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Q.Partnership - Rogue Partner

Q. Partnership - Rogue Partner

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Abhishek Pandey

posted 8 months ago

I am partner in a small partnership firm owning 80% shares with other two partners owning 10% each. While me and other partner ( one of the other two) diligently work to get the best returns for the firm, the other partner has turned rogue and doesn’t contribute and is only interested in his share of profit. He threatens me and has nil contribution to the company for the past 8 years but he has been collecting money from us on the pretext of shutting down partnership firm. What should be the best solution to
Get him ( rouge partner ) out of the partnership firm? It is becoming very difficult to talk to him in a cordial manner and our partnership deed doesn’t have arbitration clause nor we have enough funds to pay lawyers’ fees for years.

Even the 10% stake/ share to this rouge partner was a kind of incentive/ sweat equity.
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A. remove him from partnership firm by passing a resolution to that effect.

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Ashish Dongre

Experience: 12 Year(s)

Responded 8 months ago

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Abhishek Pandey

Experience: 1 Year(s)

Replied 8 months ago

But I understand that Section 33 of Partnership Act 1932 doesnt allow for expulsion of a partner unless there is written conract to that effect. We have none in this regard.

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A. Dear Sir,
Pass a resolution and remove him and intimate the same to the Registrar of Firms if it is registered. Lodge a complaint with police.

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Kishan Dutt Kalaskar Retired Judge

Experience: 33 Year(s)

Responded 8 months ago

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Abhishek Pandey

Experience: 1 Year(s)

Replied 8 months ago

Dear Sir, I understand that :

"A Partner in a LLP cannot be removed by a majority of the other Partner unless the LLP agreement expressly provides such powers." and our partnership deed doesn't have such clause. Therefore, won't it be against law to pass a resolution for removal of a partner from a partnership firm?

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A. You need to register a new partnership firm with a similar name or a different name as per your convenience and arrange the related documents like PAN, GST, Bank accounts in the new firm's name. sell out whole stock to the new firm and wind up old firm. You may complete the legal formalities later when they arrive. Don't pay his share now and tell him that all will be divided when all the legal formalities will complete and the balance will be paid. You may attract some income tax obligations and the same may be handled by an advocate or CA.

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Vimlesh Mishra

Experience: 26 Year(s)

Responded 8 months ago

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Abhishek Pandey

Experience: 1 Year(s)

Replied 8 months ago

Dear Sir, Unfortunately, registering a firm in India is such a long drawn process ( because of red tapism and rampant corruption) and it also means losing out on credentials of old firm as our government clients may not easily recognize that new firm owns credentials of old firm. In addition, the rogue partner may not become a party to sell stocks of present firm to new firm because he would clearly see this as an attempt to throw him out. Does a solution exist keeping the present firm alive?

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