Partnership Versus LLP Disputes

Whether your business operates as a partnership or a limited liability partnership (LLP), if a dispute arises between partners or members, this can have an adverse effect on the business.

Disputes arise for various reasons, most commonly where the relationship between partners has broken down, one partner wishes to retire or leave or is being compelled to do so by the other members, breaches of duty by a partner and disagreements over the business assets or value.

Written agreements for partnerships and LLPs

Partnerships and LLPs are often governed by a written agreement. This agreement comes into play in the event of a partnership dispute. In the absence of a written agreement, the relationship between the members and an LLP is governed by the Limited Liability Partnerships Act 2000 and the Limited Liability Partnership Regulations 2001, whilst general partnerships are governed under the Partnership Act 1890.

One of the main differences between an LLP and a partnership is that in a partnership, each partner has joint liability for the debts and obligations of the partnership incurred while he or she is partner, and such liability is potentially unlimited. However, in an LLP, some or all members have a form of limited liability akin to shareholders of a limited company. 

Members of an LLP enjoy limited liability up to the amount of any financial contribution to the LLP.

Absence of a dispute resolution procedure

There may well be a dispute resolution procedure in any written LLP or partnership agreement, but in the absence of such, each partner or member will have the right to manage the affairs of the partnership or LLP under the 1890 and 2000 Acts. This right can be departed from by agreement between the members in a written agreement, but if there is no such agreement, it can lead to great difficulties. Often agreements are drafted to avoid a deadlock situation between equal partners. LLP members (unlike partners) do have the same rights as shareholders to claim for unfair prejudice if the LLP is being conducted in a manner unfairly prejudicial. However, many LLP agreements expressly exclude such rights, and a member is therefore left to resort to the agreement and the 2000 Act and the regulations to seek redress.

If the relationship between members and partners breaks down and cannot be repaired either informally or through the procedures set out in any written agreements, then it is crucial to take early legal advice to determine your position and legal rights as a partner or member. 

Here to help

If you have any more questions or would like more information, you can contact our dispute resolution team below. We can assist you in putting a strategy in place to try to achieve the swiftest and most cost-effective resolution to a dispute, which may or may not involve the purchasing or selling of a partner’s share.