A time may arise when a business relationship or partnership needs to come to an end. A business partner wants to take action against another including expelling that partner from the partnership.
There are a few common reasons you may want to expel a partner including:
- Disagreements over a partner’s behaviour
- Improper misconduct
- Actions that may harm the business.
When attempting to expel a partner from a partnership, the following should be considered:
Your partnership agreement
According to crestlegal.com, more and more businesses are including the “Green Socks” clause in their partnership agreements.
The ‘Green Socks’ clause allows expulsion of a partner for no reason at all provided that all the other partners agree – the clause became known as such as expulsion is possible simply because of the colour of the socks.
The core meaning behind the green sock clause is that the business partners have the right to expel another partner for any given reason. However, the other business partners have to accept the decision.
The “Green Socks” clause aims to encourage equal standing between all partners in a business agreement. Each partner will be aware of the clause and is aware that they could benefit or be affected negatively by it. In short, it ensures that partners are encouraged to be compliant, do their duty, or they could face expulsion.
There may be instances where the Green Socks clause cannot be enforced, such as where partners are deemed to have been discriminatory.
When to use the clause
Standard expulsion clauses in partnership agreements commonly refer to serious breaches of contract. The Green socks clause allows for expulsion of a partner that does not fall into the above category. Here are some examples:
- Personality clashes
- Partners having long periods of time away from the business
- Partners not pulling their weight
It may be difficult to prove the above as a serious breach of contract, however if all other partners agree that a partner is guilty of any of the above, there may be grounds for expulsion under the green socks clause.