternate means.

At this juncture, it is essential to note that most often; a partner is also an investor in the business. Therefore, firing him/her would not serve the purpose of being an investor; he will continue to be associated with the LLP and its business. The best way out is to buy out the partner.

CONCLUSION

The Limited Liability Partnership Act does not specify any mode for firing of a partner of a LLP. Therefore, the primary way of firing a partner is by way of the LLP Agreement entered into at the start-up stage. However, such an agreement should provide for the firing of a partner.

In the absence of such provisions or in the absence of the agreement, buying out of the partner’s shares or the dissolution of the partnership itself serves as alternate solutions.

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