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Limited Liability Partnership Members

Find out what you need to know about forming a UK company

LLP Members

What do LLP Members do?

According to the law, a limited liability partnership must have minimum two partners.  It cannot be stated as a partnership without having at least two members.

If the limited liability partnership continues to trade and the membership falls to one person for a period of more than six months - then that individual is jointly liable with the partnership for all debts incurred by the company over the period. Such kind of situations can occur through a sudden accident leaving one partner left to operate the business. The number of members falling below two is also grounds for winding up the LLP.

While forming a company, there is no limit on the number of members an LLP can have. On incorporation, the members of an LLP are only those people who signed their names on the incorporation document. After your company is incorporated, any person or company can become the member of an LLP with the agreement of the existing members. If one of the LLP members dies or a company ceases trading that was assigned as a member, then they won’t be any longer a member of the LLP.

As per the rules - if an LLP has 20 or less than 20 members, the names of the members must be listed on the headed paper. If the members are greater than 20, then the names of all those candidates cannot be included in the letterheads of the company. In this case, you can list the name of members at your company registered address. And this list of members can be viewed by the public.

If an LLP fails to release the list of its members, then the company can be liable to the penalties. For example, if an LLP signed up a new member with it but didn’t display the names of the members in the list, then in return that member has to face financial loss, the LLP can also be liable for damages.

In general, a normal member of an LLP will not be an employee of the partnership. A member can become both an employee and a member who is getting both a paid salary (as an employee) and a share amount of the profits (as a member).

Your duties and rights as a member of an LLP

All the duties and rights of members of an LLP and the relationship between the members are written in the legislation or agreement of the LLP. According to the rules, LLP members do not owe a fiduciary duty to other members or the LLP unless there are some contractual clauses in the LLP agreement or they act as an agent of the partnership.

A member of an LLP is automatically deemed to be an agent of the LLP. Then that member is expected to show a duty of care only in relation to those transactions he/she enters into on behalf of an LLP. The duty of care includes:

  • Carrying out the instructions of the LLP with complete care and attention
  • Exercising appropriate care and skill
  • Run a business with integrity and honesty
  • Behaving honestly and not accepting inducement or personal profits in respect of LLP business
  • Not allowing a conflict of interest

What are designated members?

Every LLP must have at least two designated members whenever it is incorporated. These two designated members can be individual or corporate members, and the name of these members should be displayed on the registration documents. Every person who joins the LLP can be incorporated as a designated member, no matters if he is there at the time of incorporation or not. In the absence of any members being identified as designated members, or if the number falls below two, then all members of the LLP are considered to be designated members regardless of the date when they joined the LLP.

At Companies House, the registrar of companies requires a full detail of all designated members. So, if there are any changes made in the designated member's list, you can submit this new updated list to the companies’ registrar at any time. It means you are free to notify these changes to the registrar any time, you don’t need to wait until the end of financial year. From the list of the LLPs members, a person or company ceases to be a designated member, if they are going to leave the LLP.

Is there a difference between the duties of a normal member of an LLP and the designated member of an LLP?

In addition to the duties as a normal member of an LLP, a designated member of the LLP has some added duties. The responsibilities of a designated member are given below:

  • Completion and registration of the annual returns of the company
  • Preparing and signing annual accounts
  • Appointing an auditor
  • Submitting the accounts of the company to its registrar
  • Notifying the registrar of the companies if any changes are made in the LLP’s registered office, membership, or company name
  • Filing annual confirmation statements at Companies House on the behalf of the LLP and its members within statutory deadlines
  • If an LLP is wound-up, then acting on the behalf of that LLP

Along with these roles, designated members of an LLP can have other duties too. Sometimes, it requires some added management power to handle the tasks properly. These additional powers of a designated member can be compared to the powers of the director of a limited company. 

Shadow members

Have you heard the term ‘shadow member’? Perhaps you too have heard of this term, but, don’t have an idea about the role of a shadow member. Simply put - a shadow member is a person who always plays off screen, because he cannot be hired officially due to some reason. A shadow member is a person who gives direction and instruction to other members and those members follow all the instructions. An individual hired by an LLP just to deliver professional advice is unlikely to be treated as a shadow member, in spite of how important his advice can be.

Stepping down or resigning your LLP membership

If any member of the LLP such as a company, an individual, an LLP, etc. wants to or doesn’t want to be a member of the LLP more, then this decision can be taken with the agreement of other members. The person has to give reasonable notice to other members of his choice. The decision they take depends on this notice. This is possible in several conditions, for example, when a person wants to retire or a company registered as a member wants to move their business interests somewhere else.

LLP agreement

There is no legal pressure on an LLP to hold a limited liability partnership agreement. Still, the legislation allows members who are signing up to an LLP and want to enter into a formal agreement governing their mutual rights and duties in relation to each other and the LLP. If the LLP fails to draw up such an agreement, then the default provisions can be charged to the membership. The larger LLPs only adopt written agreements.  Whereas the agreement can be in writing, although a verbal, or implied agreement can be adequate to displace the default provisions.

Under Regulation 7 and 8 of the Limited Liability Partnership Regulation 2001, there are a large number of default provisions. In the absence of a written or verbal partnership agreement, the legislation provides for a number of default provisions. And these provisions are as given below:

  • All the members of an LLP are allowed to share in the capital and profits of the limited liability partnership equally.
  • The LLP must cover each member in respect of payments made and personal liabilities incurred: in the ordinary course of the business of the LLP; in respect of anything essentially done to preserve the business or property of the LLP.
  • Ensure each member is taking part in the management of the LLP.
  • No person can be introduced as a member or voluntarily assign an interest in an LLP without the approval of all other members.
  • No member is permitted to remunerate for acting in the management or business of the LLP.
  • Any difference arising as to ordinary matters may be decided by the majority of the members. But, any change in the nature of the business requires the permission of all members.
  • To make records and books of an LLP available for the inspection by each member at the registered office of the LLP.
  • Each member to give true accounts and full information of everything affecting the LLP to any other member or his/her legal representatives.
  • If any member is carrying on business of the same nature and competing with the LLP without approval, then he must account for and pay over to the LLP all profits made in that business by him.
  • Every member must account to the LLP for any benefit derived, without the consent, from any business of the LLP or from any property belonging to the LLP including names or business connection.
  • A majority of members cannot expel a member unless a power to do so has been conferred by express agreement between all members of the limited liabilities partnership.

Expulsion

Matters to be covered by an LLP agreement

A written agreement basically includes and clarifies all details of a company. It also includes the rights and duties of the members on behalf of the LLP. It is anticipated that larger LLPs adopt a written agreement. And this agreement can be expected to cover the following information:

  • Name of the limited liability partnership
  • Business of the limited liability partnership
  • Location of the business
  • Ownership of the property
  • All banking arrangements
  • Members’ capital contributions and shares
  • Distribution of the profits
  • Business drawings
  • Approval of accounts
  • The responsibility of the member of the LLP and other members
  • The management and decision-making processes
  • Status of the members
  • Leave entitlements of a member
  • Retirement of a member
  • How to vary the agreement
  • Limit of a member’s authority
  • Admission and removal of members
  • Termination and winding-up
  • How designated members are selected and removed

A written LLP agreement is not a public document and is unlikely be filed with the registrar of companies. There is no requirement for the agreement to be available for inspection to anyone other than the LLP’s members. And there is no need to submit it to the registrar of the companies at Companies House. This agreement is only for the use and guidance of the members of an LLP.

Bankruptcy of a member of an LLP

If a member of the LLP is wound-up or made bankrupt, then he cannot be involved in the management or administration of any business or affairs of the LLP. To enable an LLP to enter into a voluntary arrangement, which may include its members, the only restrictions on members entering into insolvency proceedings are those relating to winding up or bankruptcy orders. This only enables those members who are subjected to a voluntary arrangement to carry on taking part in the management or affairs of the LLP.

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