You might wonder why you should take the time to think about the terms of a Members’ Agreement and then pay for the Agreement to be drawn up? Perhaps your LLP, whether new or established, is performing well, all the Members get along and you all have the same goals.
So what benefit is there in having a Members’ Agreement?
Below are 4 key reasons for drawing up an Agreement, there are many others, and some may be unique to your business. The benefit of drawing up a Members’ Agreement whilst business is going well is precisely for that reason; it is easier to discuss potentially contentious issues whilst all the Members get along and feel they can be open with their opinions.
Exiting Member – Members leave a company for many reasons; retirement, disagreement, change in personal direction and so on, but if you have a documented plan detailing how their interest in the LLP is to be dealt with. For example, repayment of their capital, it can make the transition much smoother and reduce the level of ambiguity and stress for all those involved.
Introducing Members – It is not uncommon for new Members to join a business whether that is through internal promotion or external recruitment. A Members’ Agreement can outline how new Members are to be introduced and how capital or assets introduced into the business are to be dealt and the impact of the introduction of profit/loss shares amongst the Members.
Management – An LLP must have at least two ‘Designated’ Members at any point and their responsibilities are similar to those of Directors of a company. A Members’ Agreement can be used to outline the responsibilities of the Designated Members and even include how such Members are to be chosen and replaced.
As mentioned above, there are many more reasons why a Members’ Agreement can benefit your business and give you peace of mind. It is also important to note that the Members’ Agreement does not have to be published on the Companies House Register website, therefore the contents will remain private to those involved.
It is usually best practice to use a solicitor to help draw up the Members’ Agreement and it goes without saying that you should always take time to read through and fully understand legal documents before signing.
As you would expect from a firm of chartered accountants, we offer a comprehensive range of accounting and tax services for our clients that operate in the Legal Sector.
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