In business partnerships, Limited Liability Partnerships have emerged as a strong form of organisation. It’s a unique collaboration involving two or more partners, each with limitations on their responsibilities. The Ministry of Corporate Affairs oversees the process of registration of LLP, making sure it aligns with compliance and regulatory standards. However, for every LLP, it is necessary to get a well drafted LLP agreement in place to deal with future business issues and disputes. But such LLP agreements can also be amended as per requirement affecting the rights and duties of the partners involved.
Guiding the dynamics within the LLP are the principles enshrined in the Limited Liability Partnership Act of 2008. The LLP agreement being a significant piece document governs the rights, duties and management of the partners involved. This document must be registered in the records of the Registrar using Form 3 within 30 days from the date of incorporation.
Why are Amendments in LLP Agreement Required?
Various circumstances require amendments in LLP Agreement, including:
Shift in Business Activities:
Changes in the business’s nature or activities may warrant amendments in LLP Agreement to reflect the updated operational scope.
Capital Contribution Modification:
Alterations in the capital contributed by partners could lead to amendments in LLP Agreement. These adjustments may involve:
· Capital Addition: Introduction of new capital by partners.
· Capital Reduction: Reduction in the capital invested.
· Capital Ratio Adjustment: Changes in the proportion of capital contributed by partners.
Shift in Capital Management Structure:
Changes in how capital is managed within the LLP might necessitate amendments in LLP Agreement.
Adjustments to Partner Terms:
Changes in terms governing partner addition, resignation, expulsion or retirement require amendments in LLP Agreement to ensure clarity and compliance.
Revision of Partner Rights and Liabilities:
Modifications to the rights and responsibilities of partners call for amendments in LLP agreement. These changes maintain accuracy in reflecting the roles and contributions of each partner.
Inclusion or Elimination of Clauses:
The need to add or remove specific clauses in the agreement might arise due to evolving legal, operational or strategic considerations.
Factors to Consider Before Drafting an LLP Agreement
Before proceeding with the LLP registration and document completion, it is significant to keep in mind certain key factors. These considerations are essential to ensure the proper formation and execution of the Limited Liability Partnership (LLP) agreement:
1. Partner Consent and Meeting:
The initial step before drafting an LLP agreement involves convening a meeting among the partners, during which each partner’s consent for participating in the LLP should be obtained.
2. Authorisation and Compliance:
To fulfil the necessary requirements and compliance conditions for the LLP, it is essential to file the relevant documents with the Ministry of Corporate Affairs (MCA). This process involves providing authorisation to one of the partners to oversee the filing.
3. Execution of LLP Agreement:
Drafting and executing the LLP agreement is a significant stage, which follows the payment of the required stamp duty. Several mandatory aspects need to be considered during this process:
Stamp Duty Requirement: Ensuring that the appropriate stamp duty is paid on the LLP
agreement is of utmost importance. The payment amount should adhere to legal regulations.
Validity of Supplementary Deed & LLP Agreement: The validity of both the supplementary deed and the LLP agreement should be carefully addressed. These documents play a significant role in defining the terms and conditions of the partnership.
Partner Signatures: Obtaining the signatures of all partners involved in the LLP agreement is essential. This signifies unanimous agreement and commitment to the terms outlined in the agreement.
Attestation by Witnesses: The attestation of the LLP agreement by a minimum of two witnesses is a requisite step. Their signatures affirm the authenticity of the agreement and the voluntary participation of all partners.
Procedure for Making Amendment in LLP Agreement
Making amendments in LLP agreement requires a systematic approach. The following steps outline the process for effecting amendment in LLP agreement:
Step 1: Passing Resolution for Amendment in LLP Agreement
Initiate the process by passing a resolution to make amendment in LLP agreement. This resolution should outline the proposed changes and be approved by the partners.
Step 2: Filing Form-3 with Registrar of Companies (ROC)
Within 30 days of passing the resolution, file Form-3 with the Registrar of Companies (ROC). This form should contain the following details:
- Date of amendment to the LLP agreement.
- LLP’s details before the amendments.
- LLP’s details after the amendments.
- Reasons for the changes, including but not limited to:
- Alteration in business nature.
- Partner changes.
- Alteration in profit/loss sharing ratios.
- Modification in partners’ duties and rights.
- Limitations on partners’ authority.
- Changes in management/administration.
- Amendments to meeting procedures.
- Other pertinent LLP-related changes.
- Resolutions of disputes involving partners, partners and the LLP and other relevant clauses.
- Business activity details post-amendment.
- Classification of industrial activities (NIC-2004).
- Partners’ revised profit and loss sharing details.
Step 3: Filing Form-4 for Designated Partner Changes
If there are changes in designated partners, along with Form-3, submit Form-4. For changes in particulars such as name, address, designation, etc., Form-4 is also necessary.
Required Documents for Form-4:
- Partner’s consent document.
- Proof of termination (if applicable).
- Proof of name change (if applicable), supported by an affidavit.
- If a company is designated partner, provide a company resolution confirming its partnership with the LLP.
- Submit an authorisation letter detailing the nominated representative partner’s name and address.
Step 4: Ministry of Corporate Affairs (MCA) Approval
The amendment in LLP agreement is considered complete only upon approval from the Ministry of Corporate Affairs. The approved LLP agreement can be downloaded from the MCA website.
Step 5: Filling E-Form or Uploading Scanned Documents
Download the e-form and fill it or directly complete the form online using a Digital Signature Certificate (DSC). Alternatively, for offline filing, scan the necessary documents and upload them on the designated portal.
Rights of Partners as Stated in the LLP Agreement
The LLP agreement outlines certain rights vested in the partners, which are as follows:
- Participation in Management: Partners possess the privilege to actively partake in the management of the LLP. This involvement empowers them to contribute to decision-making and operational aspects.
- Asset Pledge and Mortgage: Partners retain the authority to pledge or mortgage LLP assets for the purpose of procuring finances for the LLP’s business endeavours, within permissible boundaries.
- Ownership and Claim in Assets: Partners hold legitimate right, title, interest and share in all assets and properties of the LLP, corresponding to their respective profit-sharing ratios.
- Access to Records: Partners are entitled to access, inspect and duplicate any books of accounts and other records belonging to the LLP. This access facilitates transparency and informed decision-making.
- Non-Compete Clause: While partners can maintain separate and independent businesses, they are prohibited from engaging in any business directly or indirectly competitive with the LLP’s business. The usage of LLP’s name, assets, goodwill or reputation for personal businesses is restricted.
Duties of Partners as Outlined in the LLP Agreement
The LLP agreement describes the duties of partners as well, which are as follows:
- Diligence and Loyalty: Partners are obligated to diligently and faithfully work towards the objectives of the LLP’s business. Their allegiance to the LLP’s interests and operations is paramount.
- Time and Attention: Partners must allocate requisite time and attention to fulfil the LLP’s business objectives effectively.
- True Accounts and Information: Partners are responsible for providing accurate accounts and comprehensive information regarding all matters impacting the LLP. This transparency ensures informed decision-making.
- Consent Requirement: Partners are mandated to act in the best interests of the LLP and should not undertake any actions without obtaining the consent of the Limited Liability Partnership.
- Transfer of Interest: In the event a partner intends to transfer or assign their shares or interest in the LLP, they are obligated to initially offer the same to the other partner via a 15-day notice. If no communication is received from the other partner within this period, the concerned partner can proceed with transferring or assigning their share in the open market.
Final Thoughts
An LLP stands as a distinct partnership structure where partners possess limited liabilities. Its formation requires adherence to MCA regulations. Governed by the Limited Liability Partnership Act of 2008, the LLP Agreement outlines partners’ rights, duties and management protocols. However, there are circumstances that may require amendment in LLP agreement like shifts in business activities, alterations in capital contribution, modifications to partner terms and more.
Important considerations before drafting an LLP agreement involve partner consensus, compliance with MCA procedures and execution of the agreement. Making amendment in LLP agreement follows a clear and defined process, involving filing forms and obtaining MCA approval. This comprehensive approach ensures smooth operation, transparency and alignment with legal stipulations for successful LLP management.
For more clarity on what is amendment in LLP Agreement and the rights and duties of partners in LLP as per the LLP agreement, connect with our experts at StartupFino.
