Partnership Disputes and LLP Disputes

Before the introduction of the Limited Liability Partnership (“LLP”) as a legal entity in English law 20 years ago, the only form of legal partnership that existed was a partnership under the Partnership Act 1890.  A significant difference was that in an old style partnerships each partner had joint (but not several) liability.  In an LLP some or all of the partners have a form of limited liability similar to that of shareholders of a company.  Unlike a company, the partners have the right to manage a business directly.

As such, the range of partnership disputes is now wider than before and includes disputes between members (as they are known) of an LLP and not just partners of a partnership.

As with an old-style partnership, LLPs are often governed by an agreement between the members which are generally known and referred to as partners.  This agreement obviously comes into play in the event of a partnership dispute.  Absent a written agreement the relationship between the members and the LLP and third parties is governed by the Limited Liability Partnerships Act 2000 and the Limited Liability Partnership Regulations 2001 and subsequent amendments thereto.

Often one of the central features of a partnership dispute focuses on who has control of the LLP (or partnership) during the dispute between members or partners.

Focusing on LLPs there may well be a dispute resolution procedure in any written LLP agreement but in the absence of such, it must be remembered that under the 2000 Act each member has the right to manage the affairs of the LLP.  This, of course, can be curtailed or controlled by any LLP Agreement, but in the absence of one, it can lead to great difficulties not only between the members themselves but apropos third parties.  Members 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 Act and its regulations to seek redress.

If the relationship between the members breaks down and cannot be repaired either informally or through the procedures set out in any written agreement (if there is one) then it is crucial that you should take early legal advice to determine from the start what position you as a member (especially a minority one) are in advance of taking action.  Often LLP agreements are drafted to ensure a deadlock situation between equal partners, which makes matters even more difficult.  Together with a lawyer, a strategy can be put in place to try to achieve the speediest and most economical resolution to a dispute (which may or may not involve purchasing or selling of one member’s share to others).

Rupert Farr, head of Litigation at Blake-Turner, has extensive experience in partnership disputes, both old-style partnerships and LLPs, in different areas of industry and business (including accountants, facilities management, digital payment companies, and others).  He would be happy to discuss any partnership dispute case which you have with an initial consultation being free of charge before a decision is made as to whether to go forward.