Key Elements and Significance of Vendor Agreement in LLP

Introduction

An LLP agreement is a written contract between the designated partners or between the LLP and its partners. It establishes the duties and rights of the designated partners towards each other as well towards the firm upon LLP registration.

The self-agreed LLP agreement provides contract-based freedom to the partners to fulfill their needs and interests as compared to an incorporated business structure as the majority of its administrative procedures are framed as per prescribed provisions of the Companies Act.

It is compulsory to make and execute the LLP agreement within 30 days of the incorporation of LLP. It defines the roles, responsibilities, rights, and powers of the partners to LLP and each other. Hence, it creates the base for the smooth functioning of LLP.

It clarifies the managerial, operational & administrative outlook and sets well defined methodologies for decision making, adding a new partner and disassociation of existing partners.

Let us take a look at the contents of a proper LLP Agreement.

1. Firstly, it contains the name of the limited liability partnership firm. According to the Act, the name must always end with LLP.
2. It also contains the date of the agreement. The act states that the agreement must be registered within 30 days after incorporation.
3. Then we come to the partner’s contribution. The agreement has the ratio of the capital invested by the partners, the profit-sharing ratio and other provisions regarding the capital contribution if any.
4. The agreement has provisions related to the recording, storage, and maintenance of the books of accounts and other important documents
5. It includes the particulars of capital accounts and current accounts. For example, where the drawings of the partner will be recorded.
6. The agreement contains the terms of disassociation as well. If any partners want to withdraw from the LLP, then the procedure and process are listed out. Also, it contains the rights of the exiting partners, rights of the continuing partners, the division of firm assets, etc.
7. Also contains the provisions for the admission of a new partner into the LLP.
8. The agreement must also contain the clause regarding the Vendor Agreement.

What is a vendor agreement?

Vendor Agreement means a legal document between the business and vendor that lays down a description of goods or services and the rights and obligations of both sides. It states the clause of the work to be performed by a contractor for LLP.

It sets the clauses about the type and quality of services to be provided, duration, cost, liability, etc. of the vendor’s services. A vendor agreement is put in place to safeguard the business from any unanticipated losses, fraud or market unpredictability.

A vendor agreement also binds the vendor to follow the timeline and completes the sale/delivery within pre-decided time. It protects the rights of business by establishing the liability of the vendor to perform in a time-specific manner.

The company vendor contract must contain the requirements of the business and the kind of goods bought or service availed from the vendor.

It comes in different forms depending upon the kind of services you need from the vendor and the type of business you are engaged in. But, certain key provisions are generally included in every vendor agreement, irrespective of those factors. Below are the important clauses that you must include in your vendor agreement:

Key elements of a vendor agreement

The vendor agreement drafting work must be drafted by a legal expert who can draft the requisite clauses and protect the business from any kind of liability or risk.

The agreement must contain certain key clauses (the party can provide the context of these clauses and the documentation expert will draft a vendor agreement accordingly):

Details of business and vendor

The vendor contract must contain the details of the business and vendor, like the names, address and registered office address of the entity.

Details of goods and services

The complete description of the goods or services bought from the vendor must be included in the agreement. These details include the quality of the goods and services, the number of goods to be delivered, the variants of goods – like colors, shapes, etc. Mentioning all the requisite details of the products or services in question leaves no chance of confusion or dispute down the lane between the parties.

Cost of goods and services

This clause contains the monetary value of goods purchased and the actual cost of services availed.  The provision must also include the payment structure and mode of payment i.e. when and how the payment will be made to the vendor after or before completion of the contract.

The time period of delivery

The vendor contract must also include the delivery period of providing the goods or services to the vendor. This clause is highly relevant for consumable and perishable goods.

Agreement duration

The duration for which the agreement is valid and the vendor is in association with the business must be a part of the vendor service contract with LLP. This provision can also include information about the renewal of the agreement.

Confidentiality

Most of the vendor agreements cover how the disclosure of confidential information will be handled. Sometimes, the parties will opt to execute a separate non-disclosure agreement along with the vendor agreement.

Some key points to be noted in either case are: what is included in the definition of confidential information, what are the marking requirements (if any), duration of period of protection and what, by definition, are excluded from confidential information.

Indemnity

This clause states that in case of breach of contract, the party will compensate the other for causing the loss resulting from such breach.

Termination of agreement

This clause states the grounds on which either party can terminate or cancel the contract, like non-delivery of goods and services, delivery of the damaged or low-quality product or service, non-payment, late delivery, etc.

Law applicable

The vendor agreement must include the law that would be applicable in case some dispute arises between the vendor and business.

Dispute resolution

Another important clause is how to resolve a dispute between the business and the vendor. This may include the option to approach a court with valid jurisdiction or to opt for alternative dispute resolution methods like Arbitration and Mediation.

Conclusion

The above mentioned provisions are a must for every LLP agreement. Apart from this, there can be various other clauses that need to be incorporated in an agreement depending on the type of business carried on by an LLP. Moreover, the schedule only provides for limited clauses.

The success of every LLP mainly depends on how the partners have executed the LLP agreement. Therefore, the LLP Agreement must be drafted with the help of expert knowledge which anticipates the future needs of the firm and understands the amount of flexibility required to adjust with the changing circumstances for smooth and efficient functioning.