In this article, Metta Hyndavi pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses how to fire a partner of an LLP.
LLP stands for limited liability partnership. Limited Liability Partnership has been recognised in India as Limited Liability Partnership Act, 2008. The Act, defines LLP as, A legal entity which is separate from its partners, a body corporate. LLP has a perpetual succession. An LLP is a separate legal entity which is liable legally. Where the assets, the liability of partners are limited on the basis of their contribution for such LLP. It is a combination of regular partnership business and acts like a separate legal entity, and deal with both at once. The essentials of an LLP are more than that of regular partnership but also requires lesser than a company as it acts as a separate legal entity of its own.
It has a perpetual succession and it does not get affected by the mere changes in the partnership.
It is an artificial person, having a separate legal recognition in the society, it enters into contracts, take up obligations, has its own recognition. But the partners are entitled to limited liability in case of loss according to their contributions, the partners fall into risk only to the extent of their ratios. In this kind of partnership business, there is very less risking of personal assets and properties of the partners unlike in regular partnership business.
Commencement
The limited liability partnership is commenced by making an agreement between the partners of the firm. The contents of the agreement entered between the parties consists of all the rules and regulation and the rights, obligations, privileges, and the contributions made by them to the firm and the proportions is calculated and clearly mentioned in the agreement like which is done in partnership business. In this type of agreement the liability of the partners is limited and the extent of the limitation is mentioned. The schedule 1 of the limited liability partnership agreement Act gives a detailed description regarding the rights and liabilities of the partners.
Once the partnership has been formed, during the run of the business, partnership do not run with the same partners throughout the life of the firm but the partners keeps changing. This change in partners and the partnership is due to different circumstances and situations.
Some of them include addition of partners, removal of partner, death of a partner, substitution of a partner, retirement etc. As the partnership is perpetual and works in a long run, the mere change in the partnership shall not affect the business and however, it do not make much difference unless it is a dissolution or winding up of the firm.
Firing of a Partner in LLP
A partner in order to be a partner of the firm, he shall meet the basic requirements to be called as a partner of the firm. A partner is the one who is of sound mind, solvent, capable to make decisions and lunatic. If the partner is not of sound mind, or not capable to make decisions on his own or is lunatic in only intervals of time the partners may be fired in such cases, as it is not a qualification to be a partner.
The partner shall be solvent and he shall not be the one who is decided as an insolvent person legally. But in case of an LLP as the partners has the limited liability, the above mentioned cases may not affect the firm ,but, the limited liability partnership also do not specify the grounds to remove or fire a partner from the firm. The Act did not prescribe the manner or measures to be taken or any procedure is not provided by the Act for firing a partner. This can be presumed as either the partnership or incapable partner do not affect the whole business or it is to the discretion of the partners how to solve it in case when such situations arise.
However, presumption is merely not dependable. The rules framed or the regulations that the partners chosen to govern them at the time of making an agreement will be effective. The agreement shall be lawful, legal and with a bonafide intention and do not include anything malafide or fraudulent clauses. This agreement might help the partners when such situations like a partner removal, firing, substituting, and addition may be required. The partners new or old shall be given a notice and a copy of agreement which contains all the particulars and details about their role and the other partner’s role in the business.
Partners has to construct the agreement carefully foreseeing and keeping in mind all the possibilities that might occur and try to solve them by writing them down in the agreement which is easier for them at the needy time. The courts are available to clear the issue and the problems where the partners are stuck but the agreement shall be made compulsory in order to avoid any conflict. In the extreme circumstances when the agreement of limited liability partnership is not made, the alternate means should be made or it id to the discretion of the other partners supporting and opposing in majority.
Though it is a limited liability partnership unless there is a strong reason behind removal or any disqualification which apparently contributes to the removal or firing of a partner, the firing shall be made. There should be a reason to believe that the partner is incapable of continuing as a partner of the business.And it is to the incapable partner to take the burden of proof and defend himself if he is alleged to be incapable but who is not actually an incapable partner.
Liability
The other partners will not be liable for the fraudulent acts of the partner. The risk or the loss will be divided between the partners and shared amongst all the partners so that the personal assets of the partners are not brought forward to calculate the loss which has been faced due to the misconduct of one partner of the firm.
There should be no malafide intention of the other partners to fire a partner intentionally. A partner is an investor and a decision maker of the business and the partner’s contribution do affect the long run of the business .the fraudulent firing of a partner shall not be allowed.
Investigation
The investigation will be made in order to confirm the disability of the partner who has been alleged by the other partners or so on to know how far is the allegation true. All the required documents and the proofs which are to be scrutinised shall be done by the inspector and all the investigation is to be done by him to know the truth behind the allegation.
The motive of the partnership should be profit earning and the dispute between the partners must be solved as per the agreement but not played fraud. If at all, with the consent of the other partners the partner can be a “buy out” partner, whose shares can be obtained by the other partners by paying him some money and paid some amount of his proportion in the business and such partner can be not made a partner from the next financial year.
But in case, if such partner hold out the maximum shares of the business this may not be a good idea yet find an another alternative to fire or remove such partner from the partnership. If the maximum investor of the partnership is the one who creates conflicts or is subject to the dispute, then the partnership may be dissolved. The partners also may choose to commence a new partnership business with the existing partners or by adding the new partners to the firm according to their wish and will.
Judicial Assistance
Courts are present to help out such business and entities and provide redressal to the grievances faced by such partners. Once the proceedings have been started it is to the discretion of the court to try and decide the case.
Court shall order as it feel would be the best thing that could be done taking into consideration of all the circumstances and the facts of the case and shall pass an order as may deem fit. The help of the experts can be taken in case of the technicalities or the explanation of the circumstances is needed.
Dissolution
The dissolution of the firm may be done if the court has ordered for the dissolution or with the mutual consent of the partners. When the buying out, holding back the shares or any misconduct by any of the partners are not spared then the business can be dissolved and a new business can be commenced instead of ousting such a partner from the business.
Conclusion
There is no manner which specifies to fire a partner from a partnership liability from the business; however it can be done by,
1) Agreement
2) Dissolution
3) Buying the partner
4) Or by the assistance of the court.
In absence of any such partnership agreement, either the court may be sought help or the discretion of the partners to resolve the dispute arose between them.
