Few days back we discussed about the importance of MoA and AoA and importance of construction of their key clauses.
In LLP registration it is mandatory to have to partners to initiate the registration process, apart from basic requirements, the most important document that governs the LLP structure and management is the LLP Agreement.
LLP Agreement has comparatively more freedom in terms of construction of terms and conditions and rights and duties between the partners, however as MoA and AoA as required in private limited company are more in accordance to the boundaries laid by the companies act.
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Let us learn today, how we should try to take maximum benefit out of this freedom and can frame a favorable LLP Agreement for registration.
So basically LLP Agreement is a legal agreement duly executed between the partners of the proposed LLP listing down clearly the terms and conditions and decision making, rights, duties, accounts etc among the partners.
Before, proceeding to construction and requirements of general clause in an agreement, let us first understand how we should mold an agreement in accordance to situation of the parties to agreement.
Generally, Limited liability partnerships in India, partners have equal stakes, in such situation it is easier to draft the agreement, because basically we just have to distribute rights, duties and liabilities equally among partners.
But what if one partner has majority of stakes and another is just put in place to fulfill the legal requirement for LLP registration?
Suppose one partner has 90 percent stake and another have 10 percent stake, do we still need to construct an LLP agreement with equal rights?
The answer is clearly no.
In such situation, before proceeding to draft the LLP Agreement, have a word with majority stake holder.
Ask the his contribution in LLP functioning, his skill set and general value he is adding to LLP and also it is important to understand his equation with the other party having less number of holdings.
Once this scenario is clear, you need to draft an agreement that successfully covers the interest and intent of majority stake holder and also the boundary to rights and duties of minority stake holder.
Now, once you jot down all this information, do include this in below listed clause:
Entry of another partner in future: Any new entry may significantly affect the voting rights and in turn the decision making process a smart lawyer must foresee this situation and shall try to keep the rights of majority stakeholder intake.
Management of accounts and finance: Who will be in charge of accounts, what is the maximum amount limit needs no check and what is the maximum limit over which an approval shall be taken all these figures shall be clearly stated in order to avoid any future loss that may occur.
In event of dispute between partners: What will be the primary procedure to deal with it , what is the alternate measures hidden between the agreement can be used a sword to come out of messed up situation, must be incorporated.
The termination clause: How the termination of any partner, member and the agreement shall be done, who owns the Intellectual property, who will get what after such termination must be clearly stated.
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The above mentioned are just few clause that plays a crucial role in an LLP agreement. Basically, all must try to avoid using a cut paste format available, because every business is different, every situation is different and most importantly the chemistry between the partners on paper is always different.
Only a smart lawyer can understand the situation logically and neutrally and thereafter may draft an LLP agreement suitable for you.
Legal agreements may be available here and there what fits you is where a sound drafting is required so a sound learned lawyer.
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