Every LLP files an agreement within 30 days of incorporation — and most file a template whose blanks were filled in ten minutes. That document is the LLP's entire constitution: unlike companies, LLPs have almost no statutory governance defaults worth living under, so whatever the agreement says (or fails to say) is the law between partners. Here are the clauses that decide whether a partner dispute is a procedure or a catastrophe.
The default trap: Schedule I
Where an LLP agreement is silent, the LLP Act's First Schedule applies — and its defaults surprise everyone: equal profit sharing regardless of capital, every partner may take part in management, no remuneration to any partner, admission of new partners needs everyone's consent, and ordinary matters resolve by majority — one vote per partner. A 90:10 capital LLP with a silent agreement is legally a 50:50 profit partnership where the 10% partner can block new admissions. The first job of drafting is to consciously override every default that doesn't fit.
Money clauses
- Capital: each partner's contribution (cash/property/services — valued how), interest on capital if any, and future capital-call mechanics with dilution consequences for non-contribution
- Profit sharing: the ratio, distinguishing it from capital where intended; losses likewise
- Remuneration: working partners' pay and its revision mechanism — drafted within Section 40(b)-style tax deductibility framing that income-tax law applies to LLPs
- Drawings: monthly limits, adjustment against profits, treatment of overdrawn accounts
- Banking: signatories, dual-signature thresholds, and spending limits above which written consent is needed
Control clauses
Define who decides what: routine operations (each partner within their domain), significant matters — borrowing beyond limits, hiring above thresholds, new business lines, related-party dealings, capex — by majority or unanimity as chosen; and reserved matters that always need all partners (changing profit ratios, admitting partners, winding up, guarantees). Name the designated partners and confine their statutory-compliance role from being read as general supremacy. For deadlocks in 50:50 LLPs, pre-agree a mechanism: a named referee, mediation-then-buyout, or the 'Texas shoot-out' style buy-sell — anything beats litigation between equals.
The clause most LLPs lack and most disputes need: how a leaving partner's share is valued (book value plus goodwill formula, or a named valuer), paid over what instalments, with what interest — and a lock-in/notice period before voluntary exit. Fix it while everyone is friends; no formula survives drafting during a fight.
Exit, death and expulsion
- Voluntary retirement: notice period, handover duties, settlement per the valuation clause
- Death/incapacity: LLP continues; legal heirs get the settled value (not automatic partnership) — mirror nominations in records
- Expulsion: only if the agreement provides it — define the grounds (fraud, competing business, persistent absence, insolvency) and the due-process steps
- Non-compete and non-solicit for exiting partners, reasonable in scope; confidentiality surviving exit
- Transfer restrictions: no assignment of partnership rights without consent (the Act permits economic assignment otherwise — block it if unwanted)
Housekeeping that pays later
Add the boring clauses experienced drafters never skip: books and inspection rights; annual accounts sign-off process; dispute resolution (arbitration with seat and rules — keeping partner wars out of courts); indemnities for unauthorised acts; admission mechanics for future partners (including capital and deed-amendment steps); and an amendment clause (change by written consent of all, filed in Form 3). Every amendment — ratio changes, partner changes, address — must be filed with ROC within 30 days; unfiled amendments create two versions of reality, which is a dispute waiting for a date.
How Aidwish helps
Aidwish drafts LLP agreements around the partners' actual bargain — overriding the Schedule I traps, building exit and deadlock machinery, aligning remuneration with tax law — and maintains the Form 3 filing discipline as the LLP evolves.