An LLP agreement is the contract between the members, and between the members and the LLP, that sets how profits are shared, how decisions are made and how people join and leave. The law does not force an LLP to have one, but where the agreement is silent the default rules in regulations 7 and 8 of the Limited Liability Partnerships Regulations 2001 apply, and those rules rarely suit a working business.

Does an LLP have to have a written agreement?

Section 5(1) of the Limited Liability Partnerships Act 2000 says the mutual rights and duties of the members, and of the LLP and its members, are governed by agreement or, where there is no agreement on a point, by regulations. Section 5 does not say the agreement must be in writing or registered. Companies House guidance nonetheless lists an LLP agreement among the things you will need, saying it should set out how profits are shared, who must agree decisions, members’ responsibilities, and how members join or leave.

Section 5(2) allows an agreement made before incorporation between the subscribers to the incorporation document to impose obligations on the LLP once it exists, so founders can sign the agreement before registration. The basics of the vehicle are at LLPs explained.

What are the default rules?

Regulation 7 sets ten rules, all subject to the general law and to any agreement:

  1. All members share equally in the capital and profits.
  2. The LLP must indemnify each member for payments and personal liabilities incurred in the ordinary and proper conduct of the business, or in preserving its business or property.
  3. Every member may take part in management.
  4. No member is entitled to remuneration for acting in the business or its management.
  5. No one may become a member, or voluntarily assign an interest, without the consent of all existing members.
  6. Ordinary differences are decided by a majority, but the nature of the business cannot change without everyone’s consent.
  7. Books and records are kept at the registered office or where the members decide, and every member may inspect and copy them.
  8. Each member must render true accounts and full information about anything affecting the LLP to any member.
  9. A member who, without consent, runs a competing business of the same nature must account to the LLP for the profits.
  10. A member must account for any benefit obtained without consent from transactions concerning the LLP or from using its property, name or business connection.

Regulation 8 adds that no majority can expel a member unless an express agreement gives that power.

Which defaults cause the most trouble?

  • Equal shares. A founder who put in most of the capital, or a senior member who brings in most of the work, still gets an equal share of profits and capital, including any growth in value.
  • No pay for work. Regulation 7(4) means a member who works full time gets nothing extra over one who does not, unless the agreement provides for priority shares or fixed allocations.
  • Unanimity to admit. One member can block every new admission.
  • No expulsion. Without an express power, a member who stops working or behaves badly cannot be removed by the others. Compare the position for ordinary firms at expelling a partner.
  • Leaving on notice. Under section 4(3) of the Act, a member can leave by giving reasonable notice if nothing else is agreed, and what counts as reasonable is uncertain.
  • Payment on exit. Section 7(3) preserves a departing member’s right to receive an amount from the LLP but does not say how it is calculated. The defaults give no formula.
  • Losses. Regulation 7(1) deals with capital and profits. Unlike section 24(1) of the Partnership Act 1890, it says nothing about members contributing towards losses, so the agreement should say how losses are allocated.

What should an LLP agreement cover?

  • Capital and loans. How much each member contributes, whether it is capital or a loan, whether interest is paid, and when it is repaid.
  • Profit allocation. Fixed shares, points or a formula; how and when profits are allocated after the year end; how losses are borne.
  • Drawings and tax. Monthly drawings on account, repayment of overdrawn amounts, and whether the LLP retains money to meet members’ tax.
  • Management. A board or managing member, decisions reserved to all members, voting thresholds and how meetings work.
  • Designated members. Who they are and how the role changes; see designated members of an LLP.
  • Admission. The majority needed, deeds of adherence and any capital a new member must bring.
  • Retirement and expulsion. Notice periods, compulsory retirement events and an express power of expulsion that satisfies regulation 8.
  • Payments to outgoing members. Return of capital, final profit share, whether anything is paid for goodwill, and the payment timetable.
  • Restrictive covenants. Non solicitation and non dealing periods protecting the client base.
  • Duties. Whether to keep, extend or relax the regulation 7(8) to (10) duties, plus confidentiality and time commitment.
  • Disputes. Mediation, arbitration or expert determination for valuation disagreements.

How does the agreement affect tax?

The agreement is central evidence under the salaried member rules in sections 863A to 863G of the Income Tax (Trading and Other Income) Act 2005. Condition B is met where the mutual rights and duties of the members, and of the LLP and its members, do not give the individual significant influence over the LLP’s affairs (section 863C). Condition C turns on whether the member’s contribution is less than 25% of expected disguised salary (section 863D), and capital commitments are normally recorded in the agreement. See LLP salaried members rules.

Drawings clauses also have an insolvency angle. Under section 214A of the Insolvency Act 1986, inserted for LLPs by Schedule 3 to the 2001 Regulations, a liquidator can ask the court to order a member to contribute up to what they withdrew in the two years before winding up, where they knew or had reasonable grounds to believe the LLP was or would become unable to pay its debts. An agreement that lets members take drawings regardless of the LLP’s finances increases that risk.

How does this work in practice?

Illustration only. Three surveyors form an LLP. Member A contributes £60,000 of capital and Members B and C contribute £20,000 each. They never sign an agreement. In year one the LLP makes £150,000 of profit.

  • Under regulation 7(1), each is entitled to £50,000 of profit, and capital is shared equally too, so A’s larger contribution earns no larger share.
  • C works part time but still receives a third, because regulation 7(4) gives no remuneration for extra work.
  • In year two A and B want to admit a fourth surveyor. C objects, and under regulation 7(5) the admission cannot go ahead.
  • A and B then want C to leave. Regulation 8 gives them no power to expel, so they must negotiate.

An agreement signed at the outset, fixing capital accounts, profit shares, a majority for admissions and an expulsion power, would have avoided each of these problems.

What mistakes are common?

  • Copying an old partnership deed without adapting it to the LLP Act and regulations.
  • Agreeing profit shares in emails but never signing a full agreement, so regulation 7 fills the gaps.
  • Leaving out an express expulsion power.
  • Not dealing with losses or overdrawn members.
  • Giving a member a fixed allocation with no say in management and little capital, then being surprised by the salaried member rules.
  • Not updating the agreement when members join, leave or change status.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.