Many people believe that one set of LLP agreements suit all combinations of the LLP. This is wrong; an LLP agreement shall be selected based on the requirements of each case.
Equal Rights
This is an LLP with two or more partners having equal rights/powers with respect to profits/losses as well as decision-making authority (1:1 basis). This type of agreement will be applicable if all partners in an LLP contribute equally to the LLP and have the same rights including management rights. In this type of LLP, all partners will be working partners and receive the same remuneration. This is a type of LLP agreement suitable when all partners contribute equally to the management and business of the LLP.
Differential Rights
This is an LLP with two or more partners having variable rights/powers based on the ratio of capital contribution or other such considerations. This type can be further classified into:
LLP Agreement wherein rights are in the ratio of contribution and profit share
LLP Agreement wherein rights are in the ratio of contribution only but profit rights differ. Management rights may be equal or in the some other ratio
Absolute Rights
If an LLP is incorporated with by two persons and only one person is appointed as the nominee or in some cases only as the investor. The agreement needs to be drafted in such a way that one person will get all the management as well as decision making power.
Husband & Wife
An LLP with a husband and wife as partners; such an agreement can have a structure similar to any of the three LLP agreements listed above. Additionally, a special agreement pertaining to tax liability given the LLP partners’ personal relationship is required. We have structured this type of LLP Agreement to meet their goals to minimum family tax liability.
Equal Right and Differential Power
An LLP with more than two partners, each having equal rights, is an Equal Rights LLP. For operational efficiency, this type of LLP agreement typically delegates specific powers to selected partner(s), subject to receiving unanimous consent from all partners. In this type of LLP, partners have equal rights in all aspects; however, by an LLP Agreement, some specific powers are given to particular partners.
Differential Rights and Differential Powers
This is an LLP with multiple partners holding variable rights and powers. The LLP agreement in such a case needs to specifically define rights/powers and duties of each partner.
Partner Managed
This is an LLP with multiple partners; administrative/management/operational decision-making powers are vested with specific partners (two or more), while all remaining partners are nominal or investing partners, i.e. no decision-making rights.
Board Managed
This is an LLP with multiple partners and the business is managed by a committee of partners, similar to a company’s Board of Directors. While overall control is exercised by all LLP partners, day-to-day management and decision-making is handled by the committee/board.
Manager Managed
This is an LLP with multiple partners and the administrative, management and operational decision-making powers are vested with designated employees with specific powers (two or more). In this case, all partners are investing partners without any decision-making rights on day-to-day affairs of the LLP.