Roles & Number of an LLP Members

It is important to state the different functions each partner is to have within the firm and the extent of their authority. For example, one partner may be in charge of sales whilst another is in charge of purchasing. The agreement might state that a particular partner only has a set amount of authority, for example, to enter into contracts less than £10,000.00 in value, or alternatively, that a partner has authority to do whatever they feel is in the best interests of the business within their area. Any partner ignoring a restriction or the scope of their role may be liable for breach of contract.

LLP & decision-making

Unless otherwise agreed, all partnership decisions will be made on a majority basis by one partner one vote. However, if it is a decision on changing the nature of the business or the introduction of a new partner, then every partner must agree. It may well be, therefore, that this is not what partners in a particular business want. For example, it may be a good idea to state that certain decisions can be made by one partner alone, such as buying stock, other decisions require a majority vote, such as employing staff, whilst others require the consent of all the partners, such as buying new premises.

If the partnership is likely to prove quite complicated or there are substantial amounts of money or assets involved, you should seek advice from a solicitor. The above information, however, will help you be informed about the most important issues and enable you to consider relevant matters with your other partners.

LLP partnership agreement termination issues

All the term and termination issues below should be taken into consideration in a partnership agreement.

LLP duration

The Partnership Act provides that unless agreed to the contrary, any partner can terminate the partnership at any time by giving notice to the others. This notice will take effect immediately and does not have to be in writing. This means that a partnership can seem very insecure and uncertain if a particular duration for it is not agreed on.

There are a number of ways of giving a partnership more security. Firstly, you can put a clause in the agreement stating that a partner must give a set period of notice before ending the partnership. A period of 6 months or more, for example, would allow the partnership time to find a new partner. Alternatively, you can agree that the partnership is to last for a fixed term during which it cannot be ended by one of the partners. Once the period has ended it could then continue on the same terms, but could be terminated by a partner giving a period of notice.

Lastly, you could provide that the partnership is to continue for as long as there are at least two partners in the firm. This would allow partners to leave without requiring the business to end. You should also consider the possibility of a partner dying or becoming bankrupt. The Partnership Act says that if this happens then the partnership will end. It is worthwhile, therefore, to consider a clause that the partnership will continue in this situation, as long as the other partners can pay for the deceased's or bankrupt's share of the business.

Expulsion

In certain circumstances, the partners in a business may feel it necessary to expel a particular partner. This may be because he/she has broken the partnership agreement, for example, by not devoting enough time to the business. If this issue is not addressed in the partnership agreement, then the law says that the only way to expel a partner is to dissolve the business. An agreement should, therefore, set out in what circumstances a partner can be expelled, how the decision to expel is to be made (majority vote or all remaining partners in favour) and state that the partnership is to continue without him/her. You will also have to deal with payment of the expelled partners share of the business.

Paying for an outgoing partners share

When a partner leaves a business whether through death, expulsion or retirement and that business is to continue, the outgoing partner must receive payment from the others for his/her share. The terms of this payment should, therefore, be agreed in advance.

It is important to consider: whether the other partners have to buy the other partners' share or whether it is an option to buy. When the partner is to receive payment, for example, immediately, after a set period of time or by instalments. How the share of the business is to be valued, for example, by a named professional or by an agreed formula by the partners.

Restrictive covenants

An outgoing partner will be free to set up a competing business or to work for a competitor unless a restraint of trade clause is inserted into an agreement.

In order to be legal, such a clause must: seek to protect a legitimate interest. This is normally the firm's business links and confidential information. Be reasonable in terms of duration and geographical area. If the clause is unnecessarily restrictive and would deprive an outgoing partner of a living for a lengthy period, then it will not be enforceable. The area must not be very wide, for example, it should be limited to the area in which the firm actually did business and not prevent a former partner from working elsewhere.

It must also be limited to the kind of business that the partnership operated in, for example, it cannot prevent a former partner from finding employment in a different trade. Anything longer than 12 months may also prove quite difficult to enforce. If the partnership is likely to prove quite complicated or there are substantial amounts of money or assets involved, you should seek advice from a solicitor. The above information, however, will help you be informed about the most important issues and enable you to consider relevant matters with your other partners.

Number of partners

A partnership, whether limited or not, may not normally consist of more than 20 persons. However, under Companies Act there are a number of exceptions to this rule, including: a partnership carrying on practice as solicitors and consisting of persons each of whom is a solicitor. A partnership carrying on practice as accountants where the partnership is eligible for appointment as a company auditor. A partnership carrying on business as members of a recognised stock exchange and consisting of persons each of whom is a member of that exchange.

A partnership carrying on business as surveyors, auctioneers, valuers, estate experts, land experts, or estate managers and consisting of persons of whom at least three-quarters are members of the Royal Institute of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers and of whom not more than one-quarter are limited partners. Partnership carrying on business as insurance brokers and consisting of persons each of whom is a registered insurance broker or an enrolled body corporate. For the meaning of "registered insurance broker" and "enrolled body corporate" see Section 29(1) of the Insurance Brokers (Registration) Act 1977.