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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.
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.
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.
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:
Section 7 of the LLP Act, 2008 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.
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.
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.
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.
Following are the important components of a valid LLP Agreement:
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.
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.