Changes to LLP Agreement

LLP Agreement Modifications

A Limited Liability Partnership (LLP) is a business entity where each partner’s liability is restricted. An LLP stands as a separate legal entity, ensuring individual partners are shielded from personal liability and also from the collective liability arising from another partner’s poor business choices or misconduct. In India, the formation of an LLP is governed by the LLP Act, 2008, which mandates the submission of a distinct LLP Agreement upon registration. All LLPs must register with the Registrar of Companies.

The survival of an LLP is not dependent on any single partner. Unlike traditional partnerships, where the death of a partner might dissolve the company, an LLP’s existence is not threatened by such events. The LLP can continue its business unaffected by changes in partnership.

The LLP Agreement serves as the foundational legal document dictating the management and operations of an LLP. Partners are obliged to adhere to its stipulations without breach. Post-registration, this agreement can be amended with the consensus of the partners. Typical amendments include changes to capital contribution, business activities, and the roles and rights of partners. Often, an additional agreement is appended to the original to modify specific terms.

At Corporate Raasta, we specialise in facilitating the amendment process for LLP Agreements, offering comprehensive legal consultancy services to manage these changes effectively.

Key Reasons for Modifying an LLP Agreement

Here are some prevalent motivations for amending an LLP Agreement: 

The operations of an LLP should align with the stipulations and guidelines outlined in the LLP Agreement. Modifications to the agreement are necessary to introduce new provisions, and interests, or to eliminate existing ones.

Capital is the lifeblood of any enterprise and should progressively increase as the business expands. The ratios of capital contribution and profit (or loss) distribution are closely connected from the partners’ viewpoint. To implement changes to either, an ancillary deed is essential.

The duties and privileges of the partners may be revised to reflect their evolving roles and needs, without affecting their legal standing. Such revisions typically encompass changes to administrative authority or limitations on certain activities.

Other crucial aspects such as the LLP’s jurisdiction, terms of partner resignation, appointment conditions, notice periods, removal processes, and the duration of the partnership can be adjusted to better serve the partners and the business. These adjustments may involve the modification, elimination, or addition of specific clauses.

Frequent Adjustments within an LLP

The following are typical alterations encountered in an LLP:

• General modifications to the LLP Agreement
• Name changes of the LLP
• Revisions to the LLP’s objectives
• Relocation of the LLP’s Registered Office within the ROC’s jurisdiction
• The exit or departure of an LLP Partner
• Transfer of LLP rights upon a partner’s demise
• Office relocation across state lines
• Transfer of rights in the event of a partner’s passing
• Alterations in the Profit and Loss Sharing Ratio of the LLP
• Acquisition of the LLP by a new set of individuals

Essential Documents for Amending an LLP Agreement

The important documents needed for revising an LLP Agreement include:

• PAN Card of the LLP
• Certificate of Incorporation
• Original, modified, and supplementary LLP Agreements
• Digital Signature of a designated partner

Changes that can be made to an LLP agreement

Modifying an LLP agreement requires the partners to agree to the changes in writing and sign a modified agreement. Here are the typical changes that can be made to an LLP agreement:

1. Profit and Loss Distribution: The partners can decide to change the way profits and losses are distributed among them. This may be necessary if the business’s financial situation has changed or if the partners’ contributions have evolved.
2. Capital Contributions: The agreement can be modified to adjust the initial contributions made by the partners or to require additional contributions if needed for the business’s operations or expansion.
3. Management Roles and Responsibilities: Changes to the roles and responsibilities of the partners or the management structure of the LLP can be included in the modified agreement. This could involve altering decision-making processes, delegating specific responsibilities, or changing the voting rights of the partners.
4. Admission of New Partners: If the partners wish to include new individuals in the LLP, the agreement can be modified to outline the process for admitting new partners, their rights, responsibilities, and profit shares.
5. Withdrawal or Retirement of Partners: The agreement can be amended to specify the process for partners who wish to withdraw or retire from the LLP, including the distribution of their share of profits or losses and the transfer of their interest.
6. Dispute Resolution Mechanisms: Partners can update the agreement to include or modify provisions related to resolving disputes, such as mediation, arbitration, or other alternative dispute resolution methods.
7. Dissolution of the LLP: If the partners decide to dissolve the LLP, the agreement can be modified to outline the terms and procedures for dissolution, including the distribution of assets and settlement of liabilities.

Guideline for Updating an LLP Agreement

The procedure for revising an LLP Agreement involves several steps:

• Convene a meeting of the partners to obtain unanimous consent through a resolution.
• Authorize a partner to handle the appointment and filing process with the Ministry of Corporate Affairs (MCA).
• Execute the agreement by paying the necessary stamp duty.
• Ensure the validity of the Stamp Duty, Supplementary Deed, and LLP Agreement.
• Signatures of the partners are required.
• Attestation by a minimum of two witnesses.

After these preliminary steps, the remaining process to modify the LLP Agreement is straightforward:

• Pass a resolution to amend the LLP Agreement.
• Within thirty days of passing the resolution, file Form-3 with the Registrar.