Culture
LLPs are traditionally viewed as having a more collegiate culture than a company.
The members of an LLP often make decisions by a consensual vote and the members are expected to work together to maximise the LLP’s profits for the benefit of all members.
However, in large professional and advisory practices, this culture may be eroded by the introduction of a management board who is responsible for making certain decisions without the involvement of all of the members of the LLP and the use complex profit sharing structures which give differing financial entitlements (such as a fixed share) to different classes of members of the LLP.
Reduced legal protection and benefits
The members of an LLP cannot be employed by the LLP and are treated as owners of the business. As a result, the members do not have the same legal rights and protections that apply to directors of a company who enjoy employed related rights under legislation.
Members of an LLP cannot claim:
- unfair dismissal if the LLP forces the member out of the LLP in accordance with the terms of the LLP Agreement (but the law is developing in relation to the exercise of discretionary powers, which may in some circumstances protect a member from being unfairly removed); or
- maternity, paternity, adoption or parental leave (but it is common practice for large professional practices to provide these rights to their members as part of the LLP’s benefits package even though there is no legal requirement for the LLP to do so but the benefits may be less generous than those offered to the LLP’s employees).
Members of an LLP may be classed as “workers” and are therefore entitled to protection from suffering any detriment as a result of making a whistleblowing disclosure and also protection from unlawful discrimination on one of the grounds specified in the Equality Act 2010.
Readily enforceable restrictions
It is common practice for members of an LLP to be bound by a number of restrictions which apply for a specified period after they leave the LLP.
The restrictions are often designed to stop a former member from poaching the LLP’s employees, soliciting the LLP’s clients and/or working for a competitor of the LLP. The same restrictions are usually similar to those that apply to directors of a company but the restrictions against members of an LLP tend to be more readily enforceable against the member and are often more onerous in terms of the scope of the restriction and the duration of the restriction (typically between 12 and 24 months).
Company features
As a hybrid between a partnership and a company, LLPs share the following features of a company:
- LLPs are required to publicly disclose their accounts and identity of their members and persons with significant control over the LLP;
- LLPs must comply with the same or equivalent administrative duties (including filings at Companies House and disclosures on their website, letterheads and emails); and
- the members of the LLP enjoy limited liability in respect of the debts and obligations of the LLP (as do members of a company). However, there are limited circumstances where limited liability does not apply (including where there is wrongful trading in an insolvent LLP and where a court order is made under section 214A of the Insolvency Act 1986 for clawback of money withdrawn by a member at any time during the two year period prior to winding up the insolvent LLP).
