LLP Agreement means any written agreement between the partners of the limited liability partnership or between the limited liability partnership and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that limited liability partnership. It is not necessary to enter into an LLP Agreement as per the LLP Act 2008. In absence of LLP Agreement, the mutual rights of Partners and in relation to LLP will be determined as per Schedule I of the LLP Act 2008. Features of Standard clauses of Schedule I
- All partners entitled to share equally in the Capital and Profits/losses.
- Indemnity Clause
- Every Partner shall take part in management
- No partner shall be entitled to remuneration.
- No partner introduced without consent of all partners.
- All decisions with majority of partners consent
- Minutes of decisions to be recorded within 30 days
- Rendering of true accounts & information by all partners
- All Disputes will be referred to Arbitration Act
Generally, every business and owners have their own way to manage to run the Business and therefore the standard clauses given in first schedule to LLP Act will not be practically acceptable in majority of the cases. Therefore to be on the secure side, it is always advisable that drafting of LLP Agreement should only be done through qualified professionals. Features can be inserted in agreement are:
- Form & Manner of Contribution between parties
- Profit & loss sharing ratio
- Business to be carried on
- Rights & Liabilities of Partner
- Admission & cessation of partners.
- Duties of partners
- Partners accountable/authorized for banking process.
- Specific decisions like Investment, taking/giving loan, disposition of property of LLP etc to be made by majority partners.
- Requirement of disclosure of substantial interest of Partner in transactions to be entered by the LLP.
- Manner of dispute resolution
In case of joint ventures & collaborations, it is always recommended to have clear drafting of LLP Agreement, which defines the rights & duties of all the parties to the Agreement, in order to avoid any dispute in future and smooth running of the business. The LLP Agreement if executed is required to be registered with the Registrar of Companies. However if drafting of LLP Agreement is executed before registration of LLP, the partners will have to ratify this agreement after incorporation of LLP and file with Registrar of Companies. LLP Agreement shall also be liable for stamp duty as per the Stamp Duty laws prescribed the related State Government, where the said agreement will be executed. The LLP Agreement once entered into can be amended as per the terms and conditions mentioned in the Agreement and any change therein, must be intimated to the Registrar of Companies within 30 days of the change LLP Agreement, being the charter document of a LLP, is of great importance and is hugely responsible for a successful LLP. The LLP Act 2008 doesnâ€™t talks on length in terms of how one should regulate and run a LLP and left it entirely on the partners to decide the same in form of the LLP Agreement. The LLP Act 2008 has provided enormous scope for partners, while deciding the terms and conditions of a LLP and since it is the only document, which will regulate the relationship of partners with the LLP and between partners inter-se, a poorly drafted LLP Agreement, will lead to chaos among the partners, which may consequently lead to disputes. Therefore it needs to very carefully drafted, as the successful and peaceful running of the LLP depends upon the same. Moreover, when the transaction to be entered into is important, you need a partner, whom you can trust upon and who can provide you the right guidance at the right time. We at Taxmantra.com have a dedicated corporate law team comprising of Chartered Accountants, Company Secretaries and Legal Practitioners who are experts in drafting the most suitable LLP Agreement for your LLP, which would constitute each business understanding and terms of engagement amongst the designated partners/ partners, and implicitly excluding certain stipulations, which you are proposing to enter with some other party, in order to protect your interest in the transaction. Please also check this link to explore more on LLP Agreement.