Limited Liability Partnership (LLP) Agreement

What is an LLP Agreement?

An LLP Agreement or Limited Liability Partnership Agreement is a legally binding contract between two or more individuals or businesses who would like to manage and operate a business together in order to make a profit.

The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. Further, no partner is liable on account of the independent or unauthorised actions of other partners, thus individual partners are shielded from joint liability created by another partner's wrongful business decisions or misconduct.

The document is crucial for establishing and running a new business successfully. It ensures clear communication and defined responsibilities for all the partners. This agreement outlines contingency plans for when things go wrong, as well as descriptions of the LLP's day-to-day operations. An LLP Agreement offers protection to the partners involved in the business and is increasingly popular for entering into a business venture.

What is the difference between an LLP Agreement and a Partnership Deed?

A Limited Liability Partnership (LLP) is a business structure that combines the limited liability protection of a corporation with the operational flexibility of a partnership. The LLP is considered a separate legal entity, and its liability is limited to the full extent of its assets.

In contrast, the liability of the partners is restricted to their agreed contribution in the LLP. The Partnership created by entering into a Partnership Deed is not a separate entity, and the partners are personally liable for the losses or damages related to the partnership.

Is it mandatory to have an LLP Agreement?

Yes, it is mandatory for LLP to have an LLP Agreement for registration. In the absence of an LLP Agreement, LLP will be registered under the standard clauses mentioned under applicable laws which may not be in the interest of the partners.

What does "Designated Partner" mean?

A Designated Partner is partner appointed to fulfil specific duties and responsibilities on behalf of the LLP. These duties may include filing legal documents, managing the bank account, or representing the LLP in certain situations including in court cases, etc.

What must an LLP Agreement contain?

An LLP Agreement must contain the following important clauses:

• LLP name: the legal name under which the LLP will do business. This must be unique and not taken by anyone to be eligible to be registered.
• Purpose of the LLP: a brief description of the business that the LLP will conduct.
• Partner information: the legal names and addresses of all the partners currently involved in the LLP.
• Designated Partners and their powers: The names of the designated partners of the LLP and their powers.
• Capital contributions: a description of the cash, property, services, and other resources initially contributed to the LLP by each of the partners.
• Ownership interest: a description of the percentage of the LLP owned by each of the partners.
• Profit/Loss distribution: a description of how the profits and losses of the LLP will be distributed between the partners.
• Management and voting requirements: a description of how the LLP will be managed, and how voting weight will be determined.
• Partner joining and withdrawal: the guidelines for how the LLP will handle the addition of partners, the voluntary withdrawal of partners, and the involuntary withdrawal of partners.

Who can enter into an LLP Agreement?

Any person above the age of 18 years or a registered entity in India can form an LLP.

What can be the duration of an LLP Agreement?

There is no fixed period or duration for an LLP. The duration will be as mentioned under the LLP Agreement. It can be for a fixed period, or until terminated by partners in accordance with the LLP Agreement.

What has to be done once the LLP Agreement is ready?

Once the LLP Agreement is completed, it must be printed on non-judicial stamp paper or e-stamp paper and signed by all the parties to the LLP Agreement and dated. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on such agreements. Information regarding the stamp duty payable can be found on the State government websites.

All partners should keep copies of the LLP Agreement for their records. If the partners wish to change any of the terms of the Agreement, they should be sure to do so in writing.

Is it necessary to register the LLP Agreement?

Yes, the LLP Agreement must be registered with the Registrar of Companies where the registered address of the LLP is located within 30 days of incorporation to be a legally valid entity.

Is it necessary to have a witness for an LLP Agreement?

Yes, it is necessary. An independent adult must witness each partner's signature, someone over 18 years old, who is not involved with the LLP. Thus, the partners cannot witness each other.

Which laws are applicable to an LLP Agreement?

The LLP Act, 2008 is the law governing limited liability partnerships in India. General principles of the Indian Contract Act, 1872 may also apply.

As per the provisions of the LLP Act, 2008 in the absence of agreement as to any matter, the mutual rights and liabilities shall be as provided for under Schedule I to the Act. Therefore, if any LLP proposes to exclude provisions/requirements of Schedule I from the Act, it would have to enter into an LLP Agreement, specifically excluding the applicability of any or all paragraphs of Schedule I.

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