What are your rights when facing expulsion from an LLP or partnership

If you are facing expulsion from an LLP or partnership, your starting point should be looking at your LLP or partnership agreement.

To expel a partner or member, there must be an express power in the LLP or Partnership Agreement permitting this.

Your agreement should set out:

• (i) The circumstances in which the LLP or partnership may expel you
• (ii) The procedure to be followed in this connection
• (iii) Your entitlements including the amount and timing of payments to you.

The timescales in relation to expulsion can be quite short, so it is important to check the details in your Agreement as soon as possible and take advice.

Procedure to expel

The procedure should be set out in the LLP or Partnership Agreement. Please see our article here detailing further information and examples of relevant procedures that may be followed during expulsion.

It has been unclear to what extent the law on the application of natural justice, namely the right to know the charges laid against you and defend yourself, applies to partnerships and LLPs but there is caselaw to suggest the principles of natural justice should apply.

Have the grounds for expulsion been established?

This will be a case of looking at the ground on which you have been expelled and considering what actually happened.

Bad faith

Partners owe each other a duty of good faith. The position regarding LLPs is different but it is likely that a power of expulsion in relation to the member of an LLP must also be exercised in good faith.

Discrimination

The Equality Act 2010 provides that partnerships and LLPs must not discriminate against, victimise or harass a person by expelling them as a partner or member on the grounds of nine protected characteristics, namely:

• Age
• Disability
• Gender reassignment
• Marriage and civil partnership
• Pregnancy and maternity
• Race
• Religion or belief
• Sex
• Sexual orientation.

Garden leave and suspension

A partner or member can only be subject to garden leave or suspension if the LLP or partnership agreement provides for this or it is otherwise agreed between the partners or members.

LLP member additional rights

A member of an LLP expelled without the requisite power may have a right to bring an action for unfair prejudice under the Companies Act or to apply for the just and equitable winding up of the LLP under the Insolvency Act 1986 but these are difficult routes to follow. They are not available to partners in a partnership.

Members of an LLP, but not partners in a partnership, may fall in to the category of ‘workers’ under the Employment Rights Act 1996 and attract the protections given to ‘workers’ under that Act including whistleblower protection.

Entitlements

Your LLP or partnership agreement will set out the sums you are entitled to receive by way of capital and profit share, when and how such sums are to be paid, whether interest is due and payable on outstanding sums and whether there are any other entitlements due to you in relation to your expulsion. This may be varied if a settlement is negotiated.

If you are subject to an expulsion, it is advisable to obtain advice at an early stage. Most contested expulsions will be dealt with by way of settlement rather than proceeding to a conclusion in court and it is therefore important to get your key advisers in place at an early stage in proceedings.