How to Review an LLP Agreement in India

An LLP Agreement is the private contract between the partners of a Limited Liability Partnership that sets out who contributes what, who decides what, and who is liable for what. Most founders treat it as paperwork to get the LLP registered and move on. That is the mistake. If it is silent on a point, or was never actually signed, the Limited Liability Partnership Act, 2008 supplies its own default terms in its place, and those defaults were not written with your specific business in mind: equal profit sharing regardless of who put in the capital, no salary for any partner, one partner one vote. The law's fallback answers, not necessarily yours.

Adira, which publishes this guide, makes contract review and CLM software, so we have a commercial interest in you reviewing agreements like this one carefully. The analysis below stands on its own regardless of whether you ever use our product. If you want to mark up an LLP Agreement clause by clause today, for free, Weave, Adira's browser-based contract tool, lets you do that without creating an account.

What an LLP Agreement actually is, and why it is not optional

A Limited Liability Partnership is a hybrid: the separate legal personality and limited liability of a company, with the internal flexibility of a partnership. The company half is public record at the Ministry of Corporate Affairs. The partnership half, how the partners actually run the business between themselves, lives in one document: the LLP Agreement.

Section 23(1) of the Limited Liability Partnership Act, 2008 puts it plainly: "Save as otherwise provided by this Act, the mutual rights and duties of the partners of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partners, shall be governed by the limited liability partnership agreement between the partners, or between the limited liability partnership and its partners." Read the section on Indian Kanoon.

Two things follow. First, this is a contract, not a form, so ordinary contract principles, offer, acceptance, consideration, capacity, apply under the Indian Contract Act, 1872, on top of whatever the LLP Act itself requires. Second, and this is where most incorporation-service templates go wrong: "save as otherwise provided by this Act" means the Act's own default terms sit underneath your agreement, ready to fill any gap you leave.

Who it protects, and what to check before you rely on it

An LLP Agreement is written once, at or shortly after incorporation, and then largely ignored, until the moment something happens that the founders did not plan for: a partner exits early, one partner has put in far more capital than another, a client wants to know who can sign for the LLP, or two designated partners disagree and neither will back down. It protects every partner, not just the majority: a minority partner with no agreement in place is exposed to rules built for a generic two-person LLP, regardless of how the real business actually operates.

Four checks decide whether it does its job. Does it exist in writing, and was it actually signed? A verbal understanding is not an LLP Agreement in any sense the Act recognises, and unsigned means the First Schedule defaults apply in full. Was it filed with the Registrar? An agreement that exists but was never filed is not on the LLP's official record. Does it cover contribution and profit share in numbers, not "as agreed"? A clause that defers the split to a future conversation is functionally silent, and silence triggers the default. Does it name designated partners and a succession process? An LLP cannot legally operate for long without the statutory minimum in place, so a gap here is a compliance risk, not just an inconvenience.

The Indian position: what the statute actually says

Contribution and profit sharing. The Act does not tell partners how to split profits; it only supplies a default if you do not. Paragraph 2 of the First Schedule says: "All the partners of a limited liability partnership are entitled to share equally in the capital, profits and losses of the limited liability partnership." Equally, not proportionate to capital or work put in, regardless of whether one partner funded ninety percent of it. If your real deal is not an equal split, and once one partner has put in most of the capital it usually is not, the agreement has to say so in numbers.

Remuneration. Paragraph 6 says: "No partner shall be entitled to remuneration for acting in the business or management of the limited liability partnership." Partners who expect a salary for running the business, common in owner-operated LLPs, get nothing under the default. The agreement must expressly authorise remuneration, and state how much and for what role.

Decision-making. Paragraph 8: "Any matter or issue relating to the limited liability partnership shall be decided by a resolution passed by a majority in number of the partners, and for this purpose, each partner shall have one vote. However, no change may be made in the nature of business of the limited liability partnership without the consent of all the partners." One partner, one vote, with unanimity required only for a change in the nature of the business. Spending, hiring, contracts, and day-to-day management all move on a simple headcount majority unless the agreement raises the bar.

Admission of partners. Section 22 provides that subscribers to the incorporation document become partners on incorporation, and "any other person may become a partner of the limited liability partnership by and in accordance with the limited liability partnership agreement." Where the agreement is silent, Paragraph 7 of the First Schedule fills the gap: "No person may be introduced as a partner without the consent of all the existing partners." Unanimous consent, not majority, is the default.

Cessation of partners. Section 24(1) lets a partner resign "in accordance with an agreement with the other partners or, in the absence of any such agreement, by giving not less than thirty days' notice in writing." Section 24 also lists events outside a partner's control: death, dissolution of the LLP, unsound mind, or insolvency. Cessation does not wipe the slate: it "shall not by itself discharge the partner from any obligation... which he incurred while he was a partner." Exit does not erase what happened while you were still in.

Expulsion. Paragraph 13 sets a high bar: "No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners." Without that express power, a majority cannot vote a partner out at all, however unhappy they are with them.

Restrictive covenants among partners. The default duty here is narrower than most founders assume. Paragraph 11 says a partner who, "without the consent of the limited liability partnership, carries on any business of the same nature as and competing with" it "must account for and pay over to the limited liability partnership all profits made by him in that business." That is a duty to hand over profits from a competing side business while still a partner, not a non-compete that survives exit. A separate, express clause restraining a former partner from competing runs into the same limit every restraint of trade does in India: Section 27 of the Indian Contract Act, 1872, which voids "every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind." A clause barring an ex-partner from the same industry indefinitely, anywhere, is close to unenforceable on its face; one narrowed to soliciting the LLP's own clients or staff for a defined period stands a materially better chance.

Indemnity and the limited liability shield. This is the clause most people join an LLP for, and the most misunderstood. Section 27(3) makes an LLP's obligations "solely the obligation of the limited liability partnership," met out of its own property. Section 28(1) then protects the individual: a partner "is not personally liable, directly or indirectly for an obligation referred to in sub-section (3) of section 27 solely by reason of being a partner." But Section 28(2) draws the line precisely: this "shall not affect the personal liability of a partner for his own wrongful act or omission, but a partner shall not be personally liable for the wrongful act or omission of any other partner." The shield covers the LLP's business obligations, not your own negligence or fraud, and it never protected anyone else's. Read Sections 27 and 28 on Indian Kanoon and Indian Kanoon. The First Schedule adds its own mechanics: Paragraph 3 obliges the LLP to indemnify a partner for liabilities incurred "in the ordinary and proper conduct of the business," while Paragraph 4 runs the duty the other way, requiring a partner to indemnify the LLP for loss caused by their own fraud.

Designated partners and compliance liability. Section 7(1) requires every LLP to have "at least two designated partners who are individuals and at least one of them shall be a resident in India." They are not a ceremonial title; the Act holds them responsible for the LLP's statutory filings, and a violation of Section 7's minimum exposes the LLP and its partners to a fine of up to five lakh rupees. Read Section 7 on Indian Kanoon. A gap on who holds this role, or on what happens if a resignation drops the LLP below the statutory minimum, is a live compliance problem, not just a governance one.

The mandatory filing with the MCA: Form 3. Section 23(2) requires that "the limited liability partnership agreement and any changes, if any, made therein shall be filed with the Registrar in such form, manner and accompanied by such fees as may be prescribed." In practice, that means filing e-Form 3 under Rule 21 of the LLP Rules, 2009, within thirty days of executing the agreement or any amendment, with a copy attached. A delayed filing attracts an additional fee that scales with how late it is. Filing Form 3 is what puts your actual deal, not the law's default, on the public record.

The First Schedule catch-all. Section 23(4) is the sentence that makes everything above matter: "In the absence of agreement as to any matter... the mutual rights and duties... shall be determined by the provisions relating to that matter as are set out in the First Schedule." Every gap is filled automatically, by statute, whether or not the fallback matches what the partners intended.

A named Indian case

Aanchal Mittal & Ors. v. Ankur Shukla, Delhi High Court, order dated 25 February 2022. Partners in an LLP disputed where a suit between them could be filed. The Delhi High Court held that Delhi's courts lacked territorial jurisdiction, since the LLP's registered office and business records sat in Hyderabad, and that "parties cannot by consent confer territorial jurisdiction on courts which inherently lack it," setting aside a lower court order that had proceeded on the opposite basis. Read the order on Indian Kanoon. The lesson: a jurisdiction clause naming a court with no real connection to the LLP's registered office can fail exactly when a partner dispute makes it matter most.

A useful illustration of Paragraph 13's expulsion bar in practice: in Rajiv Kalia v. M/S HOMP LLP, the District Judge (Commercial Court), Rohini, Delhi, in an order dated 17 August 2022, stayed a resolution expelling minority partners, holding that the LLP agreement's own expulsion clause permitted removal only for proven fraud, and that this required arbitration rather than a unilateral vote. Read the order on Indian Kanoon.

Red flags table

Normal	Red flag	Why it matters
Profit and loss sharing stated as specific percentages tied to contribution	Agreement is silent, or says profits are shared "as mutually agreed from time to time"	Paragraph 2's equal-sharing default kicks in regardless of who contributed what
Remuneration for partners actively managing the business is expressly stated	Agreement is silent on remuneration	Paragraph 6 entitles a working partner to nothing beyond their profit share
Decisions above a defined threshold require a stated supermajority or unanimous consent	Agreement is silent, leaving every decision to a one-partner-one-vote majority	A minority-capital partner can be outvoted on major decisions by headcount alone under Paragraph 8
Designated partners are named, with a defined succession process	Agreement names only the statutory bare minimum, with no succession plan	The LLP can fall below Section 7's minimum with no clear fix, risking fines
Expulsion is narrowly defined (fraud, insolvency, material breach) with a defined process	Expulsion clause is broad, or the agreement is silent and majority assumes it can remove a partner anyway	Paragraph 13 bars expulsion without an express power; a broad clause invites disputes like Rajiv Kalia v. HOMP LLP
Post-exit restraint on a departing partner is narrow in time, geography, and scope	Blanket clause barring a former partner from any competing business, anywhere, indefinitely	Risks being void as an unreasonable restraint of trade under Section 27 of the Contract Act, 1872
The agreement, and every amendment, is filed as Form 3 within thirty days	Agreement signed but never filed, or amended without re-filing	The LLP's real terms are not on the MCA record; delay attracts a scaling additional fee
Cessation and admission of partners filed as Form 4 within thirty days	Partner exits or joins happen informally, with no Form 4 filed	The public MCA record misstates who the partners actually are, hurting due diligence and banking
Indemnity runs both ways: LLP indemnifies partners, partners indemnify the LLP for their own fraud	Indemnity language is one-sided or absent	Sections 27 and 28 already protect partners from each other's wrongdoing; a vague clause adds confusion, not protection

Bad clause versus better clause

Bad: "The Partners shall share the profits and losses of the LLP as mutually agreed, and decisions shall be taken by the Partners in accordance with applicable law. A Partner may be removed by the other Partners if they consider it necessary."

What is wrong: "as mutually agreed" is not a number, so Paragraph 2's equal-share default applies regardless of actual contribution. "In accordance with applicable law" just restates Paragraph 8's one-vote default instead of setting real governance. And "if they consider it necessary" grants an expulsion power far broader than intended, with no defined trigger, exactly the kind of clause that produces disputes like Rajiv Kalia v. HOMP LLP.

Better: "The Partners shall share the profits and losses of the LLP in the ratio of their capital contribution as stated in Schedule A, namely Partner A: 60%, Partner B: 40%. Any decision involving expenditure above ₹5,00,000, incurring debt, or admitting a new partner shall require the written consent of Partners holding at least 75% of the profit-sharing ratio; all other management decisions shall be by simple majority as provided in the First Schedule. A Partner may be expelled only where an independent arbitrator, appointed under Clause 14, determines that the Partner has committed fraud in the conduct of the LLP's business, has been convicted of an offence involving moral turpitude, or has committed a material and uncured breach of this Agreement, and only after that Partner has been given thirty days' written notice and an opportunity to respond."

What changed and why: stating the actual profit ratio displaces Paragraph 2's default outright. A supermajority threshold for major decisions protects the minority partner from being outvoted on what actually matters, while routine management still runs on the statutory majority rule. Naming narrow expulsion triggers with a neutral decision-maker replaces an open-ended power with one likely to survive scrutiny, the opposite of the vague resolution stayed in Rajiv Kalia.

How it interacts with related clauses

The contribution and profit-sharing clause feeds the numbers into any exit or valuation mechanism, so read it together with a buy-out or transfer-of-interest clause. The decision-making clause determines whether a designated partner can bind the LLP to a contract alone or needs co-signature, which matters directly when reviewing any commercial agreement the LLP signs. For the closest non-LLP analogue, since general partnerships run on similar default-versus-agreement logic under the Indian Partnership Act, 1932, just without the liability shield, see our guide on reviewing a partnership deed. The indemnity clause should never try to protect a partner from their own fraud or wrongdoing, since Section 28(2) already carves that out; an indemnity clause that tries anyway is not enforceable in substance even if it reads that way on paper.

US and global contrast

A US LLC's operating agreement plays a broadly similar role, the private contract that governs internal rights where the statute defaults otherwise, and both jurisdictions shield members or partners from the entity's liabilities while carving out liability for their own wrongdoing. The real difference is procedural. Most US states do not require an operating agreement to be filed with any public authority; it stays private. India requires the opposite: Section 23(2) makes filing the LLP Agreement with the Registrar, via Form 3, a statutory obligation, and every amendment has to be re-filed the same way. An Indian LLP Agreement is simultaneously a private contract and a document of public record, a meaningfully higher compliance bar than the US equivalent.

FAQ

Do we actually need an LLP Agreement if all partners already trust each other? Yes. Trust does not change the First Schedule's default terms. An unwritten understanding has no legal effect once a dispute arises; only the signed, filed LLP Agreement, or the Act's defaults in its absence, decides the outcome.

What happens if we never file Form 3 at all? The LLP still exists and can operate, but your actual agreement is not on the MCA's record, and Section 23(2) treats filing as a requirement, not an option. A missed filing also attracts an additional fee that scales with the delay, on top of your real terms being unverifiable to a bank, investor, or counterparty.

Can two partners contribute unequal capital but still split profits 50/50? Yes, if the agreement says so explicitly, or by relying on Paragraph 2's equal-share default. This should be a deliberate choice stated in the agreement, not an accident from leaving the clause vague.

Can a designated partner resign without the LLP's consent? Yes, following the cessation process under Section 24, generally thirty days' written notice absent a different process in the agreement. A Form 4 filing recording the change is required within thirty days, and the LLP must not fall below Section 7's minimum of two designated partners, one resident in India, as a result.

Are LLP partners ever personally liable for the LLP's debts? Not for the LLP's own obligations, by default, under Sections 27 and 28. A partner becomes personally liable only for their own wrongful act or omission, never automatically for another partner's misconduct or the LLP's ordinary business debts.

How is an LLP Agreement different from a regular partnership deed? Both cover contribution, profit share, decision-making, and exit, but an LLP Agreement operates against a liability-shielded, separately-registered entity with mandatory MCA filing under Section 23(2), while a partnership deed under the Indian Partnership Act, 1932 governs a firm with no separate legal personality and no such filing requirement. See our guide on reviewing a partnership deed for the full comparison.

This guide explains what an LLP Agreement typically needs to cover under Indian law, and where the Limited Liability Partnership Act's own default terms fill any gap you leave. It does not tell you whether your specific LLP Agreement is enforceable, correctly filed, or adequate for your actual partnership, that depends on your facts and is not legal advice. Have a lawyer review the signed document before you rely on it in a dispute or a high-stakes decision.