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Lord Goodhart: My Lords, I am grateful to the Minister for his explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Members]:

Lord McIntosh of Haringey moved Amendment No. 5:


The noble Lord said: My Lords, it is the turn of the noble Lord, Lord Goodhart. The noble Lord argued in Committee that the issue of cessation of membership should be dealt with in the Bill rather than in regulations. He thought that provision in regulations might be ultra vires and asked us to look again at the issue. We have concluded that it is more appropriate to include here provision that, unless otherwise agreed, a member may withdraw from the LLP by giving reasonable notice.

The noble Lord's amendment in Committee specified a particular time period. We have concluded that reasonable notice is more appropriate than setting a specific time period. Depending on the circumstances, whatever was included in legislation might be regarded as too long or too short, and it will, in any case, be possible for members to set a specific period for giving notice by agreement. I beg to move.

Lord Goodhart: My Lords, I am grateful to the Minister for having taken this point on board. Obviously I greatly welcome the amendment.

However, there is one point that I should like to follow up, and that is: what are the consequences for someone who retires on giving notice while the LLP continues in operation? In the case of a company limited by shares, his or her shareholding would remain in the company except in the special circumstances where Section 459 of the Companies Act would apply or where the other shareholders agreed to buy out his or her shares. What will happen in the case of an LLP, where there are no shareholdings as such? Should there not be some kind of default provision to ensure that when a member of an LLP retires, the LLP is required to pay out to the retiring member his or her share in the LLP's property? Otherwise we could run into considerable difficulty.

Let us take the case of three partners who are running a small restaurant business and one of them leaves. It is clearly inappropriate that that member's interest in the LLP should be simply locked in for the benefit of the two remaining members. It is not clear on the face of the Bill that there is a right for the outgoing member to take out his or her interest.

Baroness Buscombe: My Lords, I rise to speak briefly in support of the amendment. I expressed

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concern at Second Reading that the Bill does not expressly provide for a member who wishes to retire from the partnership. I am pleased that the amendment now covers that point. Although I suggested that notice be given to the LLP, I accept the Minister's preference for notice to be given to the other members.

Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Goodhart, has raised an issue which is, in my limited experience, a current difficulty in company law. If a shareholder director, for example, wished to leave a company, it could be that an absolute right for him to take out his shareholding at a previously agreed rate could bring the company to its knees. I have seen examples of that.

The situation is the same for an LLP as it is for a company; there cannot be any default provision provided in legislation. It will have to be done by agreement between the members and the buy-out will have to be negotiated. Any default would be extremely complicated. But the same problem arises with companies and it would be a pity to attempt to bring something in for LLPs which we have not been able to do for companies.

Lord Goodhart: My Lords, before the Minister sits down, I wonder whether that will be the case. It seems to me that there is a serious lacuna here. Membership of an LLP is so closely linked with management that it is very difficult to contemplate circumstances in which a member who retires from the LLP cannot take out his or her share in it without the agreement of the other partners.

Lord McIntosh of Haringey: My Lords, that would have to be done by agreement. Anyone going into an LLP as a member must, at the time of the original agreement, put himself or herself into a position of being either the person who is leaving or the persons left behind, and take the steps necessary to protect that position in the future.

It will never be a straightforward issue; it is not a straightforward position for partnerships under the 1890 Act. The Law Commission is considering partnership law generally and we expect that it will look at this issue in its consultation paper. If I can add anything to that, I will certainly do so. However, I do not see any way round that difficulty, whatever the nature of the business entity.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendment No. 6:


    Page 3, line 13, leave out ("(rather than members of a limited liability partnership)").

The noble Lord said: My Lords, it is the turn of the noble Baroness, Lady Buscombe. She suggested in Committee that it might be possible to simplify the wording of Clause 4. We have looked again and we

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have decided that the wording in brackets adds little value and can be advantageously removed. I beg to move.

Baroness Buscombe: My Lords, I am grateful to the Minister for the amendment. It certainly simplifies the understanding of the status of members. I simply suggest that the final comma should be removed. It is a small point, but it affects the intonation and thereby the understanding of the clause.

Lord McIntosh of Haringey: My Lords, I believe that sufficient discretion is allowed to the printers to do that without reference to your Lordships.

On Question, amendment agreed to.

Clause 5 [Relationship of members etc.]:

6.30 p.m.

Lord McIntosh of Haringey moved Amendment No. 7:


    Page 3, line 16, leave out subsection (1) and insert--


("( ) Except as far as otherwise provided by this Act or any other enactment, the mutual rights and duties of the members of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its members, shall be governed--
(a) by agreement between the members, or between the limited liability partnership and its members, or
(b) in the absence of agreement as to any matter, by any provision made in relation to that matter by regulations under section 14(c).").

The noble Lord said: My Lords, we have already anticipated some of the discussion on this amendment. The noble Lord, Lord Phillips, tabled a probing amendment at the Committee stage to establish the thinking behind subsection (1). We have looked again at the wording and decided that there is no need to refer to the incorporation document but that it is beneficial to include something to point to the importance of agreements between members in determining internal relations. Of course, we are looking for agreements as far as possible rather than the implementation of default provisions. In addition, in the light of our consultation on draft regulations for default provisions governing the relationships between members, we are of the view that it is helpful to point to the default provisions by amending Clause 5(1)(b) to refer to "regulations under section 14(c)", which is what we were discussing when we were concerned with Amendment No. 1.

The noble Lord, Lord Phillips, raised the question of the wording at Clause 2(2)(a). I think I can deal with it most readily now because the reference is to an incorporation document. If it is going to be meaningful, it must have information about the agreement between members. The registrar cannot say what the agreement should contain or what form it should be in, so the incorporation document is limited specifically to the details set out in paragraphs (b) to (f) and paragraph (a) is deliberately left so that the members of a partnership can, provided they state the

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necessary facts in paragraphs (b) to (f), use their own form. I do not think there is any danger here of anybody being misled.

Lord Renton: My Lords, I am in favour of this amendment apart from one point on which I would like the noble Lord's views. Subsection (c), which is an exception to the normal effect of the provisions, states,


    "applying or incorporating, with such modifications as appear appropriate, any law relating to partnerships".

Surely the law relating to partnerships applies in any event and therefore subsection (c) would seem to be unnecessary. If the noble Lord can say that it is necessary, that is all well and good but, if the law relating to partnerships prevails, I would have thought it was unnecessary to make a regulation applying it.

Lord McIntosh of Haringey: No, my Lords, the law relating to partnerships does not apply. The whole principle of this Bill is that the new business entity called a limited liability partnership is a corporate body, not a partnership. The only partnership element of it is the tax treatment of the members of the limited liability partnership. The consultative document which we issued in February, of which the noble Lord did not receive a copy because he did not take part in the earlier proceedings on the Bill--he is welcome to have a copy--specifies those elements of the law of partnership and specifically the Partnership Act 1890, which ought to be applied in regulations. That is the reason why we have to have Clause 14(c).


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