An LLP agreement is the contract between the partners, and between the partners and the LLP, that sets out who contributes what, how profits are shared, who manages, and how people join and leave. Section 23 of the Limited Liability Partnership Act, 2008 makes it the governing document for those relationships, and it must be filed with the Registrar. Where the agreement is silent on a point, the First Schedule to the Act fills the gap. Those default rules are short and blunt: equal shares in capital and profit, no pay for any partner, unanimous consent for every new partner.
The agreement is filed in Form 3 within 30 days of incorporation, so in practice it is drafted alongside the incorporation itself. If you are setting up the LLP now, and would rather have the paperwork handled, our LLP registration service prepares the documents and files them for you.
Why an LLP agreement is different from a partnership deed
An LLP is a body corporate, separate from its partners, and a partner’s liability is generally limited to the agreed contribution. That changes what the agreement has to do. It is not just a record of the partners’ bargain. It is also a document filed with the Ministry of Corporate Affairs, it assigns statutory responsibilities to designated partners, and it is read alongside the LLP’s own filings. A contribution promised in the agreement can also be enforced by a creditor who relied on it, as the next section explains. Copying a partnership firm deed and changing the name misses most of this.
What the agreement should cover
Contribution
Section 32 allows a contribution to be money, tangible or intangible property, promissory notes, agreements to contribute cash or property, or services already performed or to be performed. Its monetary value must be accounted for and disclosed in the LLP’s accounts. Section 33 makes each partner’s obligation to contribute whatever the agreement says, and a creditor who gave credit relying on that obligation, without notice of any compromise between partners, can enforce the original obligation against the partner. So record each partner’s contribution, its form and value, when it is due, and whether further contribution can be called for. Do not promise contributions nobody intends to make.
Profit and loss sharing
State the ratio. It need not match the contribution ratio. Cover drawings, interest on contribution if any, and remuneration for working partners. Without a clause, the default is equal sharing and no remuneration.
Designated partners and their duties
Every LLP needs at least two designated partners who are individuals, at least one of them resident in India (section 7). Under section 8, designated partners are responsible for the LLP’s compliance with the Act, including filing documents, returns and statements, and any other duties the agreement gives them, and they are liable for penalties imposed on the LLP. The agreement should name who they are, how one is appointed or replaced, and what each is responsible for, such as annual filings, bank operations or statutory registers.
Management and decisions
Decide which matters are routine, which need a majority, and which need everyone: borrowing above a limit, admitting partners, changing the business, selling major assets, amending the agreement. Set out how meetings are called, how votes are counted (per head or by share), and how decisions are recorded. With two partners holding equal shares, add a deadlock route.
Admission of new partners
Section 22 lets any person become a partner in accordance with the agreement. Write down the process: who must consent, the contribution expected, and the profit share the newcomer takes. Each change of partner is reported to the Registrar within 30 days under section 25, separate from Form 3.
Exit, retirement and expulsion
Section 24 lets a partner leave as the agreement provides, or, if it says nothing, by giving at least 30 days’ written notice to the other partners. It also lists events on which a person ceases to be a partner by law, such as death or insolvency. Unless the agreement says otherwise, an outgoing partner is entitled to the contribution actually made plus a share of accumulated profits after deducting accumulated losses, as at the date of leaving. Most LLPs want a clearer valuation method and a payment schedule, so put one in. Expulsion is possible only if the agreement expressly gives that power.
Disputes
Choose the route: negotiation, mediation, then arbitration, with the seat and number of arbitrators. If you do not, the First Schedule sends unresolved disputes under the agreement to arbitration under the Arbitration and Conciliation Act, 1996, without the details that make arbitration workable.
Other clauses worth including
- Business of the LLP and the registered office.
- Accounting year, books, audit and partners’ access to information.
- Bank account operation and signing limits.
- Restrictions on competing business, and confidentiality.
- Intellectual property: who owns what each partner brings or creates.
- What happens on a partner’s death or incapacity, and whether heirs may come in.
- Winding up and the order in which assets are applied.
The First Schedule: what applies if the agreement is silent
Section 23(4) says that where the agreement does not deal with a matter, the First Schedule provisions on that matter apply. Each default below applies only to the extent your agreement does not deal with the point.
| Matter | Default under the First Schedule |
|---|---|
| Capital, profits and losses | Shared equally by all partners |
| Expenses incurred for the LLP | The LLP indemnifies a partner for payments and liabilities in the ordinary and proper conduct of its business |
| Loss caused by fraud | The partner responsible indemnifies the LLP |
| Management | Every partner may take part |
| Remuneration | No partner is entitled to remuneration for acting in the business or management |
| New partner | Needs the consent of all existing partners |
| Decisions | By majority of partners in number, one vote each; changing the nature of business needs all partners |
| Recording decisions | Minutes within 30 days, kept at the registered office |
| Information | Each partner must give true accounts and full information to any partner |
| Competing business | A partner who carries on a competing business without consent must account for its profits to the LLP |
| Private benefit | A partner must account for any benefit taken without consent from LLP transactions, property, name or connections |
| Expulsion | Not by majority unless the agreement expressly allows it |
| Disputes | Arbitration under the Arbitration and Conciliation Act, 1996 |
Some of these suit almost every LLP, such as the fraud indemnity and the duty to give information. Others rarely match what partners intend. Equal shares ignore unequal contributions; “no remuneration” ignores a partner working full time; one vote per head ignores ownership. Decide each one deliberately.
Signing before or after incorporation
An agreement can be signed by the people who subscribe to the incorporation document before the LLP exists. Under section 23(3), a pre-incorporation agreement imposes obligations on the LLP only if all the partners ratify it after incorporation. Many founders simply execute the agreement after the certificate of incorporation is issued, within the filing window.
Filing Form 3
Section 23(2) requires the agreement, and any changes to it, to be filed with the Registrar in the prescribed form. Under the LLP Rules, 2009, that is Form 3, filed within 30 days of incorporation for the first agreement. It is filed on the MCA portal with a copy of the stamped and signed agreement, signed digitally as the form requires. A late filing attracts additional fees for each day of delay, and the designated partners are the ones answerable for it.
Changing the agreement later
Partners change the agreement by a supplementary or restated agreement, signed as the existing agreement requires. Every change is filed again in Form 3 within 30 days of the change. Common triggers are a new partner, a changed profit ratio, an increase in contribution or a new designated partner. Changes in the partners themselves are reported separately in Form 4, so an admission often needs both forms. These event-based filings sit alongside the LLP’s annual returns; our LLP compliance plan covers both if you would rather not track them yourself.
Stamp duty
An LLP agreement is an instrument chargeable under the stamp law of the state where it is executed. Each state sets its own rate and basis, so check whether a supplementary agreement also attracts duty. Pay the duty before or at the time of signing, by stamp paper or e-stamp as your state allows, and check the current schedule on the state registration department portal. An under-stamped agreement can be refused as evidence until the deficit and any penalty are paid, which matters most in exactly the dispute where you need it.
Complianto (complianto.in), operated by Mentorcorp Private Limited, is a private consultancy and is not affiliated with any government body. We do not issue official documents. We charge a professional fee for application assistance and advisory services. Applicants can apply directly to the government without our fees via the official portals: MCA (mca.gov.in), Income Tax (incometax.gov.in), GST (gst.gov.in), MSME (udyamregistration.gov.in), FSSAI (foscos.fssai.gov.in), Startup India (startupindia.gov.in), and IP India (ipindia.gov.in).
This article is general information, not legal or tax advice.
