WHAT IS THE LLP? CONTENTS, PROVISIONS AND CONCEPTS

LLP (LIMITED LIABILITY PARTNERSHIP) contract is a written agreement between the parties of the LLP or it’s between the LLP and its partners. It specifies the rights and responsibilities of the partners towards each other and towards the LLP. It makes a basis for the better functioning of LLP. It states the outlook and set well-defined areas of decision making, adding new partners and leaving of existing ones or in changing their roles.

Business Dec 1, 2020 0 Add to Reading List

WHAT IS THE LLP? CONTENTS, PROVISIONS AND CONCEPTS

Meaning of LLP Agreement and its Significance

LLP (LIMITED LIABILITY PARTNERSHIP) contract is a written agreement between the parties of the LLP or it’s between the LLP and its partners. It specifies the rights and responsibilities of the partners towards each other and towards the LLP.

It makes a basis for the better functioning of LLP. It states the outlook and set well-defined areas of decision making, adding new partners, and leaving existing ones or changing their roles. That’s why a good and detailed systematic LLP agreement sets out the basis and it acts as a backbone to empower the firm.

Contents of LLP

Every agreement has the below-mentioned clauses-:

Name of the LLP- The name must finish with LLP as per the section of the LLP act, 2008.
Date and Parties to the Agreement- The contract must be executed within 30 days of the LLP ACT, 2008. It’s between all the parties and the desired partners. It must have the date of entering the contract.
Place of Business- It must state the place of business which is the registered office of the LLP.
Business Activity- It is very essential to involve a business activity that is being carried on by LLP. It must be in the same way as approved by the MCA at the time of the making of LLP.
Duration- If the LLP is made for a certain time then such time must be stated after which the LLP must be dissolved. It can also be made for some specific goal, and after the completion, it must be closed.
Accounting and Auditing and etc- This involves how to maintain the books of accounts. When can a partner have access to a book of account, whether an audit is mandatory, or will it follow the rules stated in the LLP Act?
Partner’s Contribution and Method of Contribution- It shows the contribution of partners in means of capital which is invested, the interest which is on contribution, profit sharing ratio as well as the time period after which the capital can be withdrawn by any of the partners.
Record Keeping and Bank Management- It means the maintenance, storage, and recording of books and all other necessary documents.
Allocation and Distribution- It states the system of profits that are shared among all the partners and which is distributed involving interim distribution or final distribution.
Disassociation of Partner- It states the terms and conditions when a partner can disassociate from the LLP. It includes the rights of the partners and rights on assets that a partner gets after disassociation.
Partners Right to Record- Every partner enjoys the right to check the records for avoiding misappropriation.
Management and Fiduciary Duty- It states the liability of the management of LLP and the appointment of the person for safeguarding secret information of the LLP.
Arbitration and General Provision- In case of any dispute the parties may seek a third party which is known as an arbitrator and who listens to both the parties and makes a final call which is mandatory to be accepted by both the parties.

Types of LLP Agreement

The agreement should be met with the need of all the partners without adjusting on the aim of growth and profit-making.

The following are the types-:

Equal Rights LLP- In such type of LLP, all the partners give equal capital, time, and efforts in the making of LLP. All partners receive the same remuneration and curtail equal profits and losses. The decisions are also mutually taken. All the partners have the same rights, duties, responsibilities, and give equally to the management as well as the business.
Differential Rights LLP- In such type of LLP, the distribution varies according to the partners in terms of capital, energy and time, and liability. Therefore the rights to profits and power in decision making differ.

It can be classified into-:

Agreements where the rights are in the ratio of contribution and profit-sharing ratio. The level of contribution decides the level of profit-sharing only.
Agreements where the rights are in the ratio of contribution only, but in this profit, rights differ. Rights of management may be equal or in some other ratio.

A provision in the Absence of LLP agreement

If there is no registered LLP agreement, the provision of schedule 1 of the LLP Act will be applied to all the partners.

The provisions are as follows-:

All the partners of LLP will bear profits and losses equally.
Partners will have indemnity for any personal payments made by him in the normal course of business or anything done for the safeguarding of assets of the business.
Partners will indemnity the LLP if losses are done because of a fraudulent acts done by any partner.
Partners can participate in the management of the firm.
No partner will be entitled to any salary for management of the LLP.
Admission of new partners will require the permission of all the partners.
Any other issue will be decided by a vote of all the partners, and a simple majority will be needed to pass a resolution. However, if a firm wants to change the type of business then all the partners must give consent for it.
The partners cannot force out a partner unless there is an express agreement between the parties.
Any dispute between the partners of an LLP that are not resolved amongst themselves must be referred to the arbitration.