LLP
Agreement means a written agreement between the partners of the LLP or between
the LLP and its partners which establish the rights and duties of the partners
toward each other. It is a body corporate created by law. Once an LLP is
formed, it is governed under Schedule One of the LLP Act, unless the LLP's
partners or the LLP and partners create an LLP agreement.
Contents
of an LLP Agreement
A LLP
agreement is very much required for the successful functioning of an LLP. As the provisions of the company law is not
applicable to a LLP, henceforth all corporate structure related issues must be
taken into consideration. The provisions are:
a. Name of the LLP - The
name of the LLP shall end with LLP or Limited Liability Partnership.
b. Provisions in agreement – It
includes definition of terms used in the LLP agreement, name of the LLP and
provision of future name changes, initial partners, new partners admission,
business activities and their scope, power of LLP, duration, management,
accounting, auditing, etc.
c. Rights of Redemption It
provides rights of partners as well as how those rights can be redeemed from
the LLP. It considers methods of readmission.
d. Partners' contribution – It
provides the contribution ratio of partners in terms of capital, interest on
contribution, profit sharing ratio as well as time period after which the
capital can be withdrawn by any of the partners.
e. LLP documents and record keeping – It
includes the recording, maintenance and storage of LLP books and other related
documents.
f.
Capital
and current account – It
includes particulars that will be credited and debited in each account.
g. Allocation and distribution – It
clarifies the method of profit sharing among partners and distribution in the
LLP.
h. Date and parties of agreement – After
incorporation, the LLP agreement is to be executed within 30 days as per the
LLP Act. The agreement is between partners of LLP which can either be LLP or
individual partner. Hence for our agreement, the parties which are taken into
consideration include LLP or individual or both.
i.
Withdrawal
of partner –It include the terms and conditions when
partners can withdraw from the LLP. It provides the procedure for that, and
rights on assets after disassociation, the rights of existing partners as well
as notice to existing partner.
j.
New
partners and their partnership rights – It
provide information related to admission of new partners and its rights
thereafter.
k. Partners' rights to records –
Each partner have the right to scrutinize the records and documents of LLP for
avoiding misappropriation and embezzlement. Each partner has the right to
inspect records of LLP and copies of the same.
l.
Fiduciary
duty – It takes into consideration the responsibilities of
management of company and the appointment of manager as well as person liable
for fiduciary duty i.e. taking care of legal matters as well as funds and
assets of the company.
m. Sales,
transfer of partnership rights – It provide procedural
information about the selling, transferring of partnership right to existing
partner and new partner. Partners' meetings and voting – It covers the mode ,
time period of meeting, the method of
decision making process and the voting rights of the partners concerned.
n. Arbitration and general
provisions: In case of disagreement between parties, the parties
may involve third party known as arbitrator who listens to both the parties and
take decision, which is to abide by both the parties concerned.
Types of LLP Agreements
Following
are the main types of LLP agreements.
A. Equal Rights LLP -In
such type of LLP, all partners mutually work together they share equal profit
or loss of the company. They contribute
equal capital, time, and energy in the LLP. All the partners have same rights
and contribute equally in the management of the LLP.
B. Differential Rights LLP-In
such type of LLP, it is opposite to equal rights LLP. They have different
amount of contribution in terms of capital, energy and time. They have
different profit sharing, decision making and managerial right.
C. Board Managed LLP-In
such type of LLP, management is done by forming the board of partners similar
to board of director in company. The partners have the day to day managerial
and operational, decision making power rest in the hand of board/committee of
partners.
D. Husband & Wife LLP- In
such type of LLP if Husband and wife are running LLP, then special agreement related
to tax liability can be made so as to minimize the family tax liability.
Besides, they can choose any of the of LLP according to their convenience.
E. Differential Rights and Differential Powers LLP-In
such type of LLP, partners hold different rights and powers. Some may be just
investing while other may be holding managerial responsibilities. In order to avoid
miscommunication and conflict, the rights and power of partners must be well
defined and agreed on.
F. Absolute Rights LLP- In this type of LLP, there are only two
partners, and one of them is appointed
as the nominee or in only as the investor then the llp agreement will be
drafted in such a way that one person will get all the management and decision
making power.
G. Manager Managed LLP- In
such type of LLP, partners appoint the manager and give him powers related to
administration, management, operational of the company. The role of the partner
is limited as investor and do not have any decision making power on day to day
activities of the company.
Author:
This blog is written by Ms. Chanchal
Sharma, a passionate blogger of Aapka Consultant.
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