Think of Section 23 as the 'who decides what' section of the LLP Act. When partners form an LLP, someone has to decide: Who gets how much profit? Who manages the firm? What happens if a partner leaves? Section 23 answers all this — and the short answer is: your LLP Agreement decides everything.
The LLP Agreement is a written contract between the partners (or between the LLP and its partners) that governs mutual rights and duties. Whatever you write in that agreement — profit-sharing ratio, voting rights, roles — that's what rules. The Act itself steps aside and lets partners customize freely. This agreement (and any changes to it) must be filed with the Registrar in the prescribed form, along with the prescribed fee. Filing is mandatory — not optional.
Here's an important twist: what if partners signed an agreement before the LLP was incorporated? That pre-incorporation agreement can still bind the LLP — but only if all partners ratify it after incorporation. One partner refusing to ratify? The whole pre-incorporation agreement fails to bind the LLP. Finally, the big safety net: if partners forget to put something in the agreement — say, they never mentioned what happens on a partner's death — the First Schedule to the LLP Act kicks in automatically and fills that gap. The First Schedule is basically a default rulebook. This is asked frequently as a 4-mark question — especially the interplay between the LLP Agreement and the First Schedule, and the pre-incorporation agreement ratification rule.
Example 1 — Pre-incorporation Agreement Ratification
Rajesh, Meena, and Suresh plan to form an LLP. Before incorporation, Rajesh and Meena sign a draft agreement allocating profits as: Rajesh 50%, Meena 30%, Suresh 20%.
Step 1: LLP is incorporated on 1 April 2025.
Step 2: Rajesh and Meena ratify the agreement. Suresh refuses.
Question: Does this agreement bind the LLP?
Working:
- Sub-section (3) requires ratification by all partners after incorporation.
- Suresh has not ratified → condition not fulfilled.
Answer: No, the pre-incorporation agreement does NOT bind the LLP. The profit-sharing ratio will instead be determined by the First Schedule (equal sharing among partners).
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Example 2 — First Schedule as Default
Ramesh & Co. LLP has 3 partners. Their LLP Agreement covers profit sharing and roles but is completely silent on whether partners are entitled to interest on capital contributed.
Ramesh contributes ₹10,00,000 and wants ₹60,000 interest (@ 6% p.a.).
Working:
- LLP Agreement is silent on interest on capital.
- Section 23(4): First Schedule applies to fill the gap.
- First Schedule, Clause 5: Partners are NOT entitled to interest on capital in absence of an agreement.
Answer: Ramesh is NOT entitled to ₹60,000 interest. The First Schedule overrides his claim.
📖 Bare Act text — Section 23, Limited Liability Partnership Act 2008
(click to expand)
(1) 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. (2) 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. (3) An agreement in writing made before the incorporation of a limited liability partnership between the persons who subscribe their names to the incorporation document may impose obligations on the limited liability partnership, provided such agreement is ratified by all the partners after the incorporation of the limited liability partnership. (4) In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that matter as are set-out in the First Schedule.