A Limited Liability Partnership is owned and run by its members, who are in many ways similar to the partners in a traditional partnership. Membership of an LLP combines rights both to profits and to manage the business.
This compares with a company limited by shares, where the rights of ownership (held by shareholders) and day to day management (conferred on directors) are separated, albeit the two can be and very often are enjoyed by the same people.
A member is expected to demonstrate a duty of care in transactions they undertake on the LLP’s behalf. Each member is considered an agent for the LLP and can therefore typically form a binding contract on behalf of it.
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Who are the LLP members?
A limited liability partnership must be incorporated with at least two members, although it remains technically possible to form an LLP on your own by having a dormant company as the second member. In law, there’s no upper limit on how many LLP members there can be.
LLP members can be:
- Individuals aged 16 or over
- Companies (who are called ‘corporate members’)
- Of any nationality and country of residence
People disqualified from acting as directors and undischarged bankrupts cannot act as LLP members unless they are granted special dispensation by the Court or their status changes.
The LLP must maintain two members at all times, but is not automatically dissolved if the number of LLP members falls below two – for example, if a member dies leaving a single member.
if there are fewer than two members for a period of six months or more, the remaining member becomes personally liable
However, if there are fewer than two members for a period of six months or more, the remaining member becomes personally liable, jointly and severally with the LLP itself, for any debts incurred during that period. As this effectively cancels out the benefits of limited liability, it’s important for the survivor to take action if membership falls to only one member. That might mean some combination of:
- Appointing a new member;
- Ceasing to trade; and/or
- Applying to have the LLP wound up.
With fewer than two members, it also becomes more likely that Companies House will consider the possibility of striking the LLP off the register if they deem it has ceased to operate.
The names of LLP members and their details must be recorded (and updated, as appropriate) in a Register of LLP Members, which is just one of the statutory registers that a limited liability partnership must maintain.
The relationship between LLP members
The rights and responsibilities of limited liability partnership members to one another and the LLP will be set out in the LLP agreement or, if one does not exist or is silent, in legislation. In particular, Regulation 7 of the Limited Liability Partnerships Regulations 2001 details a number of default provisions, including (for example) that:
- All members are entitled to an equal share in the LLP’s capital and profits.
- Every member may take part in management of the LLP
- No member is entitled to remuneration for acting in the business or management of the LLP
- A new member can only be introduced with the unanimous consent of all existing members.
- Ordinary business matters can be decided by simple majority of the members
- Conversely, matters affecting the nature of the LLP’s business require the consent of all members
- All members have the right to inspect the LLP’s statutory records
While it’s good practice for an LLP to put in place a limited liability partnership agreement, it’s particularly needed where different members are to have different rights or duties that need to be defined. For example:
- In larger LLPs, members are likely to have different rights over various decisions, since even a majority decision may be difficult to organise on a frequent basis.
- If there is a hierarchy of members, there will be a need for their respective rights and responsibilities to reflect seniority.
- If some but not all members are salaried, it may be suitable for them to have different rights than non-salaried members.
Designated members of an LLP
Each LLP must at all times have at least two ‘designated members’, whether individuals or companies. You’ll often see the other members, if there are any, referred to as ‘non-designated members’ or ‘ordinary members’.
The first designated members are reported on incorporation of the LLP, and the company can choose whether:
- All members should be designated members (including any members added later)
- Only named members should be designated members, in which case the company must identify which members are to be designated members (and whether or not new members added later are designated members).
The choice between these two options can be changed at any time via form LL DE01. An existing member can either become or cease to be a designated member, subject to there always being at least two designated members.
If ever there are less than two designated members notified to Companies House, for example because one of two existing designated members dies, every LLP member is deemed in law to be a designated member.
Alongside the same rights, duties and responsibilities defined by law or the limited liability partnership agreement, LLP designated members have further duties defined in regulations.
The responsibilities performed by designated members of an LLP include:
- Maintaining accounting records
- Appointing an auditor (where it’s required)
- Preparing and signing the accounts and filing them with Companies House
- Maintaining statutory registers, including a Register of Persons with Significant Control
- Preparing and submitting a confirmation statement to Companies House
- Informing Companies House of other changes in a timely fashion – for example, changes in members or their details, the name of the LLP, its registered office address or accounting reference date
- Registering for VAT with HMRC (if required)
- Other registrations with HMRC, reporting of relevant changes and filing of returns
- In any Insolvency proceedings, providing a required statement setting out the LLP’s assets, liabilities and other pertinent details
- Acting on behalf of the limited liability partnership, including in any legal proceedings, if it is dissolved
These tasks are largely akin to those that would be undertaken by a director or company secretary in a limited company.
Designated members are accountable in law if they fail to carry out their duties properly.
Because of their role in ensuring the LLP complies with its statutory duties, the designated members will usually be closely involved in the day-to-day running of the business. Where there are different classes of member within an LLP, it’s the designated members who would typically appear most similar to the executive directors of a private limited company.
Member changes and what must be reported to Companies House
Whenever new members are appointed, existing members leave the LLP or certain details of the member change, details must be reported to Companies House.
1 New members
The initial LLP members are notified to Companies House on incorporation as part of form LL IN01, which can be filed electronically or on paper.
Additional members can be introduced later in the life of the LLP. Unless an LLP agreement has been adopted, this will require the unanimous consent of the existing members. New LLP members are confirmed to Companies House on form LL AP01 (for individual LLP members) or LL AP02 (for corporate LLP members), each is which can be filed electronically.
For an individual member, the following information must be supplied:
- Full name (and any previous named used in the last 20 years)
- Date of birth
- Usual residential address
- Country of residence
- A service address for official correspondence
- Whether the member is in the process of applying for, or has been granted, an exemption from disclosing their usual residential address to credit reference agencies
- Confirmation that the member has provided consent to act
For a corporate member, you’ll need to submit the following:
- Corporate body name
- Company registration number
- Place registered
- For non-UK registered companies, the legal form of the body
- For non-UK registered companies, the law under which it is governed
- Confirmation that the corporate member has provided consent to act
For both individual and corporate members, confirmation is also required of whether or not a member is to be a designated member.
2 Change in members' details
Possibly after following any internal process required by an LLP agreement, any changes in a member’s details must also be reported to Companies House. Form LL CH01 is used to report changes to an individual member’s details and LL CH02 for corporate members.
Once again, the quickest and easiest way to file changes is electronically using software like Inform Direct.
3 Cessation of membership
Membership of the LLP ends on death or dissolution of the LLP or by agreement with the other members.
If the LLP relies on the default legislation provisions, there is no power to expel a member without their consent, for any reason. An LLP agreement, by contrast, will typically specify:
- Circumstances in which a member may be removed from the LLP by the other members (which will often include breach of the partnership agreement itself)
- The process to be followed to remove a member
- Who can make the decision – for example, if a particular sub-group of members exercise this power, or whether a simple majority, super-majority or unanimous approval of the other LLP members is needed to expel a member
Usually, the LLP agreement will also define the procedure to be followed when a member wishes to leave – what notice is required, any recompense due to the member on surrendering membership, etc.
Termination of the appointment of an LLP member, whether an individual or corporate entity, must be reported to Companies House on form LL TM01, which can be filed electronically in Inform Direct.
All companies and LLPs are required to maintain up to date statutory records. Inform Direct is the perfect tool to keep your LLP's records up to date.