An LLP agreement is a legal document that’s construed between the partners or the designated partners who are forming a Limited Liability Partnership. The agreement states the different rights and duties of the partners between each other and the LLP. It is mandatory to file the LLP agreement with the MCA within 30 days of incorporation.
By stating the rules and regulations and the assigned objectives for the LLP, it ensures that there is less room for discrepancies between the designated partners. It helps in defining the foundation of the business structure for which the LLP was formed.
Different elements of an LLP Agreement
- An LLP agreement starts with the Name of the Limited Liability Company which is chosen as per the provisions of the LLP Amendment Act, 2008.
- The LLP agreement should comprise the names of the partners and the designated partners. The agreement should contain the date on which they are agreeing. The date should be within 30 days of incorporation, as the agreement has to be filed within 30 days of incorporation.
- Introductory provisions also have to be filed. These are the basic definitions of the agreement like terms used in the agreement, how a new partner admission will take place, the duration of the LLP, accounts and audit etc.
- The details regarding the place of incorporation and other essential details on incorporation.
- The business activity for which the LLP was incorporated has to be mentioned in the agreement.
- The partner’s contribution and the interest in the partner’s contribution are to be mentioned in the LLP agreement. The period after which the capital contribution can be withdrawn by the partners also should be present in the LLP agreement.
- The LLP agreement has to discuss the allocation of profits and the profit-sharing ratio.
- The auditing procedure, maintenance of accounts whether cash or accrual, is the LLP mandatory for an audit, etc. has to be laid down in the LLP agreement.
- The interim and final distribution in LLP.
- How a partner can be disassociated with LLP, his rights against the same, the rights over the assets over the LLP, and the termination of the limited liability partnership.
- When a conflict arises between the partners, they are bound to appoint an arbitrator. The arbitrator’s decision is considered final.
- Each partner has the right to access the records, this authority should be added to the LLP agreement.
- And various other provisions as deemed fit are included in the LLP agreement.
Profito Global helps you draft the LLP agreement with utmost precision and care. The chaos that may arise due to a lesser understanding of the required content may affect the ease of filing. Also, the deadlines will be contemplated and all required documents will be filed without any delay.
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Is DSC and DIN mandatory for preparation of LLP Agreement?
No. For preparation of an LLP Agreement DSC and DIN is not required. However for further process for incorporation, DSC and DIN is required. -
Is there any minimum requirement of partners for preparation of LLP Agreement?
Yes. For preparation of LLP Agreement a minimum two designated partners are necessary. -
What are some of the different types of LLP Agreements?
- Equal Rights LLP
Equal Rights as the name suggests denotes that all of the necessary considerations in the LLP shall be shared equally. The profit-sharing, capital contribution, decision-making authority, and participation shall be shared amongst the parts equally.
- Differential Rights LLP
Two or more partners of the LLP decide on having varied rights on all the matters concerning the LLP. The capital contribution, sharing of profits, rights and duties etc.
- Where rights are in terms of the LLP agreement
The LLP states the profit-sharing ratios and the partners are to abide by them.
- Absolute rights
When the LLP is incorporated by two people and only one is termed as the contributor
or investor, then he shall have absolute rights regarding the affairs of the LLP.
- Husband & Wife
The only difference between this LLP from the above classifications is that its partners are husband and wife. It can be formed in direction of any means stated above.
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What are some of the new amendments incorporated in 2021 under the LLP Act?
The key takeaways of the 2021 amendments are:
- It encourages small partnerships to convert themselves into LLP. This promotes more domestic entrepreneurs. This gives rise to Startup LLPs.
- The penalties have been relaxed comparatively on a lower scale.
- Speedy dispute resolution has been introduced by the establishment of special courts.
- The residency requirement has been brought down from 180 days to 120 days in terms of the requirement of a resident designated partner.
Further details can be referred to here
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What are the stamp duty requirements?
The stamp duty requirement varies for different states. The common fact for all the states is that it depends on the total capital contribution in the LLP. For example, in Karnataka, up to Rs 10 lakh capital contribution, is Rs 1000 and for every five-lakh additional to this amount, Rs 500 has to be paid.
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When should you file the LLP agreement?
The LLP agreement should be filed within 30 days of incorporation.
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How can an LLP avail of tax benefits?
- The details of the remuneration of the working partners have to be mentioned in the LLP agreement. This reduces the income and hence the tax liability of the firm.
- The addition of interest on capital contribution helps in the reduction of income and thereby the tax liability.