Limited Liability Partnership is a form of a business entity regulated under the Limited Liability Partnership Act, 2008 (known as “the Act”) combination of partnership and company business form of entity. To incorporate a limited liability partnership as a requirement there should be at least 2 partners as designated partners. Such LLP will form with the feature of companies ie., liability limited to the extent as agreed mutually. We can say that LLP is a body corporate and legally separate entity from its partners.
The LLP Agreement is a charter of every limited liability partnership which defines the role, responsibilities, rights, and duties of all partners towards each other and towards the firm simultaneously. LLP Agreement is a mandatory document to get it registered with the concerned Registrar of Companies (“ROC”) in LLP e-Form – 3 and must be made on the relevant stamp paper (Appropriate value as per the state law) within 30 days of the formation of the LLP.
Contents of LLP Agreement
There are some mandatory details which should be disclosed in the agreement such as:
- Full name of LLP
- Date Place of execution of the agreement
- Place of execution of the agreement
- Total Contribution of the LLP
- The proportion of partners contribution
- Form of contribution
- Place of recording, storage & maintenance of books of accounts of the LLP
- Particulars of current & capital account
- The rights & Duties amongst the existing partners, continuing partners & exiting partner, as the case may be
- Classification and details of the firm’s assets
- The provisions related to admission of a new partner into LLP
- The procedural information regarding the sale or transfer of partnership rights.
- Duly witnessed by the two witnesses
- Other relevant provisions and procedures as deem fit to run the business efficiently.
As per Schedule I of the Act, contain the following particulars which will be applicable on LLP when they did not adopt their format of agreement within 30 days from the incorporation such as follows:
a) Partner of LLP shall share profit & losses as per the terms and conditions decided between them.
b) Partners can take part in the management of the firm
c) Partners shall indemnify the LLP if losses are caused due to the fraudulent act done by him
d) Shall have to indemnify for nay personal payment made by him in the ordinary course of business or anything done for the preservation of assets of the firm
e) No partner is entitled to take any remuneration or salary for the management of LLP
f) Admission of new partner requires the permission of all partners
g) Any dispute between partners that are not resolved amongst themselves must be referred for arbitration.
Circumstances & Amendments in the LLP Agreement
Under the following circumstances, the amendments to the LLP agreement can be made are as follows:
- Change in business activities of the LLP.
- Change in partners i.e., addition or cessation of a partner from LLP
- Change in the contribution by the partners in LLP.
- Change in management structure, authority if specified in the agreement of the LLP.
- Change in terms and conditions of operations of LLP.
- Change in rights, liabilities, duties of partners amongst themselves and to the third parties.
- Change in duration of LLP and mode of operation.
- Any other change in the Agreement clause as agreed mutually.
The procedure which has to be followed for any kind of alteration in the LLP Agreement is as follows:
Step 1: Decision amongst partners for change in Initial LLP Agreement:
The change in the LLP agreement shall be decided amongst partners of the LLP mutually subject to the relevant clause of the LLP for changes in such an LLP Agreement. Therefore, any changes in the LLP agreement affects the operations of such LLP.
Step 2: Preparation of Supplementary Agreement:
Any change or modification in the agreement between partners or LLP shall be executed on a non-judicial stamp paper of appropriate value as per the relevant State law, such agreement shall be supplementary agreement to the initial agreement
Step 3: Filing of such changes with the Registrar:
The change made in the LLP agreement required to be filed in e Form- 3 within 30 days of such change to the concerned Registrar of Companies (“ROC”).
Further, in case change in agreement is due to change in partners or designated partner shall be made in e- Form 4 along with e form 3 with the prescribed fee.
In case a change in agreement is due to change in the registered office of LLP shall be made in e Form 15 along with e-Form 3 with the prescribed fee.
Step 4: Noting of such changes with the Registrar:
The ROC shall take on record the changes and modifications in the LLP Agreement and approve the changes if no clarification is required.
Also, the LLP is required to record such changes in the appropriate places and update the documents.
LLP Agreement is a must for smooth long term run of business. LLP agreement clears the managerial, operational as well administrative outlook. The self-made LLP agreement provides the flexibility and contractual freedom to partner so as to fulfill their needs and interest as compared to an incorporated business structure as the majority of its administrative procedures are framed as per prescribed provisions of the Companies Act and to avail the tax benefit under Income Tax Act there must be a requirement of valid LLP agreement.
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