My question is regarding defining voting rights in an LLP agreement. One point of view is that there are no voting rights in the LLP, since there are no shares. So every partner will have an equal say irrespective of contribution. The other view is that voting rights can be defined in the LLP agreement. So one partner can have for example 90% voting right and the other can have 10%. Now schedule 1 point no 8 of the LLP Act states that decision making is through resolutions "passed by a majority in number of the partners and for this purpose, each partner shall have one vote." So schedule 1 of the LLP Act specifically addresses voting rights in the above clause. Further, Schedule 1 only comes into effect in the absence of an LLP agreement or in case the matter has not been addressed in the LLP agreement and hence can be excluded or redefined by the LLP agreement. So can the LLP agreement redefine the voting rights on it's terms, similar to what it does for profit sharing and partner remuneration?
First answer received in 10 minutes.
Lawyers are available now to answer your questions.
1) voting rights of the partners can be specified in the LLP Agreement
2) if the LLP Agreement is silent about the voting rights of partners, each partner shall be entitled to one vote, irrespective of the capital brought in by him.
[Regulation 8 of the First Schedule to the LLP Act, 2008]
1. Since LLP is primarily a fall out of partnership agreement it is to be guided by the terms of the agreement.
2.Every such decisions which is material to the LLP is to be taken in majority.
3. One partner can cast one vote only irrespective of share holding in the LLP.
4.The section 23 of the LLP Act,2008 and clause 8 of Schedule- 1 is important if the agreement is silent on voting rights which is reproduced here-
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.
I have received two conflicting answers above. However, there is no mention of any reference for arriving at whether voting rights can be defined or not. Apart from individual opinion, is there any clause in the law or a judgement or any such legal precedent that can be quoted as a clear basis in law for saying that (a) voting rights can be defined in an LLP agreement in any ratio between the partners or (b) that voting rights cannot be defined in an LLP agreement and each partner has only one vote?
Dear Client,
IF no reference of voting right in the LLP agreement than each partner entitle to one vote irrespective of contribution .
So can the LLP agreement redefine the voting rights on it's terms, similar to what it does for profit sharing and partner remuneration? -- YES
Regulation 8 provides that 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.
2) could not find any judgment that voting rights can be determined in LLP agreement
3) regulation 1 provides The mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and its partners shall be determined, subject to the terms of any limited liability partnership agreement or in the absence of any such agreement on any matter, by the provisions in this Schedule.
If the LLP Agreement is silent about the profit sharing pattern, then the profit sharing
pattern of the partners shall be as prescribed in the First Schedule to the LLP Act,
2008.
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.
The voting rights of partners may not be determined by the contribution brought in
by them. The voting rights of the partners can be specified in the LLP Agreement.
If the LLP Agreement is silent about the voting rights of partners, each partner shall
be entitled to one vote, irrespective of the capital brought in by him.
[Regulation 8 of the First Schedule to the LLP Act, 2008]
I have received two conflicting answers above. However, there is no mention of any reference for arriving at whether voting rights can be defined or not. Apart from individual opinion, is there any clause in the law or a judgement or any such legal precedent that can be quoted as a clear basis in law for saying that (a) voting rights can be defined in an LLP agreement in any ratio between the partners or (b) that voting rights cannot be defined in an LLP agreement and each partner has only one vote?
LLP Agreements mean a written agreement between the partners of the Limited Liability Partnership (LLP) or between the LLP and its partners which establish the rights and duties of the partners toward each other as well toward the LLP.
It is a body corporate created by law. As per the LLP law, any two persons can incorporate an LLP by subscribing to the incorporation documents. Once an LLP is formed, the rights and duties of partners are governed by Schedule One of the LLP Act, unless the LLP’s partners or the LLP and partners create an LLP agreement. The self-agreed LLP agreement provides the flexibility and contractual freedom to partner so as to fulfill their needs and interest as compared to an incorporated business structure as the majority of its administrative procedures are framed as per prescribed provisions of the Companies Act.
Therefore a well defined LLP agreement will be required for smooth functioning of the company under LLP.