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ADMISSION AND EXIT OF MEMBERS

Admission

Members can be individuals, companies or other legal entities.

Unless the LLP agreement says otherwise, the admission of a new member requires the unanimous consent of the existing members. This may be too rigid a requirement, especially where the LLP has many members - admission with the approval of a majority of members may be more appropriate in these circumstances. It may also be the case that members investing significantly more capital may want a greater say in the appointment of new members.


Exit


Duration

An LLP is a separate legal entity and exists independently of its membership. As a result, the death or exit of a member does not result in dissolution of the LLP.


Ceasing to be a Member

A person may cease to be a member:

1

on death (or dissolution if it is a corporate member);                 

2

by agreement with the other members; or

3

by giving reasonable notice to the other members.

This default position is often augmented by the LLP agreement, which typically contains additional grounds and procedures for cessation of membership.


Retirement

An LLP agreement can provide for the mandatory retirement of a member. However, in view of the age equality legislation extreme care must be taken in providing for any compulsory retirement of members. Compulsory retirement needs to be objectively justified.


Expulsion

A member can only be expelled from membership if the members have entered into an LLP agreement which expressly provides for expulsion.

Common reasons for expulsion include:

1

breaching the LLP agreement;                                          

2

ceasing to hold a relevant qualification;

3

neglecting to perform duties; or

4

failing to pay monies owed to the LLP.

As one would expect, expulsion for discriminatory reasons such as sex, race or disability is not permitted.


Capital

An LLP agreement should always specify whether a member is entitled to any payment on death, retirement, voluntarily leaving or being expelled from the LLP, it should also contain a mechanism for calculating the amount. For example, the agreement may specify that no payment will be made, that a repayment of the member’s original investment will be made or that the market value of the member’s share will be paid.


Outgoing Members

An LLP agreement usually requires a full set of accounts to be prepared as at the leaving date of a member. These accounts are used as the basis of calculating the capital and profit share of the outgoing member (in accordance with the agreement).

Often an outgoing member is paid-off in instalments to ease the burden on the LLP.



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