Every Contract an LLP Needs in the UK (2025)
Last updated: February 2025
Legal Requirements for a LLP
UK LLPs are governed by the Limited Liability Partnerships Act 2000 and must be registered with Companies House. Unlike general partnerships, LLPs have legal personality separate from their members. The LLP Act provides default rules if no LLP agreement exists, but these defaults rarely suit most businesses. LLPs must also comply with the Companies Act 2006 provisions on accounts and annual filings. Members are taxed individually as self-employed under HMRC rules.
Essential Contracts
The most critical document — overrides the default provisions of the LLP Act 2000 and governs profit sharing, decision-making, capital contributions, and member exit
Sets out the scope of professional services, fees, and liability caps — essential for professional services LLPs to manage negligence claims
Many regulated LLPs (solicitors, accountants) are required by their professional body to maintain PI insurance with documented terms
Required under UK GDPR when sharing client data with third-party processors, common in professional services
Recommended Contracts
Essential when onboarding new members or discussing potential mergers with other practices
Prevents departing members from taking clients or staff, supplementing any clauses in the LLP agreement
Defines terms for salaried members who may be treated as employees by HMRC under the salaried member rules introduced in 2014
Common Legal Risks for a LLP
- Default LLP Act provisions apply if no members' agreement exists — including equal profit sharing regardless of contribution
- Departing members taking key clients without restrictive covenants in place
- Salaried members being reclassified as employees by HMRC, triggering PAYE liabilities
- Unlimited liability for negligent members in professional services without proper engagement letters
- Disputes over capital contributions and profit allocation without documented terms
Industry-Specific Notes
LLPs are predominantly used by professional services firms such as solicitors, accountants, and consultants. Regulatory bodies like the SRA or ICAEW may impose additional contractual requirements. The salaried member rules from Finance Act 2014 should be carefully considered when structuring member agreements.
FAQ
What happens if an LLP has no members' agreement?
The default provisions of the Limited Liability Partnerships Act 2000 apply automatically. This means all members share profits equally, all members have equal management rights, no member can be expelled, and any member can dissolve the LLP by giving notice. These defaults are rarely appropriate and can cause serious disputes, particularly where members contribute unequally.
Are LLP members employees or self-employed for tax purposes?
Generally, LLP members are treated as self-employed and taxed on their profit share. However, HMRC's salaried member rules (introduced in Finance Act 2014) can reclassify members as employees if they meet three conditions: they receive a fixed salary, have no significant influence over the LLP, and have less than 25% capital contribution relative to their disguised salary. Proper structuring and documentation is essential.
Does an LLP need separate engagement letters for each client?
Yes, it is best practice to issue a tailored engagement letter for each client or matter. This sets out the specific scope of work, fee basis, liability cap, and complaints procedure. For regulated professionals, this is often a regulatory requirement. A well-drafted engagement letter is your primary defence against negligence claims and fee disputes.
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