Types of LLP and LLP Agreement

Types of LLP and LLP Agreement

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Types of LLP and LLP Agreement
Types of LLP and LLP Agreement

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:

  • Name of the LLP – The name of the LLP shall end with LLP or Limited Liability Partnership.
  •  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, small business accounting firm, auditing, etc.
  • 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.
  • 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terms of capital, interest on contribution, profit sharing ratio as well as time period after which the capital can be withdrawn by any of the partners.
  • LLP documents and record keeping – 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.
  • Allocation and distribution – It clarifies the method of profit sharing among partners and distribution in the LLP.
  • 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.
  • 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.
  • New partners and their partnership rights – It provide information related to admission of new partners and its rights thereafter.
  • 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.
  • 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.
  • 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.
  • 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.

  • 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.

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