To remove a partner from a partnership, follow the expulsion procedure written into your partnership agreement; if the agreement is silent or doesn’t exist, the Revised Uniform Partnership Act (RUPA) lets the remaining partners expel by unanimous vote on four specific grounds, or ask a court to order the removal on three broader grounds. Once the partner is out, you have to deliver a formal notice, file a statement of dissociation to cut off their authority to bind the business, and pay a mandatory buyout. Skipping any of those steps is where partnerships get sued by the people they just removed.
Start With the Partnership Agreement
The partnership agreement is the first place to look. RUPA treats the agreement as the primary authority for internal governance, and its Section 601(3) specifically recognizes dissociation through expulsion carried out under the agreement’s own terms.1Federal Litigation. Uniform Partnership Act (1997) If the agreement says a partner can be removed by a two-thirds vote for specified misconduct, that’s the rule. If it requires unanimity, that’s the rule. The agreement can also set notice periods, cure windows giving the accused partner time to fix the problem, and procedural requirements like a formal hearing before the vote.
Most well-drafted agreements include expulsion-for-cause clauses listing specific triggers: embezzlement, breach of fiduciary duty, conviction of a felony, or chronic failure to meet capital call obligations. Some also include expulsion-without-cause provisions, which allow removal based on professional incompatibility without requiring proof of wrongdoing. Without-cause clauses give the partnership more flexibility, but courts scrutinize them more closely because of the potential for abuse.
There is one limit the agreement cannot override. Under RUPA, the partnership agreement cannot eliminate the obligation of good faith and fair dealing, and it cannot strip the court’s power to order judicial expulsion under Section 601(5). A carefully drafted agreement that tries to make one partner untouchable will not survive a court challenge if that partner’s conduct meets the judicial expulsion standard.
Expulsion by Unanimous Vote Under RUPA
When the partnership agreement is silent on expulsion or simply doesn’t exist, RUPA’s default rules step in. Section 601(4) allows the remaining partners to expel a partner by unanimous vote under four specific circumstances.1Federal Litigation. Uniform Partnership Act (1997)
- It is unlawful to carry on the partnership business with that partner. This most commonly arises when a partner loses a professional license required for the firm’s operations, such as a law license, medical license, or CPA certification.
- The partner has transferred all or substantially all of their transferable interest in the partnership, other than a transfer for security purposes like pledging the interest as loan collateral.
- A corporate partner has filed a certificate of dissolution, had its charter revoked, or lost the right to conduct business in its state of incorporation, and fails to reverse that within 90 days after being notified of the planned expulsion.
- A partner that is itself a partnership has dissolved and begun winding up its own business.
The unanimous-vote requirement is strict. Every remaining partner must agree. One holdout blocks the expulsion, which can create leverage problems in partnerships where factions have formed. If unanimity cannot be achieved, the only remaining path is judicial expulsion.
Asking a Court to Order Expulsion
When neither the agreement nor the statutory voting provisions provide a workable path, the remaining partners can ask a court to remove the problem partner. RUPA Section 601(5) allows any partner or the partnership itself to apply for a judicial order of expulsion on three grounds.1Federal Litigation. Uniform Partnership Act (1997)
- The partner engaged in wrongful conduct that adversely and materially affected the partnership business.
- The partner willfully or persistently committed a material breach of the partnership agreement, or of their fiduciary duties to the partnership and the other partners.
- The partner’s conduct makes it not reasonably practicable to carry on the business with them.
The impracticability ground is the broadest and the one courts see most often. It doesn’t require outright misconduct. A partner who creates such friction, distrust, or dysfunction that the business can’t operate effectively may be removed even without a specific rule violation. Courts look at the totality of the relationship, including whether the partners can still communicate, whether management decisions have ground to a halt, and whether the conflict has begun driving away clients or employees.
The process begins with filing a petition in the appropriate civil court. Expect a discovery phase where partnership records, financial documents, and evidence of the partner’s conduct are exchanged and reviewed. The court then holds a hearing and, if persuaded, issues a decree of dissociation that officially ends the partner’s status. Legal fees for contested judicial dissociation proceedings commonly run from $5,000 to well over $50,000, depending on how aggressively the targeted partner fights the action. The partnership typically bears these costs initially, though some agreements allow the prevailing side to recover attorney fees.
Delivering a Valid Expulsion Notice
Once the vote is taken or the court order is issued, the partnership needs to deliver a formal notice of dissociation. The notice should state the effective date of the expulsion, identify the specific authority for the removal (the relevant clause of the partnership agreement or the applicable subsection of RUPA Section 601), and, if the expulsion is for cause, describe the conduct that triggered it with enough factual detail that a reviewing court could evaluate whether the grounds were legitimate.
Delivery method matters. Send the notice by certified mail with return receipt, or by a recognized overnight carrier that confirms delivery. A signature on receipt prevents the expelled partner from later claiming they never got the notice. Keep a copy in the partnership’s records along with proof of delivery. Sloppiness here is where expulsions get challenged. A partner who can argue they were never properly notified has an opening to contest the entire process.
Cutting Off the Ex-Partner’s Authority to Bind the Business
Removing a partner from the internal relationship is only half the problem. The bigger risk, and the one partnerships most often overlook, is that the expelled partner retains the power to bind the partnership in dealings with outsiders who don’t know about the expulsion. Under RUPA Section 702, the partnership remains liable for an expelled partner’s actions for up to two years after dissociation if a third party reasonably believed the person was still a partner, had no notice of the dissociation, and was not deemed to have constructive notice through a filed statement of dissociation.
The fix is filing a statement of dissociation with the appropriate state filing office. Under RUPA Section 704, once the statement is filed, third parties are deemed to have constructive notice of the dissociation after 90 days.1Federal Litigation. Uniform Partnership Act (1997) That deemed notice eliminates the apparent authority problem for new transactions. Without the filing, the two-year exposure window runs its full course, and the partnership could be on the hook for contracts the expelled partner signs with unsuspecting third parties.
Beyond the formal filing, send direct notice to banks, key vendors, clients, and anyone else who regularly dealt with the expelled partner. Actual notice is more protective than constructive notice because it takes effect immediately rather than after the 90-day waiting period. Update signature cards, revoke access to partnership accounts, and remove the former partner from any public-facing materials like websites, letterhead, and professional directories.
Paying the Mandatory Buyout
Every expelled partner is entitled to a buyout of their interest. RUPA Section 701 makes this mandatory: if the partnership continues operating after a dissociation, it must purchase the departing partner’s interest. There is no option to simply freeze the partner out and pay nothing.
The buyout price equals the amount that would have been distributed to the partner if, on the date of dissociation, the partnership’s assets were sold at a price equal to the greater of their liquidation value or the value based on a sale of the entire business as a going concern. Interest accrues on that amount from the date of dissociation until the date of actual payment.
If the partnership and the departing partner cannot agree on a price within 120 days after the departing partner makes a written demand for payment, the partnership must pay its own good-faith estimate of the buyout price in cash, along with accrued interest. The departing partner can challenge that estimate in court if they believe it undervalues their interest. This is where professional business appraisals become important. Getting an independent valuation upfront reduces the chance of a costly court fight over the numbers.
The partnership must also indemnify the dissociated partner against all partnership liabilities, whether incurred before or after the dissociation, except liabilities the former partner personally created through unauthorized post-dissociation transactions. This indemnification obligation is separate from the buyout payment and can be a significant financial commitment if the partnership carries substantial debt or pending legal claims.
Wrongful Dissociation Reduces the Buyout
Not every expulsion has the same financial consequences. RUPA Section 602 draws a sharp line between rightful and wrongful dissociation, and which side a departing partner falls on directly affects how much money they receive and when.
A dissociation is wrongful in only two situations: the partner’s departure breaches an express provision of the partnership agreement, or the partner leaves a partnership with a definite term or specific undertaking before that term expires or the project is completed. A partner expelled for cause under the agreement, removed by court order, or voted out under the statutory grounds almost always falls on the wrongful side of this line.
The distinction matters because a wrongfully dissociated partner owes the partnership damages for any losses caused by the wrongful departure, and those damages are deducted directly from the buyout price. The wrongfully dissociated partner may also have to wait longer for payment. Where a rightfully dissociated partner must be paid within 120 days of making a written demand, a wrongfully dissociated partner can be made to wait until the end of the partnership’s original term unless a court determines that immediate payment would not cause undue hardship to the business.
Tax Treatment of the Buyout
The IRS classifies buyout payments to a departing partner under two different frameworks depending on what the payment is for, and getting this classification wrong can mean paying thousands more in taxes than necessary.
Payments made in exchange for the departing partner’s interest in partnership property are treated as partnership distributions under Section 736(b) of the Internal Revenue Code.2Office of the Law Revision Counsel. 26 USC 736 – Payments to a Retiring Partner or a Deceased Partners Successor in Interest These payments generally produce capital gain or loss for the departing partner, which is taxed at lower rates than ordinary income. The partnership does not get a deduction for these payments.
Everything else falls under Section 736(a) and is treated as either a distributive share of partnership income (if the amount depends on how the partnership performs) or a guaranteed payment (if the amount is fixed regardless of partnership income).2Office of the Law Revision Counsel. 26 USC 736 – Payments to a Retiring Partner or a Deceased Partners Successor in Interest Both types are taxed as ordinary income to the departing partner, and the partnership can deduct guaranteed payments.
There is a significant trap for service partnerships where capital is not a material income-producing factor, such as law firms, consulting firms, and medical practices. In those partnerships, payments attributable to unrealized receivables and goodwill (unless the agreement specifically provides for goodwill payments) are reclassified from property payments to ordinary income payments under Section 736(a). The departing partner loses capital gains treatment on what may be the most valuable portion of their interest. Section 751 adds a separate overlay: to the extent a buyout payment is attributable to “hot assets” like unrealized receivables and substantially appreciated inventory, the gain is ordinary income regardless of how the rest of the buyout is classified.3Office of the Law Revision Counsel. 26 USC 751 – Unrealized Receivables and Inventory Items
Does Expelling a Partner End the Partnership?
Usually, no. Under RUPA, a partnership is treated as a separate entity that continues to exist after a partner leaves. The default rule is that the business carries on with the remaining partners, and the expelled partner receives a buyout rather than a share of liquidation proceeds.
Dissolution does occur, however, if the expulsion leaves the partnership unable to function. If the expelled partner was the only remaining general partner, the other partners may need to admit a new general partner or vote to dissolve within 90 days. The partnership agreement can also specify that certain dissociation events trigger dissolution. When dissolution does happen, the partnership moves into a winding-up phase where assets are sold, debts are paid, and remaining funds are distributed to the partners according to their interests. The buyout framework of Section 701 does not apply during winding up because the entire business is being liquidated, not just one partner’s share.