Designated members in an LLP (limited liability partnership) are simply partners with additional responsibilities in the business. Their duties are similar to those of company directors and secretaries, ensuring the partnership complies with its legal administration responsibilities.
In this post, we discuss the role of designated members in a UK limited liability partnership. We also explain the minimum number required at any given time, how to assign and remove designated status, and who can and cannot hold this position in an LLP.
The mutual rights and duties of all LLP members, both ordinary and designated, are set out in LLP legislation or a private LLP agreement (if there is one).
As agents of the partnership, members are expected to demonstrate a duty of care in relation to any transactions they enter into on the LLP’s behalf. Their duty of care includes:
Each member enjoys limited liability protection for LLP debts. They also share in the business’ profits and losses in accordance with the terms set out in the LLP agreement. Where no agreement exists, profits and losses are shared equally.
In addition to the rights and obligations that apply to all members of an LLP, designated members typically assume the following extra responsibilities on behalf of the partnership (where relevant):
These types of management and legal administration responsibilities are similar to those applicable to company directors and secretaries. Failure to comply with their legal obligations can result in personal prosecution and the removal of the LLP from the Companies House register.
Most limited liability partnerships (LLPs) specify the rights and responsibilities of members in a formal LLP agreement, including the additional management duties of their designated members.
An LLP agreement is a private contract between an LLP’s partners. It regulates their business relationships with one another, their obligations toward the partnership, and the LLP’s general rules.
Where no such agreement is implemented, the Limited Liability Partnership Act 2000 default provisions and the Limited Liability Partnership Regulations 2001 will apply instead.
By law, a UK limited liability partnership must have at least two designated members at any time. There is no maximum number, unless otherwise stipulated in an LLP agreement.
When you set up an LLP , you will be asked on the application whether or not all members will be designated. If you answer ‘Yes’, every person who becomes a member will be registered at Companies House as a designated member. If you answer ‘No’, you must specify which members consent to have designated status on the application.
In the absence of identifying at least two particular members as designated, or if the number of those with designated status falls below two at any point after incorporation, every member of the LLP is deemed to be a designated member. Under these circumstances, all partners have equal rights to participate in the management of the business.
These rules are set out in section 8 of the Limited Liability Partnerships Act 2000 , which states that:
(1) If the incorporation document specifies who are to be designated members –
and a member may cease to be a designated member in accordance with an agreement with the other members. (2) But if there would otherwise be no designated members, or only one, every member is a designated member. (3) If the incorporation document states that every person who from time to time is a member of the limited liability partnership is a designated member, every member is a designated member. A limited liability partnership may at any time deliver to the registrar –
and, once it is delivered, subsection (1) (apart from paragraph (a)) and subsection (2) or subsection (3), shall have effect as if that were stated in the incorporation documents.
Members decide between themselves who will assume additional responsibilities on behalf of the partnership. The status of every LLP member must be registered and kept up to date at Companies House. This information is disclosed on the public register of companies .
As previously mentioned, you must choose the first designated members during the incorporation process. On the application to incorporate an LLP (form LL IN01), you will state that either:
After incorporation, you can change the status of a member from designated to ordinary, or vice versa, at any time. To do so, you need to complete one of the following forms:
You must deliver the relevant form to Companies House online or by post within 14 days of the change taking place. Once the form has been processed, the information will be updated on the public register.
The following persons can be ordinary members or designated members of a UK limited liability partnership:
Any entity that does not have a ‘discrete, separate legal identity’ cannot be an LLP member. In particular, this applies to English, Welsh, and Northern Irish partnerships and limited partnerships. Unlike Scottish partnerships and SLPs, they are not legal persons distinct from their partners.
Furthermore, an individual cannot be an ordinary or designated member of an LLP when they are subject to a bankruptcy or director disqualification order or undertaking. The only exception is where they have the court’s permission to act as an LLP member whilst disqualified or bankrupt.
The role of designated members in a limited liability partnership carries a great deal of additional responsibility for the business. Whether you decide to appoint all members as designated, or only select members, setting out their duties in a comprehensive LLP agreement is advisable.
Please leave a comment below if you have any questions about this post. Alternatively, contact our London-based team if you’re looking to set up an LLP or purchase one of our corporate services.