Over the years the business community has realized there is a need for a different form of business organization. One that is more freedom than a partnership and fewer formalities than a company. Hence the Limited Liability Partnership (LLP) came into existence. Let us learn a bit more about LLP Agreement.
An LLP agreement is a written document defining the agreement between the partners of a Limited Liability Partnership. It defines the rights and duties of all the partners towards each other and towards the firm.
Under the Limited Liability Partnership Act, the filing of an LLP agreement is mandatory while registering the firm within 30 days of the formation of the LLP. In the absence of the agreement all the rights and liabilities provided in Schedule, I of the act will apply to the partners and the LLP.
A well-defined LLP agreement sets the solid foundation for the business. A comprehensive, detailed LLP agreement defines the roles and responsibilities of a firm very clearly. This helps avoid any conflict in the future.
Contents of LLP Agreement
Let us take a look at the contents of a proper LLP agreement.
- Firstly, it contains the name of the limited liability partnership firm. According to the Act, the name must always end with LLP.
- It also contains the date of the agreement. The act states that the agreement must be registered within 30 days after incorporation.
- Then we come to the partner’s contribution. The agreement has the ratio of the capital invested by the partners, the profit sharing ratio and other provisions regarding the capital contribution if any.
- The agreement has the provisions related to the recording, storage, and maintenance of the books of accounts and other important documents
- It includes the particulars of the capital accounts and current accounts. For example, where the drawings of the partner will be recorded.
- The agreement contains the terms of disassociation as well. If any partners want to withdraw from the LLP, then the procedure and process are listed out. Also, it contains the rights of the exciting partners, rights of the continuing partners, the division of firm assets etc.
- Also contains the provisions for the admission of a new partner into the LLP.
- The agreement must also contain the procedural information regarding the sale or transfer of partnership rights. If such transfer of rights is prohibited, then it must be mentioned.
Browse more Topics under Indian Partnership Act
- Elements of a Partnership
- True Test of a Partnership
- Partnership Deed
- Partnership Property
- Types of Partners
- Minor admitted to Partnership
- Relations of Partners to One Another
- Relations of Partners to Third Party
- Dissolution of a Partnership
- Dissolution of a Partnership by Court Order
- Effect of Dissolution
- Goodwill of a firm
Provisions in absence on an LLP Agreement
If there is no registered LLP agreement between the partners, the provisions of Schedule I of the LLP Act 2008 shall apply to all the partners. These provisions are as follows,
- All partners of LLP shall share profits and losses equally.
- Partners shall have indemnity for any personal payments made by him in the ordinary course of business or anything done for the preservation of assets of the business
- Partners shall indemnify the LLP if losses are caused due to a fraudulent act was done by him
- All partners can take part in the management of the firm
- No partner is entitled to any remuneration or salary for the management of the LLP
- Admission of any new partner will require the permission of all the partners
- Any other issue will be decided by a vote of all the partners, and a simple majority will be needed to pass a resolution. But if the firm wants to change the nature of the business, all the partners must consent.
- Majority of the partners cannot expel a partner unless there is an express agreement between partners.
- Any disputes between the partners of an LLP which are not resolved amongst themselves must be referred for arbitration as per the act.
Solved Example on LLP Agreement
Q: A, a partner of the LLP carried on competing for business. B hence demands A pay the profits of such business to all the partners. Is B correct?
Ans: Yes, according to Schedule I of the LLP Act, if a partner carries on the same business or any competing business, then he must pay over the profits earned by him to the LLP.