In India, a Limited Liability Partnership (LLP) is a business structure governed by the Limited Liability Partnership Act, 2008. An LLP agreement is a critical document that outlines the terms and conditions between the partners, including their rights, duties, and responsibilities. Over time, the business may evolve, and the LLP agreement may need to be amended to reflect these changes.
Amending an LLP agreement is a formal process that requires the consent of all the partners and compliance with legal procedures. Below is a comprehensive explanation of the steps involved in changing an LLP agreement in India.
1. Consent of All Partners
Before any amendment to the LLP agreement can be made, the consent of all the partners is necessary. The original agreement usually specifies how amendments should be made, and in most cases, unanimous agreement is required for changes to be valid.
Steps:
- Meetings & Resolutions: The partners should meet and discuss the changes. During this meeting, a resolution must be passed that agrees to the proposed changes to the LLP agreement.
- Written Agreement: A formal document, usually an amendment agreement or supplementary agreement, should be prepared and signed by all partners.
2. Identifying the Changes
Changes to the LLP agreement can involve one or more of the following aspects:
- Business Activities: The scope of business the LLP engages in may change (e.g., expansion, diversification, or cessation of activities).
- Partner Changes: New partners may join the LLP, or existing partners may leave.
- Capital Contributions: The amount of money or assets contributed by each partner could be altered.
- Profit Sharing Ratio: The distribution of profits among the partners may be modified.
- Designated Partners: The partners holding the position of designated partner may change.
- Management and Decision-Making: The internal management structure or decision-making process may be adjusted.
The proposed changes should be clearly outlined and documented.
3. Drafting the Amendment Document
Once the changes have been agreed upon, they need to be formally written into an amendment document. This document will act as a supplementary agreement to the original LLP agreement and should clearly list all the amendments made.
Key Elements of the Amendment Document:
- Title: “Amendment to the LLP Agreement dated [insert date].”
- Details of Changes: Clearly specify each change made, such as changes in the business activities, capital contribution, profit-sharing ratios, etc.
- Date of Effect: Specify the date from which the changes will take effect (this could be immediately or from a future date).
- Signatures: The amendment document must be signed by all partners in the presence of witnesses.
4. Filing with the Registrar of Companies (RoC)
Under the Limited Liability Partnership Act, 2008, any change made to the LLP agreement needs to be communicated to the Registrar of Companies (RoC) within 30 days from the date of execution of the amendment.
The procedure for filing the amendment with RoC is as follows:
a) Form 3: Information with regard to the LLP Agreement and Changes Made Therein
- This form needs to be filed with RoC to inform them of the amendments made to the LLP agreement.
- The form includes the following:
- Details of the LLP Agreement: The LLP’s registration number and details of the partners.
- Details of Changes: A description of the changes made to the original LLP agreement.
- Date of Execution: The date when the amendment document was signed by the partners.
b) Additional Documents:
- Original LLP Agreement (if required by RoC)
- Amended Agreement: The copy of the signed amendment document should be submitted along with Form 3.
- Partner’s Details: If there are any changes to the partners (e.g., new partner joining or partner leaving), the appropriate forms (such as Form 4 for partner change) should also be filed.
c) Fees: There are filing fees associated with the form, which must be paid when submitting the amendment with RoC.
5. Issuance of Updated LLP Agreement
After filing the amendment with the RoC and completing the formalities, the LLP should:
- Receive confirmation from the RoC that the changes have been recorded.
- Update the LLP Agreement with the new clauses reflecting the changes.
- Ensure that all internal documents, such as financial records, bank accounts, tax filings, and contracts, are updated to reflect the amended agreement.
6. Effect of Amendment on the LLP’s Operations
Once the LLP agreement is amended and registered:
- The changes will take immediate effect as per the provisions specified in the amendment document, unless stated otherwise.
- The LLP is legally bound by the updated terms and must operate according to the modified agreement.
7. Maintaining Records
The partners must ensure that:
- The amended agreement is stored and accessible for future reference.
- The RoC records are updated to reflect the changes.
- Other stakeholders (e.g., banks, creditors, clients) are informed about the amendments, especially if they affect business operations, capital contributions, or partners.
Example of a Change in LLP Agreement Clause
Below is an example of an amendment clause in an LLP agreement:
Amendment to the LLP Agreement
“This amendment is made to the LLP Agreement dated [Insert Date] between the partners of [LLP Name], and is hereby agreed by all partners on [Insert Date]. The following amendments are made:
- Change in Business Activities: The business activities of the LLP are now extended to include [Insert new business activities].
- Capital Contribution: The capital contribution of Partner A shall be increased by [insert amount], and the capital contribution of Partner B shall be decreased by [insert amount].
- Profit-Sharing Ratio: The new profit-sharing ratio between the partners shall be as follows: Partner A: [insert percentage], Partner B: [insert percentage], Partner C: [insert percentage].
- Change in Designated Partners: Partner A is appointed as the new designated partner, and Partner C is no longer a designated partner as of [Insert Date].
This amendment shall come into effect from [Insert Date] and supersedes any previous provisions in the original LLP agreement relating to the above changes.”