Partnerships and LLPs

A company is not the only vehicle through which to carry on a business.  Sometimes people prefer (or are required) to use a partnership or a Limited Liability Partnership (“LLP”).  This may be for reasons of privacy and relative informality or for regulatory reasons (in the case of partnerships) or for tax and limited liability reasons (in the case of LLP’s).

There are many issues that need to be considered when setting up a partnership or LLP.  Who is to invest?  How much will they invest and on what terms?  In the absence of agreement, the default position under both the Partnership Act and the Limited Liability Partnership Regulations is that the partners (or members) are entitled to share both capital and income in equal shares.

To what extent must a partner work in the partnership?  Can he do other things in his spare time?  How do you define “spare time”?  While there is an obligation of good faith between partners there is no obligation to work at all.  Unless something is agreed there is nothing to stop a partner from ceasing to work in the partnership while retaining his share.  On the other hand, there is nothing (apart from the problem of having to sell the existing partnership business and start over) to stop all the other partners from terminating the partnership and entering into a new partnership excluding the non-working partner.

Who will be involved in managing the partnership and on what terms?  Are all the partners equal (or are some more equal than others)?  In the absence of agreement, they would have equal rights to participate in the management of the partnership.

What happens if someone wants to leave?  Can they require the other partners to pay them their share, or are they tied in until everyone else decides to wind up the partnership?  In the absence of agreement to the contrary, any one partner can wind up a partnership.

What happens if everyone else wants a partner to leave?  Can they force him out?  Not as such, but see the immediately preceding paragraph.

We can assist with the drafting, interpretation and with disputes regarding the following documents: -

  • Conversion from an LLP to a limited company
  • Conversion to an LLP
  • LLP Formation and Registration
  • LLP Agreements
  • Partnership Agreements

We work in conjunction with your tax advisor or accountancy team.

For further information please contact Richard Baxter.