The LLP agreement is an important document if you are entering into a partnership. This article explains the process of how to change or amend an LLP agreement
What is a Limited Liability Partnership Agreement?
A limited liability partnership (LLP) is a partner-based business that does not have common ownership or control of its assets. Instead, it is owned by all the partners, who take turns running the business based on how much money they contribute each year.
The LLP’s legal structure makes it an association rather than a corporation or a company. This means that it does not have separate financial accounts and business expenses are instead charged against the general partners’ shares. Instead, all business expenses are considered partner income and are therefore deductible for each partner.
Format of Change in Limited Liability Partnership Agreement
To make any substantive changes to the LLP agreement, a resolution must be passed by partners. Form-3 must be filed with the Registrar within 30 days of the resolution being passed.
The following information should be included in Form 3:
- Date of LLP agreement modification (if there has been any)
- Reason for the modification in the LLP agreement sample in case of a change due to a change in a partner, a change in the business activities, a change in profit sharing, or any other change in matters related to duties and rights of partners.
The partner’s liabilities, including the inclusion and retirement, can be stated in the indemnity clause. It is possible to include the partner’s retirement in the clause. A person may resign and be expelled at the same time. Some disputes and solutions to them may occur between the partner and the LLP. Voluntary winding up, the LLP’s termination, and the duration of its existence are some of these possibilities. After the change in the LLP agreement format, industrial activity may be divided in different ways.
It is required to submit form-4 with form-3 (if the change in the LLP structure is due to the addition or deletion of partners or designated partners) or if the change in the LLP structure is due to an alteration of the partners or designated partners. In the case of the creation, ceasing, or changes in the partnership/partner’s name or role, it is required to file an F4.
Documents Checklist for the Change in the LLP Agreement
All the below mentioned documents have to be filed to make changes in the LLP agreement.
Documents to be enclosed with Form 3
- Original LLP Agreement
- Modified LLP agreement
- Supplementary Deed
- Resolution regarding the changes to be made, which is passed in a change in llp partners
- Any forms or documents required as proof
Documents to be enclosed with Form 4
- Consent of each of the partners
- An affidavit or other proof of a change in name
- Evidence of cessation
- If any of the partners is a company, the copy of the resolution in this regard
- Copy of authorization/resolution mentioning the name & address of individuals(s) nominated as a representative of the partner/nominee
Conditions for Exercising Limited Liability Partnership Rights
If a limited partner wants to exercise limited liability partnership rights, he or she must sign a new limited liability partnership agreement. The most important change in a new or amended limited liability partnership agreement is that the limited partner now has a choice of law provided for the formation of the partnership.
Key Changes to a New or Amended Limited Liability Partnership Agreement
The key changes to a new or amended limited liability partnership agreement relate to the following:
Code of Conduct and Standards of Conduct – The partnership agreement used to form a limited liability partnership must include a code of conduct that the partners must follow. This code can be as detailed as the partners desire, but it is generally required to include things such as notifying the IRS if the partnership is making a contribution to a qualified charitable organisation, prohibiting harassment and discrimination, and prohibiting the use of misleading or inaccurate information in the partnership agreement.
Tax Matters – A new or amended limited liability partnership agreement must address tax issues that are peculiar to a partnership, such as the number of deductions and credits that are available to a partnership and the partnership’s obligation to report income or losses to the IRS.
Other Considerations for Introducing Changes to an LLP Agreement
The following are other considerations that you should keep in mind when introducing changes to an agreement that is still under negotiation or signature.
Duplicate Provisions – Although you are free to change the partnership agreement at any time, you should generally avoid duplicating provisions. Duplicate provisions can create uncertainty for the partnership and could lead to one of the partners challenging the agreement in court.
No Trustee – A new or amended partnership agreement does not require a new trustee, although you should generally hire one if you are setting up a new limited liability partnership. That said, you should generally name a trustee if there is one in the partnership agreement.
How Vakilsearch Can Help in Making Changes in the LLP Agreement
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