LLP Agreement: What to Include, Stamp Duty and Filing Form 3

The LLP agreement is the most important document an LLP has. It sets out who contributed what, how profits are shared, who makes decisions, and what happens when a partner joins or leaves. The Limited Liability Partnership Act, 2008 lets partners decide most of these things for themselves, but only if they write them down. This guide covers what to include, how stamp duty works, and how to file the agreement with the ROC.

Why the Agreement Matters

If an LLP doesn't have an agreement, or the agreement is silent on a point, the default rules in the First Schedule to the LLP Act apply. Those defaults may not suit you. For example, they generally treat partners as sharing equally in capital and profits, whatever each actually put in, and require all partners to agree to bring in a new partner.

A well-drafted agreement avoids those surprises and gives partners a clear reference point if they ever disagree.

Clauses to Include

Partners and designated partners

The names and details of all partners, and which of them are designated partners responsible for the LLP's statutory compliance.

Capital contribution

What each partner contributes, in money or in kind, and when. Whether further contributions can be called for, and what happens if a partner doesn't pay.

Profit and loss sharing

The ratio in which profits and losses are shared. It doesn't have to follow the capital ratio, which is one of the main advantages of an LLP.

Remuneration and interest

Whether working partners are paid remuneration, and whether interest is paid on capital. These also affect the LLP's income tax, so set them out clearly and within the limits the Income-tax Act allows.

Management and decisions

How decisions are made, which matters need unanimous or majority consent, and who can sign contracts, operate bank accounts and deal with the authorities.

Admission, retirement and expulsion

How new partners are admitted, how a partner can retire and with what notice, whether a partner can be expelled and on what grounds, and how an outgoing partner's share is valued and paid out.

Duties and restrictions

Partners' duties to the LLP, confidentiality, and any restrictions on competing businesses during and after the partnership.

Disputes

How disputes are resolved, often through arbitration, and where.

Winding up

What happens if the partners decide to close the LLP, and how assets and liabilities are dealt with.

Stamp Duty

An LLP agreement must be stamped under the stamp law of the state where it's executed. Stamp duty varies from state to state, and in many states depends on the capital contribution. Pay it before or at the time the agreement is signed, usually through e-stamping, since an unstamped or under-stamped agreement can't be relied on as evidence until the duty and any penalty are paid.

Filing Form 3

The LLP agreement is filed with the ROC in Form 3 within 30 days of incorporation. The form is signed with a designated partner's DSC and certified by a practising professional. Filing late attracts an additional fee for each day of delay, which adds up quickly, so it's best to have the agreement ready when the LLP is incorporated.

Changing the Agreement

Any change to the agreement, such as a new partner, a change in contribution or a new profit ratio, is made through a supplementary agreement, stamped as required, and filed in Form 3 within 30 days of the change. Changes in partners are also reported in Form 4.

Common Mistakes

• Using a generic template that doesn't reflect what the partners actually agreed.
• Leaving out exit and valuation terms, which causes the most disputes later.
• Not paying the right stamp duty.
• Filing Form 3 late, or forgetting to file changes.
• Setting remuneration terms that don't work for income tax.

A Checklist

1. Agree the key commercial terms among the partners first.
2. Draft the agreement around those terms, not a template.
3. Pay stamp duty for your state, usually through e-stamping.
4. Sign the agreement and file Form 3 within 30 days.
5. File a supplementary agreement and Form 3 for every later change.

Getting Help

Think Filing drafts LLP agreements that reflect what partners have agreed, handles stamp duty, and files Form 3 and later changes on time.

Sources

• Limited Liability Partnership Act, 2008, including the First Schedule.
• Limited Liability Partnership Rules, 2009.
• The Indian Stamp Act, 1899 and state stamp laws.