A limited liability partnership (LLP) is governed by a legislation known as the Limited Liability Partnership Act, 2008 and rules made thereunder. It is a form of partnership between two or more persons in which all partners concerned have limited liability to the extent of capital contribution in the firm. In other words, in a limited liability form of corporate structure, if the partnership firm was to take loan from a bank, the bank cannot recover the said amount by attaching an individual partner’s personal property. This in one major advantage of a limited liability partnership firm compared to a traditional partnership firm.
LIMITED LIABILITY PARTNERSHIP AGREEMENT
A limited liability partnership agreement forms the back bone of a limited liability partnership firm. Any lacuna in this agreement can cost individual partners dearly at a later stage. Therefore it is important that this agreement be drafted carefully. Some important clauses that ought to be included in an LLP agreement are:
- Details of partners: full name and permanent address of each partner, including whether anyone is a foreign national or not. This is particularly important because if any partner is foreign national, then foreign direct investment regulations will begin to apply.
- Admission of new partner: mode and manner of admitting new partners. Usually no person may be introduced as a new partner without the consent of all the exiting partners.
- Rights of partners: under normal circumstances all partners have the rights, title and interest in all the assets and properties in the firm in proportion to amount of equity held. The firm has perpetual succession. Death, retirement or insolvency of any partner does not dissolve the firm.
- Duties of partners: every partner accounts to the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him the property, name or any business connection of the limited liability partnership.
- Meetings: The meeting of partners are decided based upon the LLP agreement, usually called by sending 15 (fifteen) days prior notice to all the partners at their residential address or by mail at the e-mail IDs provided. In case any partner is a foreign resident the meeting may be conducted by serving 15 (fifteen) days prior notice through e-mail.
- Management of the LLP: Any matter or issues relating to the LLP shall be decided by a majority in number of the Designated Partners which shall in every case include the Partners being the original Parties hereto so long as they continue as the Designated Partners of the LLP.
- Termination & dissolution: the winding up of a limited liability partnership may be either voluntary or by the tribunal and limited liability partnership, so wound up may be dissolved.
Professional functioning of an LLP primarily depends upon the Limited Liability Partnership Agreement. It’s this agreement that defines the role and responsibility of each partner and his duty towards the partnership firm. Readers of this article can view a limited liability agreement sample at our website, demo.stellans.com.