Introduction

One of the most important steps to take after LLP Registration is to draft, adopt and file a proper LLP Agreement. The LLP Agreement is the backbone of how your LLP will function. It describes the rights, duties, profit share, governance, dispute resolution, and much more. A poorly constructed LLP Agreement will expose your business to numerous operational, financial, and legal risks. In this piece for Lawfinity, I will explain in detail the importance of an LLP Agreement, especially after LLP Registration, the essential clauses, the process of MCA filing, consequences of not complying, and how Lawfinity drafting agreements for you can save you time.

In this piece, we will repeatedly use LLP Registration to consolidate the connection between the registration and the agreement. The legal context will be covered with LLP Agreement in India.

KEY CLAUSES

The well‑drafted LLP Agreement in India needs to include several critical clauses to ensure clarity for the partners and designated partners and to avoid potential disputes. After LLP Registration, the focus needs to shift to the following critical clauses:

1. Name, Business Objects and Duration: As per registration, state the name of the LLP, the nature of the business activities (present and possible future), and the duration or term of the LLP.

2. Capital Contribution and Funding: Specify each partner’s (monetary or in kind) contributions, the timing of contributions, future additional capital needs, and the repercussions of failing to contribute.

3. Profit & Loss Sharing and Remuneration: Outline how profits and losses are to be shared among partners and the terms under which one or more partners may receive remuneration, commissions, interest, etc.

4. Rights & Duties of Partners / Designated Partners: Describe the powers, duties, the responsibilities, any restrictions, and limitations, especially in decision-making and representing the LLP.

5. Admission, Retirement, Expulsion & Cessation of Partners: State the policy for admitting new partners, the process for retirement or exit, conditions for expulsion, and the deceased, insolvent, or incapacitated partner.

6. Adjustment of Responsibilities, Capital, or Profit Sharing: Establishing the appropriate mechanisms and determination criteria for the adjustment of equity, redistribution of responsibilities, and other profit-sharing components.

7. Board Dispute Resolution Mechanisms: Establishment of channels for mediation, arbitration and other internal or external methods of strategically resolving disagreements within the partnership.

8. Guarantees, Indemnity and Liability: Assessment and articulation of the order and reciprocal frameworks of indemnifying partners, liabilities, and guarantees to external entities.

9. Strategic Dissolution: Conditions under which the LLP may wind-up, exit mechanism, and asset disbursing.

10. Governance and Miscellaneous: Audit rights, closure of bank accounts, monitoring, alteration of the consolidation agreement, compliance with applicable laws, and other assignable proprietary rights.

11. Non-Solicitation, Confidentiality, and Non-Compete (if relevant): Protection of the business interests and other proprietary rights of the partnership where the partners engage in similar business activities.

Inclusion of all the above points into your LLP Agreement in India helps protect the partners under LLP Registration by providing a clearly defined set of internal operating procedures and contested dispute protocols.

MCA FILING

After LLP Registration, the subsequent step involves the statutory requirement of filing the LLP Agreement to the Ministry of Corporate Affairs (MCA).

Form 3 (Filing of LLP Agreement / Amendment): Following LLP Registration, you have 30 days to file the Initial LLP Agreement with LLP Form No. 3. Any subsequent amendments made to the LLP Agreement require the filing of a supplementary agreement also via Form 3 (or as prescribed) within 30 days.

Indubitably, LLP Agreement in India requires the submission of Form 3 to the Registrar within 30 days of incorporation or within 30 days of any modifications made thereafter.

Stamp Duty & Notarization: An executed LLP Agreement must be printed on non‑judicial stamp paper of a value determined according to the laws of the state within which the LLP is located (as stamp duty is a state subject). All partners must sign the agreement and it must be notarized (notarization is a common practice).

The state to state variation in the amount of stamp duty is a function of the capital contribution to the LLP.

Consequences of Non‑Filing / Delay: A fine of ₹100 per day is levied in the event the LLP Agreement (or amendments) is not filed within the stipulated 30 day period. The fine is levied for the entire period that the agreement remains unfiled, with no upper cap. Unregistered or unfiled agreements may also be stricken as enforceable should a dispute emerge in a court of law.

Amendment Process & Timeline: Any alteration to the LLP Agreement—be it changes in capital structure, adding partners, modifying roles, etc.—must be documented in a supplemental agreement and submitted to the MCA within 30 days of the amendment execution. There is still a daily penalty of ₹100 for late submission.

Timely submission of the documents to MCA after LLP Registration ensures the legal position and avoids penalty risks.

PENALTIES

Not having an appropriate LLP Agreement or not filing it post LLP Registration can expose the LLP and its partners to the following risks:

1. Daily Penalties: As earlier mentioned, ₹100 per day for the late filing of the initial or amended LLP Agreement is charged with no upper limit.

2. Disputes Unenforceability: Arbitration or Court will not uphold an unfiled or poorly drafted LLP Agreement and its terms will be unenforceable.

3. Liability of Designated Partners: Exposure to disqualification or further penalties can happen in the event of a repeated or willful non-compliance.

4. Impediments Related to Compliance & Registrations: There can be a refusal to recognize the LLP or provide the necessary benefits if properly filed and documented payments to the LLP Agreement are not made.

5. Failure to Comply: Failure to comply with the provisions of the Companies Act may lead to the ROC taking action to strike off or deregister an LLP.

6. Confidence of Investors or Third Parties: The absence of accurate and enforceable agreements may reduce the willingness of prospective investors, lenders, or partners to engage with the LLP.

For these reasons, drafting and filing an LLP Agreement in India post LLP Registration is not only prudent but also necessary in order to protect your LLP.

HOW LAWFINITY DRAFTS AGREEMENTS

At Lawfinity, we recognize that the next important step after LLP Registration is the drafting and filing of a legally comprehensive LLP Agreement in India. This is how we assist you:

1. Custom Tailoring: We start by learning about your business model, the roles and responsibilities of the partners, your vision and goals, your capital structure, and possible contingencies. Based on this, we draft a custom LLP Agreement, not a recycled template.

2. All-Encompassing Clause Checklist: We make it a point to incorporate every necessary provision (capital, profit sharing, admission, exit, dispute resolution, liability, winding up, etc.) with optional addenda based on your preferences.

3. Compliance with Latest Laws & Amendments: To guarantee that your LLP Agreement in India remains compliant and enforceable, we ensure we remain updated with the most recent changes made to the LLP Act, accompanying rules, and the applicable state stamp duty laws.

4. Stamp Duty Advisory: Because stamp duty differs from state to state, we provide clarity on the applicable value of stamp paper or the e-stamp procedure in your area before we draft the agreement.

5. Execution & Notarization Support: Execution, notarization, and agreement finalization are aided to the partners while we ensure that all formalities are properly done.

6. Filing with MCA (Form 3): We electronically submit your LLP Agreement (or amendments) via Form 3 on the MCA portal within 30 days of execution, in accordance with the statutory timeline.

7. Amendments & Updates: If later, for example, you wish to add a partner or change the capital, and thus change your agreement, Lawfinity aids in drafting the supplementary agreement and files the amendment within the 30-day window to mitigate penalties.

8. Ongoing Advisory: We are here to advise on shifting and updating the agreement when necessary, assist with dispute resolution, and revise as necessary in response to a changing business and regulatory environment.

Consequently, bundling your LLP Registration with Lawfinity’s drafting and compliance services means your partnership foundation will be legally robust from the very beginning.