Owner-Managed Businesses

Legal implications of LLP membership

Produced by Tolley in association with Jackie Barker of Wells Associates
  • 01 Nov 2021 07:20

The following Owner-Managed Businesses guidance note Produced by Tolley in association with Jackie Barker of Wells Associates provides comprehensive and up to date tax information covering:

  • Legal implications of LLP membership
  • LLP members’ legal rights
  • Companies house requirements
  • LLP members’ agreement
  • Members interest in the LLP

Legal implications of LLP membership

This note explains the legal implications and requirements in respect of being a member of a limited liability partnership (LLP) and provides guidance on the issues surrounding the rights and obligation of members.

The income tax implications of being a member of an LLP are covered in the Taxation of partnership trading profits guidance note.

LLP members’ legal rights

Each member is an agent of the LLP and can bind it, so any contract signed by a member on behalf of the LLP binds all members equally. Each member therefore has a duty to act in the best interests of the LLP and its other members.

Additional legal requirements are placed on the designated members of an LLP, see the How to set up an LLP guidance note.

Each member will have the benefit of limited liability in a very similar way to shareholders in a company. The extent of each liability is effectively restricted to their members’ interest and creditors have no recourse to the members’ personal assets. This is however subject to certain exceptions as follows:

  1. where a member has accepted a personal duty of care or contractual commitment such as a personal guarantee, and

  2. where a member has acted negligently or is guilty of wrongful trading

In addition to the above, if the LLP becomes insolvent any withdrawals taken by a member in the previous two years may be at risk if it can be shown that

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