Yes, there are a variety of ways a partner can be removed from the partnership, depending on the circumstances. The easiest route is to follow the procedure outlined in a written partnership agreement. A comprehensive partnership agreement will include provisions explaining how and why a partner can be expelled from the partnership.
However, if you don’t have a partnership agreement or the partnership agreement doesn’t cover the specific scenario your business is facing, your options are more limited. Depending on the state you live in, you may be able to remove a partner for engaging in intentional breaches of the partnership agreement, wrongful conduct that harms the partnership, or behavior that makes continuing a partnership with them impossible.
If you cannot expel a problematic partner, you might need to dissolve the partnership entirely and form a new one without the troublemaker’s involvement. This will solve your problem, but it will also require your business to start over fresh with a new structure. If you need to remove a partner from your partnership, you should consult with an experienced attorney to determine the best options for your situation.
What Are the Rights of Partners in a Partnership?
The specific rights of partners in a partnership are designated by the partnership agreement. While state law will dictate specific rights and responsibilities that apply to all partnerships, a partnership agreement can define additional rights beyond the scope of the minimum legal requirements.
Typical partnership rights may include:
- The right to participate in planning and decision-making for the partnership
- The right to contribute to the operation and management of the partnership
- The right to inspect the partnership’s financial records
- The right to receive a percentage of the partnership’s profits and losses proportional to their investment
- The right to reimbursement for expenses incurred on behalf of the partnership
- The right to dissolve the partnership at any time
What Are the Two Ways a Partner Generally Withdraws From a Partnership?
There are two ways a partner generally withdraws from a partnership:
- A partner can sell their interest to another person.
- The partnership can buy out a partner’s interest by distributing funds or other assets in exchange for their stake in the company.
As with most aspects of a partnership, the partnership agreement will establish the way a partner can withdraw from the business. Most partnership agreements will outline what will happen when one partner chooses to withdraw, including the process and procedure a partner must follow when withdrawing, how the purchase price of the partner’s interest will be determined, and any changes to the partnership that will occur when a partner leaves.
One of the most common ways a partner can withdraw from a partnership is by selling their interest to another person, who will then take over their rights and responsibilities in the business. Some partnership agreements require that the other partners be given the opportunity to purchase a withdrawing partner’s interest before it can be sold to a third party. This is known as the “right of first refusal.”
The other method for exiting a partnership involves the partnership itself buying out a withdrawing partner’s interest. In this situation, the partnership will purchase back the partner’s interest, and it will no longer exist. The remaining partner’s shares will then be adjusted accordingly.
