Sample Format of LLP Agreement

Narendra Kumar

30 Jan, 2021

LLP Agreement is written a document stating the roles & responsibilities, rights & duties, powers etc. of the partners. Along with its main object, capital contribution and profit sharing clauses also form a part of it along with all other relevant clauses necessary for running that LLP.

What is an LLP Agreement?

Before understanding what constitutes an LLP Agreement, let us be clear on ‘What is an LLP’. LLP is the abbreviation used for Limited Liability Partnership. It is a body corporate incorporated/ registered as per the provisions of the Limited Liability Act, 2008. An LLP can be incorporated by two or more person subscribing in the incorporation document i.e. Form 2.

What is the requirement for minimum number of Partners?

Every Limited Liability Partnership is required to have at least 2 partners at every point in time. These partners can be individuals as well as any corporate body.

The requirement does not end there, the Act prescribes that every LLP must have at least two designated partners.

Who can become a partner in LLP?

Partner:

Anyone from an individual to a body corporate can become a partner in an LLP. However, there are certain restrictions imposed by the Act on the eligibility of an individual. Following individuals are disqualified from becoming a partner:

• Any person of unsound mind.
• Anyone adjudicated as insolvent or whose application for the same is pending with the authorities.

Designated Partner:

Section 7 of the LLP Act, 2008^[1] specifies the requirement of minimum 2 designated director at all time. This same section specifies that a designated director should be an individual, unlike a normal partner. And at least one of them should be an Indian resident.

It is mandatory requirement to obtain prior consent from anyone to be appointed as a designated director.

How is a designated partner different from a normal partner?

Many times people confuse that partner and designated partner are always one and the same people. However, that is a myth. The Act has separately specified the specifics surrounding them both. We can differentiate then on the basis of eligibility as well as liability.

On the basis of Eligibility

In case of a Partner: Both individual and body corporate can become a Partner.

In case of a Designated Partner: Only an individual can become a Designated partner.  Such individuals can include Individual partners and the nominees of the body corporate who are partners in the LLP.

On the basis of liability

Liabilities of a designated partner are defined under Section 8 of LLP Act, 2008 

The Designated Partners are solely responsible for the management and the execution of all the activities and related things required to be done to carry on the main objects of the LLP. Their functions will include all the necessary compliance under the provisions and requirements of the LLP Act.

On the contrary, partners in an LLP are not responsible for any such acts and are only required to make a contribution in the LLP.

What are the contents of an LLP Agreement?

Following are the important components of a valid LLP Agreement:

• Name of the LLP: Name of the LLP is to be mentioned on the top of the agreement. The name must be duly approved by the Registrar in after inspection of the application filed in Form 1.
• Date and Place of Execution must be clearly mentioned at the beginning of the agreement.
• Details of Partners: Details including name, father’s name and address of all the partners must also be mentioned separately.
• Clearly mention the registered office address of the LLP. It should be the same address mentioned at the time of incorporation of the LLP.
• Introductory provisions: This part will include the definition of the technical terms used in the agreement. Along with that, the information of initial partners etc. is
• Objects of the LLP including the mail as well as all the ancillary objects important for the furtherance of main objects must be clearly mentioned in the agreement.
• Capital contribution done by all the partner must be clearly mentioned in the agreement. Along with the amount of contribution, nature of such contribution must also be mentioned.
• All relevant information relating to appointment, removal, cessation etc of partners including their remuneration, rights, and duties must be clearly mentioned in the agreement.
• Names of Designated Partners along with all relevant information relating to appointment, removal, cessation etc. including their remuneration, rights, and duties must be clearly mentioned in the agreement.
• Remuneration and profit sharing clause must also be included, in which all the relevant information must be mention clearly.
• There should be a clause mentioning the bookkeeping provisions for the LLP explaining the accounting as well as documenting provisions.
• Winding-up clause must also be mentioned specifying the provisions to be followed in case the partners decide to wind up the organization.
• Along with all the above-mentioned information, the partners can enter any other clause that the partners agree on and are valid under the provisions of law.

Should LLP Agreement be registered to be valid?

Section 23 of the Act mandates the execution and registration of LLP Agreement within 30 days of incorporation of LLP. Every LLP Agreement must be executed on stamp paper of appropriate amount depending upon the amount of contribution and the state where its registered office is located at. Along with the stamp duty requirement, the agreement is required to be duly signed by all the parties and notarized by the authorities.

The liability is not just limited to the execution of the agreement, the said LLP Agreement is required to be filed with the registrar in Form 3 within the stated time period.

Are there any penalty provisions for non-execution of LLP Agreement in Time?

In case, there is any default on the part of the partners in registering the agreement with the Registrar. Then they are required to pay a penalty of rupees hundred for every day of such default.

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