LLP Agreement

The consequences of failing to put in place a written agreement between members of a Limited Liability Partnership (LLP) were recently highlighted by a decision of the Chancery Division.

Following an acrimonious meeting of the partners, one of the partners was summarily dismissed from the LLP and expelled from its offices. He subsequently brought a claim under Section 994 of the Companies Act 2006 that his expulsion from the LLP was unfairly prejudicial.

In this instance the business partners had set up the LLP but had not formalised their rights and obligations by way of an LLP Agreement. The Court therefore had to rely on the default provisions of the Limited Liability Partnerships Regulations 2001 which govern the relationship between LLP members in the absence of agreed terms.

In the absence of any express power of expulsion or any express agreement as to what would happen in the event that the LLP was dissolved, the Court held that the dismissal was indeed unfairly prejudicial and that the dismissed partner was entitled to wind up the LLP and receive an equal share of any surplus value in the business.

Given that the provisions of the Limited Liability Partnerships Regulations are very often inadequate to deal with the requirements of an LLP, the importance of a written members agreement can not be understated.

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