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Different Classes of Members of LLPs – Part Two

17 August 2011

So far, clear as mud?

Part of the confusion comes from the difference between traditional partnerships, limited companies and LLPs. In a traditional partnership, people are either Partners or not. Apart, of course, from Salaried Partners – who are called Partners and have the liability of Partners, but who don’t share in the profits!

In limited companies there are directors who run the business and shareholders who own the business. They are distinct, although in many private businesses they are one and the same people.

The LLP does not have this distinction between ownership and management. In terms of an LLP, someone is either a Member or is not a Member. Members can agree, if they wish, to appoint a management committee or board to run the LLP on a day to day basis, but that is not a requirement, although makes sense when there are more than half a dozen or so Members.

So if someone presents you with a card that says “Partner”, you know that they may or may not be a Partner in a traditional partnership or that they may or may not be a Member of an LLP.

Within LLPs, and especially within LLP Agreements, Members are often descried as:

  • Members
  • Designated Members
  • Equity Members
  • Salaried Members
  • Fixed Share Members
  • Full Members
  • Associate Members
  • Founder Members

As explained above, you are either a Member of an LLP or not. If you are a Member, you will be registered at Companies House as a Member, and Companies House makes no distinction between types of Member, except for requiring at least two Designated Members. All the other designations, and I am sure there are others, are defined by the Members themselves in their LLP Agreement. There must be a least two Members – it is a type of partnership after all. In a future article I may cover how the schizophrenic can form an LLP with themselves.

Companies House requires at least two of the Members to be Designated Members. All Members can be Designated Members and where there are 3 or 4 Members this makes sense. Where there are 100 Members it does not and therefore larger LLPs appoint a small number of Designated Members. The role of the Designated Member is to ensure that the correct forms are filed with Companies House, including Annual Accounts and Annual Returns. The Designated Members also have to sign forms appointing and removing Members. Any Member can be a Designated Member and this is distinct from the other classes of Member listed.

Part three tomorrow

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