Starting a Limited Liability Partnership (LLP) is a popular choice among startups and professionals in India. However, one of the most crucial legal documents in forming an LLP is the LLP Agreement.
If you are a new entrepreneur planning to register an LLP, understanding the importance of an LLP Agreement is essential. This guide explains everything you need to know.
What Is an LLP Agreement?
An LLP Agreement is a written contract between the partners of a Limited Liability Partnership. It defines the rights, duties, responsibilities, and profit-sharing ratios of the partners.
The agreement governs:
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Business operations
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Decision-making process
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Capital contribution
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Profit and loss distribution
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Admission or exit of partners
In simple terms, it acts as the rulebook of the LLP.
Is an LLP Agreement Mandatory?
Yes. Under the Limited Liability Partnership Act, 2008, filing an LLP Agreement is mandatory after incorporation.
The agreement must be:
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Drafted on stamp paper (as per state stamp duty rules)
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Signed by all partners
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Filed with MCA in Form 3 within 30 days of LLP incorporation
Failure to file the LLP Agreement can attract penalties.
Why Is an LLP Agreement Important?
1. Prevents Future Disputes
A well-drafted LLP Agreement clearly defines roles and responsibilities, reducing misunderstandings among partners.
2. Defines Profit Sharing
It specifies how profits and losses will be distributed.
3. Protects Partner Rights
The agreement ensures fair treatment and clarity in decision-making.
4. Defines Exit & Admission Terms
It outlines procedures for adding or removing partners.
5. Legal Protection
In case of disputes, the LLP Agreement serves as legal evidence.
Key Clauses in an LLP Agreement
A standard LLP Agreement usually includes:
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Name and registered office of LLP
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Business objectives
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Capital contribution of each partner
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Profit-sharing ratio
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Duties and powers of partners
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Remuneration (if any)
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Bank operations
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Decision-making process
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Dispute resolution mechanism
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Exit and dissolution terms
Customizing these clauses based on your business model is highly recommended.
What Happens If There Is No LLP Agreement?
If partners fail to execute an LLP Agreement, the default provisions under the LLP Act apply. These include:
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Equal profit sharing
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Equal participation in management
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No partner entitled to remuneration
This may not always suit your business needs. Therefore, drafting a proper LLP Agreement is crucial.
LLP Agreement vs Partnership Deed
Many entrepreneurs confuse an LLP Agreement with a traditional partnership deed.
| Feature | LLP Agreement | Partnership Deed |
|---|---|---|
| Governing Law | LLP Act, 2008 | Indian Partnership Act, 1932 |
| Liability | Limited | Unlimited |
| Separate Legal Entity | Yes | No |
| MCA Filing | Mandatory | Not Required |
An LLP offers limited liability and better legal protection compared to a traditional partnership.
When Should You Draft an LLP Agreement?
The LLP Agreement must be drafted immediately after incorporation and filed within 30 days. However, you can modify it later with mutual consent of partners and file necessary updates with MCA.
Common Mistakes to Avoid
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Copy-pasting generic templates
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Not defining partner roles clearly
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Ignoring exit clauses
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Missing MCA filing deadlines
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Not updating agreement after structural changes
Professional drafting ensures compliance and long-term stability.
Final Thoughts
An LLP Agreement is not just a legal formality—it is the foundation of your LLP’s smooth functioning. For new entrepreneurs, a properly drafted agreement protects interests, clarifies expectations, and ensures regulatory compliance.
If you are planning to register an LLP, make sure your agreement is legally sound, customized, and filed on time.