These can be unnecessarily restrictive for partnerships requiring more tailored rules and greater clarity than the statutory provisions provide.<\/p>\n
Typically, an LLP agreement will cover the following areas:<\/p>\n
- \n
- Names of all partners who have entered into the agreement<\/li>\n
- Rights, responsibilities, and duties of ordinary members and designated members<\/a><\/li>\n
- Capital investment and non-financial contributions of partners<\/li>\n
- How much ownership and control each partner has<\/li>\n
- Limited liability of members – how much they are personally required to contribute toward the LLP\u2019s debts if it becomes insolvent<\/li>\n
- Profit-sharing and\/or remuneration arrangements<\/li>\n
- How losses will be shared between members<\/li>\n
- Criteria and admission procedures for appointing new LLP members<\/li>\n
- Expulsion criteria<\/li>\n
- Rules and procedures when a member resigns or retires<\/li>\n
- Obligations of outgoing partners, e.g. confidentiality and non-compete provisions<\/li>\n
- How decisions are made and which members have the right to make them<\/li>\n
- Annual leave, pensions, and other entitlements<\/li>\n
- Dispute resolution procedures<\/li>\n<\/ul>\n
\r\n \r\n![\"FREE](\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/242634_Domains_Banner-Cooperation_QCF_325x340_UK.png\"\r\n)
\r\n ![\"FREE](\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/242634_Domains_Banner-Cooperation_QCF_980x150_UK.png\"\r\n)
\r\n <\/a>\r\n <\/div>\r\n \nAdditionally, an agreement will usually cover key basics about the LLP, including:<\/p>\n
- \n
- Official LLP name registered at Companies House<\/li>\n
- Any alternative trading name(s)<\/li>\n
- Registration number<\/li>\n
- Registered office address<\/strong><\/a><\/li>\n
- Business\/trading address<\/li>\n
- Nature of business activities carried out by the partnership<\/li>\n<\/ul>\n
Essentially, a good LLP agreement should be tailor-made and address every single area relevant to the successful running of a specific partnership.<\/p>\n
Do I need an LLP agreement?<\/h3>\n
By law, LLP agreements are not compulsory, but it is generally agreed and recommended that every LLP has one. Drafting a bespoke agreement is the best way to protect your business and the interests of each member.<\/p>\n
If you don\u2019t create an LLP agreement for your partnership, the default provisions in the LLP Act 2000 and Limited Liability Partnerships Regulations 2001 will automatically apply.<\/p>\n
The default provisions under parts 7 and 8 of the LLP Regulations 2001<\/a> state that:<\/p>\n
- \n
- All members of an LLP are entitled to share equally in the capital and profits of the limited liability partnership<\/li>\n
- Every member may take part in the management of the LLP<\/li>\n
- No member is entitled to receive any remuneration for managing the LLP<\/li>\n
- No new member can be introduced without the unanimous consent of all existing members<\/li>\n
- Ordinary matters connected with the business of the LLP may be decided by a majority of the members, but no change can be made in the nature<\/em> of the LLP\u2019s business without the consent of all members<\/li>\n
- No majority of members can expel any member unless the power to do so has been conferred by express agreement between the members<\/li>\n
- The partnership will indemnify the members in respect of any expenses they incur<\/li>\n<\/ul>\n
These default rules may be perfectly suitable for some LLPs. However, they can be problematic for many others – particularly with regard to equal profit-sharing and decision-making rights.<\/p>\n
- \r\n The benefits of forming a limited liability partnership<\/span><\/a>\r\n <\/li>\r\n \n
- \r\n Distributing profits in a limited liability partnership (LLP)<\/span><\/a>\r\n <\/li>\r\n \n
- \r\n Running an LLP: filing and reporting requirements\u00a0<\/span><\/a>\r\n <\/li>\r\n \n
It is not unusual for members to invest differing amounts of capital, time, and effort in a business. In such instances, capital rights, profit entitlement, and decision-making powers should fairly reflect the contributions (both financial and otherwise) of each member.<\/p>\n
Creating an LLP agreement will allow you to do this, whereas the statutory provisions could leave the business and certain members in an unsatisfactory position.<\/p>\n
What are the benefits of drafting an agreement?<\/h4>\n
Drafting an LLP agreement provides many benefits, ensuring members have far greater control over the business and the way in which it operates.<\/p>\n
Specifically, a carefully written LLP agreement will:<\/p>\n
- \n
- Set out clear rules and procedures tailored to the unique needs of the partnership and its members<\/li>\n
- Protect each member\u2019s respective interests, investments, and contributions<\/li>\n
- Clarify the relationship between the partners, including their responsibilities and expectations<\/li>\n
- Minimise the risk of misunderstandings, disputes, and conflicts between members<\/li>\n
- Effectively manage and resolve potentially damaging disputes before they escalate<\/li>\n<\/ul>\n
Going into business always involves some degree of risk, but this uncertainty is compounded when other people are involved. That\u2019s why it is so important to cover all bases and start your partnership on a secure footing.<\/p>\n
How and when to create a limited liability partnership agreement<\/h3>\n
Ideally, you should put an LLP agreement in place as soon as you register your partnership at Companies House. It\u2019s best to set out the rules from the very beginning – and there\u2019s a greater chance of members being in agreement at the start of the business venture.<\/p>\n
There is no \u2018model\u2019 LLP agreement available from Companies House. However, you can obtain a draft one online and alter it accordingly. Or, you can ask your solicitor or accountant to help you create a bespoke LLP agreement.<\/p>\n