LLPs: Is it Possible to Have Two Persons as a Joint Member of an LLP?
Introduction
The structure and governance of Limited Liability Partnerships (LLPs) often raise various questions, one of which is whether it is possible for two persons to hold a joint membership within an LLP. This blog delves into this question, offering legal insights based on the principles of the Limited Liability Partnerships Act 2000 (LLPA 2000) and relevant case law.
Legal Framework and Key Principles
1. Membership of an LLP The primary statute governing LLPs in the UK is the LLPA 2000. According to Section 4 of the LLPA 2000:
· Initial Membership: On incorporation, the members of an LLP are the individuals who subscribe their names to the incorporation document.
· Subsequent Membership: Any other person may become a member in accordance with an agreement with the existing members.
The term "person" is crucial here and is used consistently throughout the LLPA 2000 in the context of membership.
2. Interpretation of "Person" The term "person" as used in the LLPA 2000 and related legislation such as the Companies Act 2006, typically refers to a single legal entity. Section 162 of the Companies Act 2006, as applied to LLPs, requires that LLPs maintain a register of members with details of "each person." This statutory language indicates that each member is considered a distinct legal person.
Can Two Persons Be a Single Member?
The ordinary legal interpretation of "person" does not include multiple individuals jointly holding a single membership. The statutory framework envisions a member as a single legal person, not a combination of individuals.
3. Legal Precedents In the case of Reinhard v Ondra LLP [2016] 2 BCLC 571, the court discussed the nature of membership rights in an LLP, highlighting that a member holds a bundle of financial and administrative rights. While financial rights might be held in trust for another party, administrative rights, such as voting, cannot be easily shared among multiple individuals.
The statutory interpretation and case law suggest that the concept of a "joint member" does not align with the intended legal structure of LLPs. Therefore, two persons cannot be recognized as a single, joint member within an LLP.
Practical Implications
4. Administrative Challenges If joint membership were allowed, it would create significant administrative complexities, especially in exercising voting rights and managing responsibilities. The legal framework is designed to ensure clarity and accountability, which would be compromised by joint membership.
5. Alternative Arrangements While joint membership is not permissible, LLPs can structure their agreements to accommodate the involvement of multiple individuals. For instance, one person can be a member while holding certain rights or interests in trust for another, or individuals can have separate memberships with clearly defined roles and responsibilities.
Conclusion
Based on the statutory language of the LLPA 2000 and relevant case law, it is clear that two persons cannot hold a joint membership in an LLP. The legal interpretation of "person" within the context of LLP membership requires each member to be a distinct legal entity. This ensures clarity, accountability, and effective governance within the LLP structure.
For more detailed guidance and to ensure compliance with the legal requirements, it is advisable to consult with legal professionals specializing in LLPs and corporate governance. This will help in structuring the LLP in a way that meets both legal standards and the operational needs of the business.
This analysis highlights the importance of understanding the legal nuances of LLP membership and provides practical insights for structuring LLP agreements effectively. Stay informed and consult with experts to navigate the complexities of LLP governance successfully.
