This question and answer featured in the Financial Times Money feature on Saturday 16th April 2011
Question: I am one of six partners in a recruitment business that operates as a Limited Liability Partnership. Unfortunately, we are in a dispute with one of the founding partners and I and the other four partners wish to expel him from the business. However, there is no Members Agreement in place and we need some advice on how we do this legally. Can you help?
Answer: If all 6 members of the limited liability partnership have not expressly agreed a power of expulsion, then Regulation 8 of the Limited Liability Partnerships Regulations 2001 will apply. It states that: “no majority of the members can expel any member unless a power to do so has been conferred by express agreement between the parties”. Any attempt to expel the member will be considered to be unfairly prejudicial conduct, entitling him to issue Court proceedings pursuant to section 994 of the Companies Act 2006.
Whilst it is possible to agree a power of expulsion orally, it is much better to include it in a written LLP members’ agreement. Otherwise, there is likely to be a dispute as to what precisely was agreed. A written agreement can also include other desirable terms, such as profit-sharing and capital arrangements.
However, it would probably be to act in bad faith to get everyone to agree to a written members’ agreement with the intention of expelling one of the partners. If he refuses to agree to leave voluntarily, the only way to get him out is to apply to the Court to dissolve the LLP. This is disruptive to the business and expensive.
In the present circumstances, we suggest making an offer to buy out his share of the LLP at fair value and trying to secure his voluntary resignation. This is the usual relief granted by the Court under section 994. The fact that he is a founding partner is not material.