What is Limited Liability Partnership ?
Introduction:
What is Limited Liability Partnership :
LLP Agreements mean a written agreement between the partners of the Limited Liability Partnership (LLP) – 2008 or between the LLP and its partners which establish the rights and duties of the partners toward each other as well toward the LLP.
It is a body corporate created by law. As per the LLP law, any two persons can incorporate an LLP by subscribing to the incorporation documents. Once an LLP is formed, the rights and duties of partners are governed by Schedule One of the LLP Act, unless the LLP’s partners or the LLP and partners create an LLP agreement. The self-agreed LLP agreement provides the flexibility and contractual freedom to partner so as to fulfill their needs and interest as compared to an incorporated business structure as the majority of its administrative procedures are framed as per prescribed provisions of the Companies Act. So a well defines LLP Agreement is a must for smooth long term functioning of an LLP.
Contents of LLP Agreement
A well structured and clearly summarized LLP agreement is very much required for the successful functioning of an LLP. Since As provisions of the company law is not applicable to an LLP, henceforth all corporate structure related issues must be taken into consideration.
- Name of the LLP:
The name of the LLP shall end with LLP or Limited Liability Partnership as per the provisions of the LLP Act.
- Date of agreement and parties of agreement:
After incorporation, the LLP agreement is to be executed within 30 days as per the LLP Act. LLP agreement is between partners of LLP which can either be LLP or individual partner. Hence for our agreement, all the parties to the LLP agreement which can be LLP or individual or both are taken into consideration.
- Introductory provisions:
It includes the definition of terms used in the LLP agreement, the 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.
- LLP record keeping and bank management:
It includes the recording, maintenance, and storage of LLP books and other related documents.
- Capital and Current account:
It includes particulars that will be credited and debited in each account.
- Place of business:
The agreement must contains the place of business which is the registered office of the LLP.
- Business activity:
It is important to include the business activities to be carried on by the LLP. It must be in the same nature as approved by the MCA at the time of incorporation of LLP.
- Partners rights to record:
Each partner has the right to scrutinize the records and documents of LLP for avoiding misappropriation and embezzlement. Rights of each partner to inspect records and copies of LLP.
- Disassociation of Partner:
It includes the terms and conditions when partners can disassociate or withdraw from the LLP. It illustrates the procedure, the rights of existing partners, and rights on assets after disassociation, as well as notice to existing partner.
Types of LLP agreement
LLP agreements should be customized and meet the requirement of all the partners without compromising on the objective and growth of LLP. Following are the main types of LLP agreements.
- Equal rights LLP:
In such type of LLP, all partners contribute equal capital, time, and energy in the LLP. All receive the same remuneration and share the equal profit and loss. The decisions are mutually taken. All the partners have same rights and contribute equally to the management as well the business of the LLP.
2. Differential rights LLP:
In such type of LLP, Partners have a different amount of contribution in terms of capital, energy, and time. Hence the right to profit sharing, decision making, and managerial right differs. It can be classified into
- LLP Agreement wherein rights are in the ratio of contribution and profit sharing. The level of contribution may decide the level of profit sharing.
- LLP Agreement wherein rights are in the ratio of contribution only, but profit rights differ. Management rights may be equal or in some other ratio
Conclusion:
LLP creates the foundation for the smooth running of LLP. This agreement clarifies the managerial, operational as well administrative outlook and set well define methodologies for decision making, adding a new partner and disassociation of existing partner. Company suggestion can help you prepare your LLP registration at an affordable price in India.
