What is an LLP Agreement and Why Do You Need One?

When setting up a Limited Liability Partnership (LLP) in the UK, one of the most important – yet often overlooked – documents you will need is an LLP Agreement. This legally binding contract sets out how your partnership will operate, how members share profits, and what happens if something goes wrong. Without it, you risk uncertainty, internal disputes, and HMRC applying default rules that may not align with how you actually want to run your business.

If you’re asking “what is an LLP agreement UK?” – this post looks at what you need to know. We’ll cover why the agreement matters, what should be included, the legal implications of not having one, and how to put a robust document in place from day one.

Why this matters: LLPs offer flexibility, shared management, and liability protection but only when the members’ rights and responsibilities are clearly defined. A well-drafted LLP Agreement is the backbone of that clarity.

Useful resources to bookmark:

• GOV.UK – LLP guidance
• Business legal structures overview
• LLP vs Limited Company comparison

Expert tip: Many LLP members assume that simply registering their partnership at Companies House is enough. In reality, the absence of an LLP Agreement means your business defaults to the Limited Liability Partnerships Act 2000 – which sets out generic rules that rarely suit modern commercial partnerships. Getting your agreement drafted early can prevent operational headaches, protect relationships, and keep your tax position clear with HMRC.

What Is an LLP Agreement?

An LLP Agreement is a legally binding, private contract between the members of a Limited Liability Partnership. It outlines how the LLP will be managed on a day-to-day basis and sets out each member’s rights, responsibilities, decision-making powers, and profit-sharing arrangements. In short, it’s the rulebook that keeps your partnership running smoothly.

Unlike limited companies, LLPs offer a high degree of flexibility. There is no legal requirement to have a written agreement in place. However, relying on this flexibility without documenting it can quickly cause problems. In the absence of an LLP Agreement, the partnership defaults to the provisions of the Limited Liability Partnerships Act 2000. These statutory rules are generic, outdated, and rarely reflect how modern partners actually want to structure ownership, control, or profit sharing.

Why this matters: Under the default rules, for example, all members are entitled to an equal share of profits – even if one partner does significantly more work or invests more capital. Decision-making power is also automatically equal, which can block progress if members have different levels of involvement.

Quick example:

Two partners set up an LLP. One brings £50,000 capital and works full-time; the other contributes no capital and works part-time. Without a properly drafted LLP Agreement, both are legally entitled to the same profit share. That’s exactly the kind of dispute an LLP Agreement is designed to prevent.

Helpful links:

• Set up an LLP in the UK

Expert tip: If you’re forming your LLP through a company formation agent or accountant, ask whether they include a bespoke or template LLP Agreement in their service. A well-structured agreement drafted at the outset is far more effective than trying to fix disputes later.

Why Do You Need an LLP Agreement?

Many LLPs skip drafting an agreement in the early days because everyone “gets along” and roles feel obvious. But business relationships change, workloads shift, partners join or exit, and financial pressures can quickly expose ambiguity. An LLP Agreement removes the uncertainty and gives your partnership a clear, fair framework to operate within.

Without one, the LLP automatically defaults to the Limited Liability Partnerships Act 2000, which applies generic rules that rarely suit real-world commercial partnerships. This is where disputes typically begin – not because partners don’t trust each other, but because they’re relying on assumptions rather than agreed terms.

Key reasons you need an LLP Agreement include:

• Protecting relationships between members – by agreeing rules before issues arise, you reduce friction and preserve trust when difficult moments inevitably crop up.
• Clarity over profit sharing – making sure each member understands how and when profits are allocated, especially where contributions differ in time, capital or expertise.
• Decision-making – defining voting rights, management authority, and what happens if members disagree, so your LLP can continue running smoothly.
• Dispute resolution – putting mechanisms in place to avoid expensive legal battles, such as mediation or majority-vote procedures.
• Setting exit rules – explaining what happens when a member resigns, retires, or passes away, and how their share of the LLP will be valued or transferred.

Simply put, an LLP Agreement is the backbone of a well-run partnership. It protects your business, your finances, and your working relationships and it ensures that every member knows where they stand long before any disagreements surface.

Additional insights:

• If your LLP is client-facing or regulated, having a formal agreement in place can also support compliance expectations and strengthen your professional credibility.
• Many accountants and solicitors recommend reviewing the agreement annually, especially as profit models or partner workloads evolve.
• You can include industry-specific provisions, such as restrictive covenants or intellectual property protection, which aren’t covered under default legislation.

Related resources:

• GOV.UK – Limited Liability Partnerships guidance