Quiz question: you are offered a job in an LLP with a salary plus a 1% equity share; you accept the job but never sign any terms governing the equity share; you are not even shown the LLP agreement but are shown a draft new agreement. What is your position regarding the equity share?

  • A) You don’t have an equity share because you never agreed terms.
  • B) You have a share governed by the LLP agreement which you did not see.
  • C) You have a share governed by the draft new LLP agreement.
  • D) You have a share governed by the default provisions of the LLP Act.

This was the question faced by the judge in the 2015 case of Reinhard -v- Ondra LLP, a case rightfully well-known because of his decision that a member of an LLP, no matter how junior, can never also be classified as an employee. The oft-overlooked remainder of his decision is also rather instructive for those offering or accepting membership of LLPs.

The answer the judge came to on our quiz question above was (C): Mr Reinhard’s 1% share was governed by the draft LLP agreement he had been shown, notwithstanding that it had been in draft and that there was another LLP agreement in force at the time.

The judge did not, however, entirely rule out the possibility that Mr Reinhard might have been bound by the LLP agreement he had not seen; he simply decided that, on the specific facts, this was not what had happened. He quoted, without demur, a 1960s case in which the judge had said “I do not see why someone who joins a club should not do so on the basis that he will be bound by the rule of the club, whatever they may be”.  His own decision was that “a person becomes a member of an existing LLP on the terms of the LLP agreement which governs the relationship between the existing members”. He went on to identify certain exceptions and qualifications to this, none of which was that the new member had not seen the agreement.

In this particular case, however, the judge felt the facts pointed towards Mr Reinhard joining pursuant to the terms of the draft agreement which was shown to him. The judge was untroubled by the expectation in that draft deed that anyone being admitted to the LLP would sign a deed of adherence to the deed – it was, after all, he said, only a draft and one cannot sign a deed of adherence to a draft but one can nevertheless join an LLP pursuant to its terms.

Mr Reinhard’s lawyers wanted the judge to choose answer (D) above but the he retorted that no reasonable person could have thought that their “own membership rights would have been left entirely undocumented when a formal document was already in draft”.

So there we have it:

  • Can a person join an LLP pursuant to the terms of an agreement he has not seen? Yes!
  • Can a person join an LLP pursuant to the terms of an agreement in draft? Yes!
  • Even if there is another agreement in place? Yes!