LLP Decision Making

LLP AGREEMENT

Member Decisions

Unless the LLP agreement states otherwise:

  • each member has the right to participate in the management of the LLP;
  • ‘ordinary’ business decisions are decided by a majority of members; and
  • certain ‘fundamental’ decisions affecting the LLP and its membership require unanimity (such as the admission of a new member or a proposed change in the nature of the LLP’s business).

 Requiring unanimous agreement in relation to certain decisions may be seen as unduly restrictive in the case of an LLP with many members or an LLP with members that are investing significantly different amounts of time, capital or expertise.

LLP agreements often amend this default decision making process, for example by dictating that a special majority (e.g. 75% of the members) can approve certain decisions which would otherwise require unanimity.

In addition, there may be decisions that can usually be effected by a single member or a simple majority of members which the members decide are so fundamental to the LLP’s business that they should require a special majority or unanimous decision (for example, entering into high value and/or long term contracts).

Designated Members
Designated members of an LLP have particular functions and responsibilities. They are, very broadly, the equivalent of directors of a limited company.

There is no particular definition of a designated member. The law simply states that certain obligations fall on a designated member (most of which would fall on the directors of a company) such as appointing auditors and maintaining the company’s filings at Companies House.

Members are ‘designated’ on incorporation of the LLP and in accordance with the LLP agreement. If the LLP does not ‘designate’ any members then all members are deemed to be ‘designated’. Every LLP must have a minimum of two designated members.

Binding the LLP - Agency
Each member is an agent of the LLP. As a result, they each have the power enter into binding commitments on behalf of the LLP. This default position can be amended by the LLP agreement. For example, it is usual to restrict a single member from (amongst other things) hiring employees, giving guarantees, incurring credit or entering into a commitment above a certain financial limit on behalf of an LLP.

Such limitations may not prevent a member from entering into such binding agreements on behalf of an LLP, but will give the other members the right to hold that member to account for exceeding his authority under the terms of the LLP agreement.