What Inaugurates In LLP Agreement? Important Points To Remember
Limited Liability Partnership (LLP) is an alternative form of business organization. It not only provides the benefits of limited liability but also allows its members the flexibility of organizing their internal affairs as a partnership based on a mutually arrived agreement. Liability of the partners is not as limited as that of shareholder in a company. LLP Agreements mean a written agreement between the partners of the limited liability partnership (LLP) or between the LLP and its partners which establish the rights and duties of the partners toward each other as well toward the LLP.
Statement of Background section:
- Date of submission of form 2
- The RoC in which the firm will be registered with.
- The principal activity of the LLP: A brief note on the purpose of the business and laws that will abide by.
The name of the LLP shall end with LLP or Limited Liability Partnership as per the provisions of the LLP Act.
Status Details section
Status of LLP and LLP Assets’ section: This would state that LLP shall be a legal entity separate and distinct from its Partners. The LLP shall own all its assets in its own name.
It includes the definition of terms used in the LLP agreement, the 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, accounting, auditing, etc.
LLP’s Annual Accounting sections This section will look something like this
- LLP should prepare profit and loss account and balance sheet including statement of accounts and solvency in accordance with the provisions of Income tax Act, 1961
- Partners’ Contributions to the LLP in Exchange for Their Partnership Rights
- In deciding income, the LLP shall use the accrual basis or cash basis as decided by majority of partners
- LLP’s Accounting Method: As per Indian Accounting Standards and Income Tax Act, 1961 unless otherwise required under the LLP Act.
- The LLP’s annual accounting period for financial and tax purposes shall be the financial year as defined in the LLP Act.
It portrays the contribution ratio of partners in terms of capital, interest on contribution, profit sharing ratio as well as the time period after which the capital can be withdrawn by any of the partners. It is important for maintaining the good cordial relation between partners.
LLP record keeping and bank arrangement
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.
LLP Partner Dissociation and purchase of shares
This section will look something like this
- Events of Dissociation—In General (rights after dissociation will also be listed down)
- Dissociation upon Resignation
- Dissociation upon death
- Dissociation upon disability
- Dissociation upon partner insolvency
- Dissociation upon expulsion
- Redemption and Cross Purchases of Partnership Rights post dissociation
- Option of LLP to Redeem and Other Partner to Cross-purchase the Partnership Rights of Dissociated Partner
- Buy out Terms
It provides procedural information about the selling, transferring of partnership right to existing partner and a new partner. Partners’ meetings and voting – It covers the mode, time period of the meeting, the method of the decision-making process and the voting rights of the partners concerned.
Partner’s rights to records
Each partner has the right to scrutinize the records and documents of LLP for avoiding misappropriation and embezzlement. Rights of each partner to inspect records of LLP and copies of the same.
Management and fiduciary duty
It takes into account the responsibility of the management of a company and the appointment of manager as well as the person liable for fiduciary duty i.e. taking care of legal matters as well as funds and assets of the company. Arbitration and general provisions: In the case of disagreement between parties, the parties may involve the third party known as an arbitrator who listens to both the parties and takes a decision, which is to abide by both the parties concerned.
Signature and Dates
In witness of their acceptance of the terms and conditions of this LLP agreement, the parties, by themselves have duly signed this Agreement the day, month and year. For any Legal support, we will be happy to help you. Contact BDS Legal Services now.
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