A limited liability partnership agreement sets out the details of the LLP, its members, their profit shares, capital contributions and, most crucially, the rules for leaving the LLP. Not to have an LLP agreement when in business as a limited liability partnership is very risky.
The LLP is a hybrid, a cross between a partnership and a limited company. It makes an ideal format for a professional firm or a small business where there are at least two partners. It is simple to operate and very flexible. Like a limited company, an LLP is a separate legal entity which gives full limited liability to its members. It is must be registered at Companies House. Click here for more information on LLPs.
There are very few statutory rules for running an LLP. Like a partnership, these are matters for the members to decide for themselves and to include in an LLP agreement. There is no statutory requirement to register (or even to have) a written limited liability partnership agreement, but such an agreement is essential in practice. Without one, there is no proper record of some very major questions, such as the proportions in which the members own the business, who is entitled to the profits and who is liable for the losses, as well as many less basic, but still important, matters. The lack of an agreement is most important if the members should fall out, or if one of them wants to leave or should die. Without an LLP agreement, very real disputes can arise, which can only be resolved with expensive litigation. While the business may have been very small when it was started, if it has become successful and so is valuable, there is increased scope for disputes.
Typical provisions to protect all the members' interests
A good LLP agreement will record important information about the members and their contributions to the capital of the business, how they share profits and losses, rules for taking money out of the business, an important list of things the members agree that they will and will not do and, crucially, what happens if a partner dies or wants to leave the business.
Leaving the LLP
One of the most important areas is the rules that apply when a member of the LLP dies or wants to leave the firm. Typically, an LLP agreement provides for a member who wants to leave to give a period of notice and that if one member leaves (or dies) the others can continue to run the business and to buy the share of the outgoing member, with a mechanism for deciding the value of the share and, in some cases, for payment by instalments.
Standard and tailor-made agreements
When Incorporation Services Limited registers an LLP a standard limited liability partnership agreement is provided, just as we provide standard articles of association when registering a company. Standard documents (whether an LLP agreement or articles of association) are designed to cover the majority of circumstances. They are certainly better than nothing. Our standard agreement sets out who the members are, the proportions in which they share profits and losses, has some standard provisions requiring the members to act properly in relation to the LLP business and has arrangements for a member giving notice, an option for those left in the business to buy out his or her interest and other useful details. We can supply this to an existing LLP at a modest cost. It is a useful service.
A tailor-made limited liability agreement, on the other hand, is specially drafted to meet the needs of any particular LLP and will contain provisions for that particular LLP business and its members. In both cases, so far as possible, our agreements are in plain English and the tailor-made agreement comes with a built in system for keeping it up to date.
The Company Law Solutions standard LLP agreement provides an agreement that is suitable for a small trading business, provided the standard provisions meet the needs of all the members.
The tailor-made agreement is a superior product, allowing the client to specify what provisions the agreement should contain. This is suitable for all trading LLPs. We start by taking details about the firm using our LLP agreement instruction sheet. We ask what issues are important to the various parties. We advise on typical issues and solutions.
On the basis of these initial instructions, we produce a draft agreement, email it to the parties, seek their comments and make amendments as required. Once the final draft is settled, we produce printed copies for all the members (if required) and advise as to the procedure for signing the agreement so that each member keeps a copy signed by all the others.
We also provide LLP agreements for professional firms, such as solicitors and accountants, which tend to be a little more complex (because of the requirements of the relevant professional body, and because there tend to be more detailed provisions for the admission of new partners and for those retiring.
Built in flexibility
Because things change from time to time, our tailor-made LLP agreements provides a simple procedure so that they can be kept up to date. This allows important matters to be agreed from time to time. It also provides a means for provisions in the agreement to be changed when the need arises, but only if agreed by all the members. Each member's copy of the agreement contains pages for recording and signing such decisions, a very useful long term feature. We also provide a checklist of matters the members should decide both when the agreement is first signed and at regular intervals.
The result is a practical framework for your LLP, providing clarity and certainty on the essential arrangements between the members.
Our standard LLP agreement is provided at a fixed cost. The cost of a tailor-made agreement can vary according to its complexity. Most agreements are supplied at our benchmark price. This is the total charge in most cases. If complex additional terms have to be drafted, there may be additional cost, but we would always advise as to the actual cost before proceeding. Agreements for professional practices usually include more complex and individual provisions, so a higher benchmark price is listed.