LLP Deed: Essential Agreement for Your LLP Business

An LLP deed, also known as an LLP agreement, is the legal document that defines how a limited liability partnership operates, including partner rights, capital contributions, profit-sharing, management responsibilities, and exit terms. It plays a practical role in reducing disputes, setting clear responsibilities, and protecting partner interests from the start.

Under the Limited Liability Partnership Act, 2008, the LLP deed serves as the legal foundation of a limited liability partnership by governing the mutual rights and duties of partners. 

While it functions as a private contractual agreement between partners, its particulars must still be filed with the Ministry of Corporate Affairs (MCA). If partners do not create a customised agreement, the default provisions under Schedule I of the LLP Act, 2008 apply.

Is an LLP agreement mandatory?

An LLP agreement is not mandatory for the legal existence of an LLP, but operating without one is generally not advisable. If partners do not execute a customised LLP agreement, the default provisions under Schedule I of the LLP Act automatically govern their relationship.

Section 23 of the LLP Act states that the mutual rights and duties of partners are governed by the LLP agreement or, where no agreement exists, by Schedule I of the Act. In practice, a properly drafted LLP agreement reduces uncertainty and clearly documents the partners’ commercial understanding.

Consequences of not having an LLP agreement

If an LLP does not have a deed, the business can still legally exist, but the default provisions under Schedule I of the LLP Act, 2008 automatically apply. This means partners lose the flexibility to define commercial terms according to their actual understanding.

Under Schedule I:

• All partners have equal rights in management.
• No partner is entitled to salary for managing the business.
• Profits and losses are shared equally, regardless of capital contribution.
• Decisions are made by majority vote, except changes to the nature of the business, which require unanimous consent.
• The LLP must indemnify partners for payments made in the ordinary course of business.

These default provisions may rarely reflect how partners actually intend to operate. For example, a partner contributing 70% of the capital has no greater claim to profits than a partner contributing 30%, unless the LLP deed states otherwise. A customised LLP deed is therefore necessary to override Schedule I provisions.

Essential clauses in an LLP deed

An LLP deed should include clauses covering partner contributions, profit-sharing, management rights and operational rules to clearly define how the LLP functions and override the default provisions under Schedule I. While the LLP Act, 2008 does not prescribe a fixed format, certain clauses are essential or advisable.

Below is a table summarising the key clauses:

The agreement should also clearly specify the nature of each partner's contribution. Under the LLP Act, contributions may include money, tangible property, intangible property, benefits to the LLP, promissory notes, agreements to contribute cash or property, or contracts for services performed or to be performed. 

How to execute an LLP deed 

An LLP deed is executed by preparing the agreement in writing, printing it on the applicable non-judicial stamp paper and getting it signed by all partners. Stamp duty depends on the state where the deed is executed and the total capital contribution, as rates vary across states.

All partners must then sign the deed. Witness requirements depend on applicable state laws and execution practices, although many LLPs use witnesses as a good practice. Partners should also comply with any state-specific requirements, such as notarisation where applicable and retain signed copies for their records.

Registering your LLP deed with the MCA

An LLP deed is registered with the MCA by filing Form 3 along with the executed agreement within 30 days of incorporation. Failure to file can attract penalties and result in the default provisions under Schedule I applying.

The filing process is:

• Execute the deed on stamp paper of the value prescribed under the relevant state's Stamp Act.
• Log in to mca.gov.in 
• Fill and submit Form 3 with the signed deed attached, authenticated using a valid Class 3 DSC of the designated partner.
• Pay the prescribed filing fee and applicable additional fees as per the LLP Rules and MCA fee schedule.
• Keep the system-generated acknowledgement as proof of filing.

Any amendment to the LLP agreement must also be filed through Form 3 within 30 days of the change.

Conclusion

An LLP deed is more than a compliance requirement; it defines partner rights, responsibilities, profit-sharing and decision-making within the business. A properly drafted agreement helps avoid disputes and ensures operational clarity from the start. 

Beyond drafting the deed, maintaining accurate financial records and staying compliant are equally important. TallyPrime helps LLPs manage accounting, GST compliance and financial records while staying aligned with partnership terms.