The recent case of Ross v Phillips [2025] EWHC 2058 (Ch) which concerned a dispute between two Limited Liability Partnership (LLP) members, underscores the critical importance of a bespoke, written LLP agreement, especially when making fundamental business decisions.
The case involved an LLP whose primary business was holding three properties. A dispute arose when one member, P, attempted to make a declaration that would effectively deny the LLP of its assets (and therefore, its primary business) and lead to its dissolution. The declaration was not signed by R (the second member of the LLP. H Ltd (of which R and P were directors and shareholders) was a purported third member of the LLP.
R brought a derivative claim on the LLP’s behalf, arguing that the declaration was invalid because:
- It required unanimous consent as it represented a change in the nature of the LLP’s business under regulation 7(6) of the Limited Liability Partnerships Regulations 2001 (SI 2001/1090) (2001 Regulations); and
- There was no majority consent, as H Ltd’s appointment was obtained by undue influence.
The High Court determined that the declaration was invalid because it fundamentally changed the nature of the LLP’s business. This is a crucial point. The High Court noted that, aside from some minor invoicing, the LLP’s entire business centred around holding these three properties. By removing these assets, the declaration ended that business altogether.
According to regulation 7(6) of the 2001 Regulations, which applies in the absence of agreement, a change in the nature of an LLP’s business requires unanimous consent from all members. P’s declaration lacked unanimous consent, rendering it invalid. This mirrors section 24(8) Partnership Act 1890 which applies in respect of general partnerships.
This case serves as a reminder that in the absence of a carefully drafted, written LLP agreement, fundamental decisions that affect the very existence of the business cannot be made by a simple majority.
The case highlights that the LLP default rules, while they exist, are often insufficient for complex business decisions. Any action that alters the core nature of an LLP’s business, such as transferring all its assets, will likely be subject to the strict requirement of unanimous consent.
To avoid such disputes and legal battles, LLPs must ensure they have a clear, written agreement that explicitly outlines the procedures for all critical decisions.
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