Limited Liability Partnership (LLP) Agreement - All You Need to Know

Ryan Patrick

• 6 min read
Limited Liability Partnership (LLP) Agreement - All You Need to Know

A Limited Liability Partnership (LLP) is a type of business model that includes 2 or more partners. Before an LLP can be incorporated, there must be an agreement between the partners concerning the terms of the business, this agreement is called 'The Limited Liability Partnership (LLP) Agreement'.

This agreement as per Section 2(1)(0) of the Limited Liability Partnership Act, 2008 is any written agreement between partners of a Limited Liability Partnership or between the LLP and the partners that contain the rights of the partners, the duties of each partner about their position as a partner of the Limited Liability Partnership.

It is more of a constitutional document that contains the rules and regulations of the LLP, the decision-making guidelines for the business, the process of hiring or appointing new partners, the expulsion of partners, profit distribution and the duties and responsibilities of each partner in the partnership. The agreement acts as a backbone and constitution for the organisation and all partners must adhere to it.

The LLP agreement is made between the partners and not from any authorities, but after the compilation and signing of the agreement, a signed copy of the agreement must be filed with FGD Registrar of Companies (RoC) in an electronic form LLP 3 and must be filed within 30 (thirty) days of the registration and incorporation of the Limited Liability Partnership (LLP).

Significance of an LLP Agreement

  • The LLP agreement provides a code of conduct in the organisation
  • The agreement gives specific duties, obligations, rights, privileges and power to the partners of the LLP.
  • It contains all information about the operation of the LLP
  • It provides a guide to the processes for active decision-making in the LLP including appointing of new partners and expulsion of old partners.
  • It explains the management structure, operations and administration of the LLP
  • Unlike the Limited Companies, which make use of the article of association as their constitutional document which is less flexible, the LLP agreement is a very flexible document and can be changed without consulting any authorities.

Content of the LLP Agreement

Here is what is contained in the LLP Agreement.

1. Name of the LLP

The agreement must contain the name of the LLP business which must not be a name belonging to any specific partner but should be agreed upon by all partners. The agreement must also contain the logo of the partnership along with its vision, motto and goals.

2. Registered Office Address

The business must have a specific operational location and this location will be written down in the LLP agreement as the registered office address of the business. This location can be changed upon agreement between the partners and the business can operate from other locations aside from the registered office address but must be approved by all the partners.

3. Business Activity

The business activity of the LLP must be mentioned in the agreement. If the business has more than one business activity, all should be mentioned in the LLP agreement and should contain a detailed explanation of the business activity and model.

4. Details of Partners

The LLP agreement should contain all necessary information of the partners including the partner's name, address, date of birth, and occupation and should contain any additional position of any of the partners in any other business or company.

5. Designated Partners

The designated partner(s) is the partner who is responsible for the filing of accounts for the LLP business. These partners are the ones responsible for the active management of the business while the others are referred to as shadow partners. The shadow partners are just partners in the LLP but do not actively participate in the management of the business.

It should contain the name, date of birth, age and other occupations of the designated partners.

6. Percentage of Capital Contribution

The LLP agreement should contain the percentage of capital contributed by each partner. Non-monetary contributions must also be included, contributions like offering a paid service for free for the partnership in place of the money to be paid. Additional contributions by the partners during start-up should also be included in this section of the agreement. It should also contain the process for the withdrawal of contributions by any partner.

If a partner is offering a non-monetary contribution, it should be equated with the monetary cost of that service and included in this section of the LLP agreement.

8. Profit Sharing Ratio

The LLP agreement should also contain the agreement regarding the amount of remunerations to designated partners for rendering services to the LLP business. The agreement should also contain the ratio of profit and loss that will be divided among the partners in the Limited Liability Partnership.

9. Rights and Duties of Partners

The agreement should contain the rights of every partner of the LLP and it should efficiently distribute duties to each partner. Although most of the duties of the partnership are done by the designated partners, other partners are also involved when it comes to decision-making on important matters of the LLP.

Appointment of Partners, Expulsion of Partners and Retirement of Partners

The LLP agreement should include the process necessary for the admission of a new partner and guidelines for appointing partners. In the case of any misconduct of a shy partner, the agreement should contain the necessary punishment and if the misconduct is severe, it should contain the process of expulsion of a partner.

Sometimes, old partners are retired due to old age or they want to willingly retire from the business. The agreement should contain the process necessary for the retirement of a partner.

10. Winding up Terms

If the LLP agreement is valid for only a specific period, it should be included in the agreement. It should also contain the conditions that can lead to the dissolving of the partnership by the partners either voluntarily or by forced dissolution. It should also contain the terms for selling off of the partnership.

Some of the information also contained in the LLP agreement include

  1. Process of conflict resolution
  2. Allowable expenses
  3. Process of withdrawal from the partnership
  4. The day-to-day management structure of the business

Steps to Creating a Limited Liability Partnership (LLP) Agreement

To draft an LLP agreement, you have to go through some legal processes that must include the consent of every partner present in that partnership. The process includes

  • Compilation of the LLP agreement
  • The signing of the agreement by every partner of the partnership
  • Each party will provide a witness who will sign on the last page of the agreement
  • Notarisation of the LLP agreement by any Notary Public
  • Filing of a signed copy of the LLP agreement with the concerned Registrar of Companies (RoC) in e-film LLP 3 must be within 30 days of the registration of the LLP
  • Every partner should have a copy of the LLP agreement in their possession

Changing or Alteration of the LLP Agreement

The LLP agreement is flexible and can be changed at any time with the consent of the partners. The LLP is similar to the articles of association of Limited Liability Companies but it has one distinct difference. If a change is to be made in the article of association of Limited Companies, it must first be reported to Companies House and till it is approved, then the change can be made.

The LLP agreement is quite different as it can be changed at any time by the partners and the change will not be reported to any authorities. As long as the agreement has been submitted to the Registrar of Companies (RoC), the partnership can choose to alter the agreement at any time once it is signed by all partners.

And also during any significant decision-making in the business, it must be signed and approved by the partners before it can be implemented. Sometimes it is fine in the form of votes and the decision with the highest vote of partners stands and must be implemented.

Any partner that does not abide by the LLP agreement should be punished according to what is stated in the agreement. Designated partners can also be elected but it must be from one of the available partners of the partnership and must not be an outsider.

If the business is an employee, the duties of the employees should be included in the LLP agreement and also in line with rules and regulations they should abide by as long as they are working under the business.

A partner can also choose to be an employee of the partnership and so, the partner will receive their profit percentage differently from their salary as an employee of the partnership.

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Conclusion

The Limited Liability Partnership Agreement is a document that serves as the constitution of the partnership and is used as a backbone to all the activities of the business. It contains the duties and obligations of each partner and also the structure of the business including the business activities. The LLP Agreement must be signed by all partners and a copy filed at the Registrar of Companies (RoC) within 30 days of I incorporation of the company. The agreement should also contain tax filing procedures and record record-keeping process of the business. Do you have any questions about the Limited Liability Partnership (LLP) Agreement? Kindly contact one of our experts for help today.