Pin down LLP agreements

Although limited liability partnerships have been around since 2000, there has been debate over legal issues such as whether fixed-share partners necessarily lose their employment rights.

One of the main reasons partnerships convert to LLP status is the reduction in personal responsibility for business debts. Unlike an ordinary partnership, the LLP itself is liable for any debts that it runs up, not the individual partners. However, in the rush to convert, agreements are often overlooked. The recent decision in Tiffin v Lester Aldridge reinforces the importance of clearly setting out duties and responsibilities and the employment status of members.

Mr Tiffin was a fixed-share partner at Lester Aldridge LLP. He was served with a dismissal notice and subsequently issued a claim in the employment tribunal asserting that, despite the label of ‘partner’, and though he was an LLP member, he was in reality an employee, who should be compensated as such. Having looked at the LLP agreement, the appeal court ruled that Tiffin was not an employee and therefore his claim failed.

LLPs who are planning to restructure or who are dealing with issues such as succession or nonperforming partners must put an agreement in place to avoid disputes further down the line. From the perspective of the individuals involved, members need to be clear on what their status is in the event of a redundancy or some other calamity. Uncertainty is best avoided for all concerned.

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