A Limited Liability Partnership Agreement serves as a pivotal contract binding two or more individuals or entities in the joint ownership of a Limited Liability Partnership (LLP). This legally binding document delineates the mutual rights and obligations of partners, crucially outlining the framework for their collaborative endeavors. While the LLP maintains its distinct legal identity through incorporation, the foundation of its governance is laid down in the LLP Agreement or LLP deed format in word. Therefore, preparing an accurate Limited Liability Partnership Agreement Format becomes imperative to adhere to legal standards and safeguard the interests of all parties.
What is LLP Agreement?
A Limited Liability Partnership, or LLP, is a type of corporate business structure that combines the core features of a partnership firm with the advantages of a limited company. Unlike a Sole Proprietorship business, many people can collaborate as partners to invest in and operate an LLP. In contrast to a Partnership firm, which does not have a separate legal identity from its partners, an LLP is incorporated as a separate legal entity and is liable to fulfill all its obligations in its name instead of the name of its partners.
The liability of the partners in an LLP is distributed among them in the ratio of their capital contribution or as otherwise mentioned in the Limited Liability Partnership Agreement. Akin to a Limited Company, the individual liabilities of partners in an LLP are also limited. Moreover, the partners are protected against joint liability, that is the actions of one partner does not make the other partners liable as well.
The LLP Agreement or limited liability partnership deed outlines the partner’s rights and obligations as well as the rights and obligations of the LLP. Additionally, it describes each partner’s ownership stake in the LLP, specifies how profits and losses are to be distributed among them, gets the LLP ready for typical business situations, and contains other crucial guidelines about how the LLP will pursue its activities. The LLP agreement word format is, therefore, essential as a basic fundamental document of the LLP.
Important Clauses in the LLP Agreement Format
The LLP Agreement word Format encompasses pivotal aspects governing partnerships within an LLP. It defines the relationship among partners, ensuring their eligibility for partnership, and outlining their extent of liability towards the business as well as other partners. Moreover, the LLP Agreement Format in word delves into the specifics of capital contributions, emphasizing the importance of adhering to agreed-upon terms for profit sharing. Also, it mandates meticulous accounting practices and annual audits, ensuring transparency and compliance with regulatory standards.
Partners and their Relationships
The initial partners of the LLP are those who sign the LLP Agreement word format or llp deed format in word. According to the terms of the LLP Agreement, anyone who is eligible, can join as the partner of the LLP. It is made clear that only an individual or a corporation may be a partner in a limited liability partnership in accordance with section 5 of the LLP Act, 2008.
For the purposes of the LLP Act of 2008, a HUF (Hindu Undivided Family) cannot be regarded as a corporate body. As a result, neither a HUF nor its Karta can be named a partner in an LLP. The Limited Liability Partnership agreement defines the relation that shall exist among the partners, and between the partners and the LLP.
The degree of LLP’s and its Partners’ liability
As a legal entity separate from its partners, an LLP is responsible for fulfilling its duties and liabilities, in its own name instead of the name of its partners. The liabilities of the LLP must be covered by assets of the LLP only. When a partner acts on behalf of the LLP without proper authorization, the LLP shall not be held accountable for his actions.
LLP is responsible for any partner’s misconduct committed during the course of business or while acting under the LLP’s authority. A partner is not personally liable towards the LLP. The partner is himself responsible for his own improper action or omission, nevertheless.
Contributions
A partner’s obligation to contribute capital must follow the terms agreed by all partners and mentioned in the LLP Agreement word format or limited liability partnership deed. Apart from capital contribution, the contribution of the partners may also be with regards to movable or immovable property, tangible or intangible assets, and contracts of services rendered or to be rendered.
The amount and type of each partner’s contribution must be stated in the LLP’s financial statements as well. A Chartered Accountant, Cost Accountant, or Approved Valuer must estimate the monetary value of the non-financial contribution for the purpose. A creditor of an LLP who offers credit based on a partner’s commitment to pay it off, may hold the partner accountable for the payment of that credit.
Accounts and Audit
LLP is obliged to maintain books of accounts on an accrual basis or a cash basis, following the double-entry system of accounting. The financial situation, specifics of money received and spent, the list of assets and liabilities, the cost of products acquired, inventories, work-in-progress, finished goods, and the cost of goods sold should all be disclosed in the books of accounts.
The designated partner shall be able to verify from the books of accounts that the Statement of Account and Solvency is genuine. Such a Statement of Account and Solvency must be filed in Form 8 to the Registrar of Companies by the LLP, not later than October 30th, of the immediately succeeding financial year. The LLP’s accounts are also required to be annually audited.
Adhering to these important LLP clauses while drafting an LLP Agreement can help in professional drafting of this crucial document. Navigate through each points thoroughly to gain proper clarity on clauses, rights and liability outlined in this agreement. It will be beneficial for the partners of an LLP to initiate a trusted bond among each other which will eventually help their joint venture to thrive in India as well as beyond boundaries
Contents of LLP Agreement
the journey of forming an LLP, preparing a draft LLP Agreement sample or llp deed format in word is absolutely essential. The agreement outlines each partner’s rights and responsibilities, the legal name and activities of the LLP, partner details, and the sharing of capital, profits, and losses. It also covers voting rights and procedures for partner additions, expulsions, and changes to the agreement. Once signed by all partners in the presence of witnesses and a public notary, copies of draft LLP Agreement sample or limited liability partnership deed should be retained for record-keeping, with any changes documented in writing. Here’s a comprehensive structure of the Limited Liability Partnership Agreement for a clearer understanding.
- The legal name of the LLP under which it shall conduct its business
- An overview of the LLP’s intended business activity / activities
- Complete Information of the partners: their full names, addresses, and contact details
- Rights and obligations of the Partners
- Powers and duties of the Designated Partners
- An account of the capital, assets, and other resources of the LLP
- The capital, profit, and loss sharing ratio
- Voting rights of the partners
- Partner additions and expulsion: the rules for how the LLP will handle partner additions, retirement, removal (both voluntary and involuntary)
- All of the partners should sign and date the LLP Agreement once it has been completed. A witness who is at least 18 years old and is not affiliated with the LLP, must attest to each partner’s signature. The agreement must then be stamped by a public notary. Note that the LLP agreement shall be signed by all the partners in the presence of 2 witnesses and the public notary.
- Copies of the LLP Agreement should be kept by the partners for their records. The partners must make any changes to the agreement in writing if they intend to make any changes to its provisions.
FAQs
What is the significance of an LLP Agreement?
An LLP Agreement establishes the rights and duties of partners within the LLP and outlines the operational framework, making it a crucial document for the entity’s smooth functioning.
What are the essential elements of an LLP Agreement?
A comprehensive LLP Agreement includes provisions on the LLP’s name, parties involved, place of business, business activities, duration, accounting, partners’ contributions, record-keeping, distribution of profits, partner disassociation, and management responsibilities, among others.
What is the last date for filing LLP Agreement with the Government ?
The LLP agreement is to be filed within 30 days of LLP Registration mandatorily.