Limited Liability Partnership - an Agreement

The statute makes no provision for directors or a board structure or any of the management structures familiar from company law. The management structure (and other matters) should therefore be addressed by the members in a separate LLP agreement. Any such LLP agreement is not registered at Companies House and it remains a private document.

The legislation envisages that an LLP agreement will be the norm - see LLPA 2000, s5

There are two main reasons for this:

  • the default provisions provided by the Regulations are unlikely to be appropriate in main instances. For example, the default position in the absence of an LLP agreement is that every member may take part in the management of the LLP; all the members are entitled to share equally in the capital and profits of the LLP and no member is entitled to remuneration for acting in the business or management of the LLP
  • the default provisions are limited in scope and there are many issues which they do not address, such as the nature and extent of the capital contributions to be made by the members and how disputes between the members are to be resolved

A comprehensive LLP agreement governing the duties and responsibilities of the members is a necessity, therefore, and it will need to make provision for:

  • the management of the LLP
  • the decision-making process
  • the capital contributions required of the members, both while a going concern and (if any) on liquidation
  • the division of profits
  • changes to the membership
  • dispute resolution
  • termination of the LLP
  • provision for the amendment of the LLP agreement

The internal flexibility conferred on members of an LLP by leaving it to them to devise their own management structure must be weighed, therefore, against the need to draw up an LLP agreement. An additional difficulty will be that few advisers will have much experience of LLP's and the 'novelty' factor will have cost implications for those seeking advice.

A member of an LLP will be subject to obligations under the statute (as an agent of the LLP) and under the LLP agreement or, in the absence of any agreement, under the default provisions contained in the Regulations. A member who is a designated member will have the additional responsibility of compliance with the statutory obligations imposed on designated members which were noted above.