Limited Liability Partnership Agreement is the basic requirement that should be met before complying with any partnership business. It contains the basic structure of how the LLP will function and what the liability of each partner will be, this is the need for an LLP Agreement. The best thing about the LLP is that the partners are only liable up to their extent of share in responsibility. If the losses or debts increase, then the individual is not liable to pay them from his assets. The LLP Agreement contains the important clauses of the partnership, how the partnership will operate in the market, etc. This keeps the business relations between the partners intact, and the interests and liability of each partner are also taken care of through the agreement of partnership made before business commencement. Due to all these reasons, the need for an LLP Agreement increases.
Components of the LLP Agreement
The basic things that LLP Agreement contains are –
- The basic details of the business include the business place, registered address, name, business activities, etc.
- Details of partners, the process of their exclusion if needed in the future, their profit share, liabilities, assets, rights, duties, etc.
- The details of the finances of the partnership firm and how they will be handled in the future.
- How will administrative functions be carried out in the firm?
Need for an LLP Agreement
There is no need for an LLP Agreement for legal compliance, but it is highly advisable to make the LLP Agreement since it sets the liabilities, rights, and duties of the partners, and that should be complied with by the partners. These agreements can be made as per the needs of the firm and consent of the partners; however, if the agreement is not made, then the firm will be governed as per the Limited Liability Partnership Act. The LLP Agreement signifies the following things –
- It is devised in a way that caters to the needs of the business along with the partners.
- The need for an LLP agreement increases as it protects the liability of partners.
- The responsibilities of each partner in the firm are set through it, and that is mandatory for everyone to follow.
- With the agreement in place, there is no possibility of misunderstanding or disputes between the partners concerning the business activities.
- Even if there is any sort of dispute or misunderstanding, the agreement clears everything up and reduces the risk of bigger damage, increasing the need for an LLP Agreement.
- It sets the process as to how a new member can be added to the firm if there is a need to add.
How can an LLP Agreement benefit a Firm?
The Limited Liability Partnership Agreement can benefit a firm in so many ways since it is the base through which a firm is governed and accordingly functions. A firm can benefit through an LLP Agreement in the following ways, and this will also make you understand the need for an LLP Agreement–
Management
The firm can take care of the managerial functions through the ways mentioned in the agreement. It contains when and how the managerial meetings will be done and who will do what kind of work in those meetings. The voting rights and the decision-making will be done by the partners, but their extent in these things would be defined in the agreement so that there is no dispute while the business is in commencement.
Roles and Responsibilities
The Limited Liability Partnership Agreement defines the roles and responsibilities of each member that maintains clarity and transparency in the work and this creates the need for an LLP Agreement. This helps minimize any misunderstanding, which thereby leads to arguments and disputes and the dissolution of the partnership firm.
Managing Liabilities
The LLP Agreement helps maintain and manage the liabilities of each member so that the intention of creating a Limited Liability Partnership doesn’t get diminished. With the agreement in place, everyone’s liability is written down, and no one would be liable for any losses or debts more than his/ her liability to the firm. The agreement helps in maintaining the purpose of registering the firm as an LLP.
Dispute Resolutions
There is a need for an LLP Agreement as the agreement may contain the clauses that govern the firm and settle any disputes between the partners. There may arise a situation where the firm faces disputes, and if there are clauses of dispute resolutions, then it may stop further damage like separation of partners or even dissolution of the firm. The agreement may include clauses of arbitration, conciliation, or mediation that will help to settle the disputes of the firm and its partners.
Change in Partners
The LLP Agreement includes clauses that set the procedure of any partner moving out or adding up in the firm. It helps through the smooth functioning of such change in partnership without any problems to the existing partners and the motto of the entity.
Investors Interest
If a partnership has an LLP Agreement, it surely attracts investors to invest in the firm since they are satisfied if the firm is properly functioning and complying with Indian laws. It gives them surety about the firm’s functioning and internal regulations.
Conclusion
The need for an LLP Agreement is clear and having an LLP Agreement benefits the partnership firm to maintain and grow the business multiple folds in the market. It ensures the smooth functioning of the firm, and even if there are moments of disputes or any setbacks, the provisions of the agreement can guide you to get through them easily and without affecting the course of business. Limited Liability Partnership Agreement is a torch bearer that demonstrates the ways a partnership firm can run its business in the market without any hindrance from either outside or inside. It also looks at the law compliance and tax liabilities of the firm and when it needs to be taken care of.
Corpbiz can help the partners of an LLP to register their firm as per the Limited Liability Partnership Act, 2008and also take care of drafting the LLP Agreement. The need for an LLP Agreement for a firm is a lot since that will help them grow in the market, and our professionals can plan out the agreement to be in line with each partner’s interests met and the responsibility shared by them is also in proportion to their stake in the firm.
Frequently Asked Questions
What is the need for an LLP Agreement?
There is a need for an LLP Agreementas it is legally bounding documentation that ensures the objective of the firm is being met and the interests of every partner are protected by the combined efforts of other partner/s. It limits the liability by ensuring each partner is performing their roles and responsibilities perfectly and promptly.
Do LLPs require a Memorandum of Association or Article of Association?
No, an LLP does not require any Memorandum of Association or Article of Association like a company registered under the Companies Act of 2013. However, they require an LLP Agreement between the partners.
How is an LLP Agreement filed?
An LLP Agreement is filed through Form 3 in the MCA portal online. Moreover, there is a need for an LLP Agreement to be submitted within 30 days of the firm's incorporation as a Limited Liability Partnership in a stamp paper.
How many directors are required in an LLP?
An LLP doesn't require any director, and all the things are handled by the partners of the firm. Compliance and all the important decisions of the firm are made by the members of the firm as per the LLP Agreement. They just need to have a minimum of two partners to constitute a Limited Liability Partnership.
Who can be a designated partner in an LLP as per the LLP agreement?
Any member can become the designated partner in an LLP as per the LLP agreement. All the partners can also become the designated partners if there is any such clause in the LLP Agreement. However, a corporate body (acting as a partner of the firm) cannot become a designated partner of an LLP.
Who can and cannot be named as partners in an LLP Agreement?
The partner of an LLP can be any individual or any corporate entity registered under the Companies Act, 2013, Limited Liability Partnership Act, 2008, or any other law for the time being in force. Any minor, a person with an unsound mind, or an insolvent person cannot be a partner in an LLP.
What is an LLP Agreement?
An LLP Agreement is a legal document signed by the partners of a Limited Liability Partnership that lists down the process through which the LLP would be governed along with the roles, responsibilities, liabilities, and stakes of each signing partner.
What does an LLP Agreement contain?
The LLP Agreement mainly contains the following things –
· The basic details of the business include the business place, registered address, name, business activities, etc.
· Details of partners, the process of their exclusion if needed in the future, their profit share, liabilities, assets, rights, duties, etc.
· The details of the finances of the partnership firm and how they will be handled in the future.
· How will administrative functions be carried out in the firm?What value of stamp duty is used for an LLP Agreement?
The value of stamp duty for an LLP Agreement differs from state to state. Stamp duty taken in Delhi is-
· If the LLP contribution is up to Rs Five Lakhs, then 1% of the amount will be the stamp duty.
· If the LLP contribution is above Rs Five Lakhs, then 1% of the amount will be the stamp duty, but it can go a maximum of Rs 5,000.Is there a need to notarize the LLP Agreement?
Yes, the LLP Agreement needs to be notarized with the state authorities since the content of the agreement is important, and the consent from the partners needs to be notarized as proof.
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