Limited Liability Partnership ('LLP') Under 2000 Act
An LLP is a corporate body which exists as a legal ‘person’ independently of its members.
The constitution of the Partnership is governed by a member’s agreement and if there is no agreement there are default provisions which include the sharing of profits equally and the equal participation in management.
Individuals or existing businesses can be members of a Limited Liability Partnership, and the LLP must have at least 2 members. As an LLP must involve a commercial activity with a view to profit, it is not suitable for charities or non profit organisations.
The LLP is liable for its debts and obligations, but its members are not. If an LLP becomes insolvent and is wound up, members cannot be required to contribute from their personal assets unless they previously agreed to do so, although they may be subject to a possible claw back of drawings of up to two years.
Members are not personally liable to meet a claim arising from another member’s negligence but the negligent member may be personally liable for any negligent advice given.
Like in a normal Partnership there is an implied duty of good faith between the members and the LLP. This obligation to act in good faith applies at all times, including when making the decision to expel a member or when changing the terms of the Agreement. The members are agents of the LLP and are under a fiduciary duty to the LLP so that: - (LLP Regulations 2001 Reg 7)
- each member shall render true accounts and full information
- members cannot carry out a competing business without the consent of the other members
- every member must account to the LLP for any benefit derived from the use of the LLP’s assets, name, or connections.
There must be at least two ‘designated members’ whose role is to perform the administrative and filing duties of the LLP. If no designated members are appointed or there is only one, then all are deemed designated members.
Annual accounts must be filed with Companies House. They must be prepared in accordance with strict accounting standards and they must be audited.
An LLP must register at the outset an incorporation document which includes the names and addresses of its members, the proposed name of the LLP, and the location and address of the registered office. Where a person becomes or ceases to be a member or a designated member the registrar must be notified within 14 days.
Members cease to be members either by death (or dissolution in the case of a corporate member), by agreement with other members or by giving reasonable notice to other members. If a member changes, the changes of particulars must be notified to Companies House on the proper form.
An LLP agreement is a simple contract which can be the subject of repudiation and acceptance. The consequence of repudiating an LLP agreement is likely to discharge the members from further compliance with the LLP agreement but it does not discharge any member from membership of the LLP.
LLPs, like limited-liability companies, are allowed to:
- Propose a voluntary arrangement;
- Apply to the court for an administration order;
- Go into receivership;
- Resolve to go into voluntary liquidation;
- Resolve to be wound up by the court.
If you would like advice about setting up a partnership or in relation to any issues you have within your partnership, Ashby Cohen can help you. We are specialists in partnership law, and our years of experience as lawyers make us uniquely qualified to assist you with any partnership queries you may have. Please contact us for an initial free consultation.