How to draft an effective LLP Agreement?

An LLP Agreement is an agreement between the partners of the LLP regarding how to run a Limited Liability Partnership.

Limited Liability Partnership Deed (“LLP Deed”) is the singular most important document governing the relationship between the partners, on one hand and between the Limited Liability Partnership (LLP) and each individual partner, on the other hand.

Various things agreed to between the partners like

1. Name of the LLP, initial address etc.

2. Capital to be introduced by each partner and form of Capital

3. Profit sharing ratios

4.Duties and responsibilities of each partner

5.Methodology of calculation of remuneration like Salaries, Commission etc.

6.Powers in each partner and if additional powers are to be vested in a particular partner

7. Mode of meetings and taking decisions

8.Important future events like admission of partner, dissolution, removal of partners

9.Indemnity clauses

10. Dispute resolution

11. Winding up clause

should be part of the LLP Deed.

For example, if its agreed that Partner A shall invest 40% Capital but have 50% profits because of his managing powers, the same should be explicitly mentioned in the LLP Deed. Or if its intended that Partner A shall be the main partner and he shall have full control over the bank accounts, it should be mentioned explicitly.

One very very important thing to note while drafting an LLP Agreement is to anticipate all that can go wrong between the partners and make arrangements for the same. This is not a negative statement but a statement made strictly on the basis of experience of incorporating more than 40 LLPs. Partners should be aware that things can go wrong in the future and there must be ways to resolve disputes. Hence, the need to put down everything in writing that is agreed to between the partners.

Hence, each LLP Deed should be customised to reflect the actual agreement between the partners. Just to reduce costs, one should not accept standard drafts of LLP Deeds.

Stamping: LLP deed needs to be adequately stamped. This will depend on the capital contribution and the Stamp duty structure in each state or union territory.

Article by CA Bhavesh Savla