As one of India’s leading choices for business structures is through Limited Liability Partnerships (LLPs) because it provides more flexibility than traditional partnership and limited liability protections. However, the odd thing about having this flexibility in structure is that it raises various practical/legal questions regarding how to govern (e.g. amend an existing LLP Agreement), which will often go unanswered, because of the internal complexities and operational differences inherent to LLPs. One very common, significant question that owners of LLPs frequently ask (among others) is whether or not an LLP with two designated partners can change the LLP Agreement by one of them signing all the required documents. This question becomes more significant in instances where there may be dispute resolution/operational restructuring/exit of a partner/compliance updates in place. This blog provides a legal/compliance/practical explanation of the issue. The commentaries are written as a professional content writer considering the audience's perspective and include a discussion about the legal framework, consequences, process, and best practices as it relates to the change LLP Agreement process. In addition, the blog provides information on how professional Change LLP Agreement Service in India can assist businesses in avoiding errors/costs associated with a change of the LLP Agreement by ensuring that all parties comply with all applicable laws.
Understanding the LLP Agreement
An LLP Agreement represents a binding legal contract issued by a limited liability partnership (LLP) that governs the LLC’s and partners’ relationship regarding the following issues:
• Cash Contributions by Partners
• Distribution of Profits and Losses
• Rights and Responsibilities of Designated Partners
• The Admission or Resignation of a Partner
• Authority to Make Decisions
• How to Resolve Disputes
• How to Change or Modify the LLP Agreement
In accordance with the Limited Liability Partnership Act of 2008, the LLP Agreement sets out the manner in which the LLP will function. Any changes to the limited liability partnership agreement must comply with established procedures set forth in the Limited Liability Partnership Act of 2008 and within the limited liability partnership agreement itself.
Who Is a Designated Partner and What Is Their Authority?
A Designated Partner is responsible for:
However, being a designated partner does not automatically grant unilateral authority to amend the LLP Agreement.
Role of Designated Partners in an LLP
The designated partners are accountable for following all applicable laws and regulations pertaining to the LLP's operations. These responsibilities will be shared equally by a designated partnership that consists of 2 designated partners.
• Each partner assumes equal responsibility for meeting those obligations
• Each partner owes a fiduciary duty to the LLP
• Each partner agrees to act together unless the agreement says otherwise
The most important point is that regardless of either partner being one of the designated partners, neither partner will be permitted to have unilateral authority unless such authority has been granted by the LLP agreement.
Legal Framework Governing Changes in LLP Agreement
Relevant Provisions under LLP Act, 2008
As per Section 23 of the LLP Act, 2008:
This means that consent is the foundation of any valid change LLP agreement process.
Can a Single Partner Change the LLP Agreement Alone?
The Clear Legal Position
An individual partner in a limited liability partnership (LLP) with two assigned partners cannot, by themselves, alter the LLP agreement unless expressly permitted by the LLP Agreement.
LLP Agreement expressly authorizes such action.
Why Unilateral Changes Are Not Allowed.
1.The LLP Agreement is a Contract
Under the Indian Contracts Act, an Agreement cannot be changed without the mutual consent of both parties; the LLP Agreement is a Contract.
2. The Rights of Partners Are Generally Equal
Except as specified otherwise, in an LLP with two partners both partners will normally have the same rights as each other; thus, they need to agree to amendments to the LLP Agreement.
3. Risk of Abuse of Authority
If a partner has the right to unilaterally change the LLP, that partner might attempt to abuse their authority.
4. Reservations of the Registrar of Companies
While the Registrar of Companies (ROC) may accept filings on Form 3, any change made without the consent of the partners will still be subject to legal challenges.
Exceptions: When Can a Single Partner Sign?
Only in limited circumstances could one partner sign on behalf of all partners for documents changing an LLP agreement. These situations occur when the LLP agreement contains clear language:
1.Authority Granted in the LLC Agreement
It states either:
• There is one designated partner who has the exclusive authority to make any amendments to the agreement;
• One partner can make operational changes to the agreement and have them be valid legally. In these instances, the authority granted is sufficient to support the validity of the amendment.
2. The Other Partner Has Given Written Consent
If the other partner has:
• Provided a written resolution, or
• Executed a Power of Attorney
Then one partner may sign on behalf of both.
3. Filing the Ministerial/ Regulatory Requirements
In some cases, a partner may be permitted to upload or file certain documents; however, this does not circumvent the requirement of mutual consent.
What Happens If One Partner Changes the LLP Agreement Without Consent?
Changing the LLP agreement without mutual consent can have serious consequences.
Legal Hazards:
ROC & Compliance Hazards:
Business Risks:
ROC Filing Requirements for LLP Agreement Changes
Whenever there is a change LLP agreement, the following compliance steps must be followed:
Reflecting exact changes
Properly stamped as per state stamp laws
Signatures as per agreement terms
Within 30 days of change
Includes details of amendments
Failure to follow the correct process may invalidate the Changes to Limited Liability Partnership Agreement.
Common Types of LLP Agreement Changes
Businesses frequently utilize a change LLP agreement service within India for altering:
• The distribution of their profits;
• The amount of capital contributed by partners;
• The entry and exit of a partner;
• The purpose of the business;
• The manner in which the business will be managed;
• The rights and obligations of each partner.
It is very important that partner consent is documented and clear about the above points, especially when there are only two partners in the LLP.
Why Mutual Consent Is Mandatory
The principle of mutual consent is essential to the governance of an LLP, as an LLP is built on contractual relationships between partners. Changing that contract without mutual consent undermines the basic tenets of contract law.
There are four key principles that require mutual consent:
• Equal rights of partners, unless designated differently;
• To protect against the abuse of authority;
• To maintain trust and transparency;
• To prevent the possibility of legal disputes and litigation;
Therefore, when it comes to Changes to a Limited Liability Partnership Agreement, both partners will need to be engaged in the decision-making process.
What If the LLP Agreement Grants Special Authority?
In certain instances, Limited Liability Partnership (LLP) agreements will contain provisions where a particular designated partner has been given powers greater than what another partner would normally have included, for example, the ability to sign off on documents or to manage compliance issues. Even in these cases, however, any authority by the designated partner would generally only be limited to administrative functions and not for making operational changes.
It is unlikely for one partner to amend an LLP agreement without the consent of the other partner unless the LLP Agreement specifically provides for this right.
For professional review of the new LLP agreement, please visit an attorney who specializes in LLP agreements.
Consequences of Unilateral Change in LLP Agreement
If any individual partner makes a change to the LLP agreement without complying with the proper amendments that have been duly agreed upon by all of the partners, it could have serious legal and regulatory issues for the LLP, which could include:
• The MCA rejecting Form 3
• Invalid amendment with no legal standing
• Partners may sue for any such improper amendments
• Penalties could be imposed upon the LLP due to improper amendment procedures.
• The bank and the investor may no longer perceive the LLP to be trustworthy or reliable.
Because of the potential risks associated with making an improper amendment to the LLP agreement, it is essential to use the proper procedure for making any such amendments.
Legal Procedure to Change LLP Agreement in India
Step 1: Examine Current LLP Agreement
Analyse sections concerning amendments and authority to amend by partners.
Step 2: Obtain Consent from Partners
The consent of each partner to the amendment must be confirmed by either:
• Resolution
• Written Agreement
• Amendment Deed signed by both parties.
Step 3: Prepare a Supplementary LLP Agreement
The Supplement to the LLP Agreement reflects all modifications in writing and legally compliant form.
Step 4: Submit Form 3 to ROC
• To be submitted within 30 days
• To include the amended LLP Agreement and all documents evidencing partner consent.
Step 5: Pay All Relevant Fees
If not submitted by the 30-day deadline, additional fees are charged with no maximum.
Common Scenarios Requiring Changes in LLP Agreement
• Modifying the profit share among partners.
• A new partner joining or leaving.
• A change in what the partners agreed to contribute.
• The company adding/deleting new lines of business.
• Modifying who manages the company.
• Who has the authority to take actions on behalf of the company (designated partners).
Proper consent and compliance are required for any of the above.
Business Impact of Properly Changing an LLP Agreement
A legally reassessed LLP agreement affects the growth of a business directly.
Conversely, improperly or unlawfully amended agreements could dramatically affect the ongoing continuity of the business.
Compliance Requirements for Changing an LLP Agreement
The following is a list of the steps to complete an amendment to the LLP Agreement.
1.Internal Discussion and Consent
The first step is to discuss changes to the agreement and obtain approval from all partners in accordance with the LLP Agreement.
2. Drafting Supplementary LLP Agreement
The next step is to document the proposed changes to the agreement in a revised or supplementary agreement.
3.Execution of Documents
Upon completion of the documents all partners are required to provide their signature to the new or revised agreement unless otherwise approved.
4.Filing Form 3 with ROC
File within thirty days of the change to the LLP Agreement.
5.Payment of Government Fees
The fees to amend the LLP Agreement will be assessed according to the LLP contributions.
Using a professional service that provides services for amending the LLP Agreement guarantees that the process is done in compliance with regulations and without error.
Conclusion
An LLP (Limited Liability Partnership) incorporates two designated partners, providing a framework that includes mutual trust, clarity in the laws, and the operational direction to run the LLP. The more actively one partner engages in the day-to-day operation of the LLP, the less unilateral decision-making ability that partner has in modifying the base agreement of the LLP. Outside of the limited exceptions found in the Operating Agreement, i.e. there will be explicit provisions in the Operating Agreement granting the partner, who is engaging in the day-to-day operation of the LLP, that authority, or if the other partner has given written authorization that allows the partner to unilaterally amend the LLP Operating Agreement, the partner who is not engaged in the daily operation of the LLP is not able to make changes to the LLP Operating Agreement when signing all documents necessary to effect the amendments by himself/herself. If the LLP Operating Agreement provides a process for applying for changing the LLP Operating Agreement, implementing that process cannot only harm the integrity of the LLP Operating Agreement as an enforceable contract but will also expose the LLP to potential legal disputes (lawsuits), risks of non-compliance with applicable law, and not achieving the desired/potential financial outcome. Accordingly, any changes made to the Operating Agreement of an LLP should be done with mutual consent, in a spirit of transparency, and with the assistance of professional advice or counsel. A reputable Change LLP Agreement Service will ensure that any/all changes to a Limited Liability Partnership Agreement (LLP) will be legally effective, properly documented, and consistent with the long-term business purposes of the LLP and its partners in order to protect the business and its partners from avoidable risks.
FAQs
1. Can one designated partner change the LLP agreement without informing the other partner?
No. Any unilateral change without consent is legally invalid unless expressly allowed in the LLP Agreement.
2. Is ROC approval enough to validate a unilateral change?
No. ROC filing does not override contractual consent requirements between partners.
3. What form is required to file changes in LLP agreement?
Form 3 must be filed with the Registrar of Companies within 30 days of the change.
4. Can disputes arise if one partner signs all documents?
Yes. Such actions often lead to legal disputes and challenges before tribunals or courts.
5. Is it mandatory to use a professional change LLP agreement Service?
While not mandatory, professional assistance ensures accuracy, compliance, and legal safety.
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