Recently, Kingland Partners represented a fund’s general partner (the “GP”) in securing a comprehensive victory on appeal before the Beijing No. 2 Intermediate People’s Court, which overturned the first-instance judgment in full. The core issue in dispute concerned whether, in the absence of any provision in the partnership agreement, the GP of a fund may be removed and replaced “without cause” by resolution upon the unanimous consent of the other limited partners (the “LPs”).
This case is the first publicly disclosed and groundbreaking matter addressing whether a fund GP may be removed without cause. It provides an important reference framework for internal governance and control rights disputes in partnership-type funds going forward. The case was handled by Lin Jingu, Partner of Kingland Partners’ Fund Dispute Resolution team.
In the absence of clear statutory provisions and relevant precedents, the Kingland Partners team faced significant pressure during the second-instance proceedings. By comprehensively applying methods of legal interpretation, legal theory, academic scholarship, and comparative foreign law, the team advanced multi-dimensional arguments in support of the legitimacy of “for-cause” removal, ultimately persuading the presiding judges and achieving a reversal on appeal. The appellate court held that a change of GP must be based on circumstances agreed upon by the parties, and accordingly determined that the disputed resolution violated the partnership agreement and should be revoked. This case carries multiple pioneering implications, including but not limited to the following:
1. For the first time, clarifying that “for-cause” removal applies to GPs/executive partners. Where a GP has not engaged in any improper conduct that harms the partnership or the interests of other partners, and the parties merely hold differing commercial views, may the GP be replaced directly upon unanimous consent of the other LPs? This case, for the first time, clearly establishes that removal must be for cause, prioritizing the protection of the organizational structure of limited partnerships and respecting the agreed terms of the partnership agreement, thereby setting an important and positive precedent.
2. For the first time, extending the revocability rules for corporate resolutions to partnership resolutions. There are currently no explicit provisions stating that the validity of partnership resolutions may be assessed by reference to the rules governing corporate resolutions, particularly as to whether a partnership resolution that violates the partnership agreement may be revoked by analogy to Article 26 of the Company Law. This case affirms that such an analogy is permissible, further refining the legal framework governing the validity of partnership resolutions.
Leveraging its extensive industry experience and deep legal expertise, Kingland Partners continues to assist clients in achieving success in the private equity and investment fund sector by providing comprehensive legal protection. From fund formation and investment stages to exit arrangements and dispute resolution, Kingland Partners is committed to delivering high-quality, full-lifecycle legal services to its clients.
