Lecture
on
LIMITED LIABILITY PARTNERSHIP
(LLP Act, 2008)
Presented By:
VIVEK SAURAV
Assistant Professor of Law
LIMITED LIABILITY PARTNERSHIP (LLP)
LLP is an alternative corporate business entity that provides the benefits of
limited liability of a company but allows its members the flexibility of
organizing their internal management on the basis of a mutually-arrived
agreement, as is the case in a partnership firm.
This format would be quite useful for small and medium enterprises in
general and for the enterprises in services sector in particular, including
professionals and knowledge based enterprises.
LLP shall be a body corporate and a legal entity separate from its partners. It
will have perpetual succession. While the LLP will be a separate legal entity,
liable to the full extent of its assets, the liability of the partners would be limited
to their agreed contribution in the LLP.
Further, no partner would be liable on account of the independent or
unauthorized actions of other partners, thus allowing individual
partners to be shielded from joint liability created by another
partner’s wrongful business decisions or misconduct.
THE SALIENT FEATURES OF LLP
BODY CORPORATE:
LLP shall be a body corporate and a legal entity separate from its partners i.e. it
has its own existence distinct from its members capable of owning its funds and
other properties in its name.
PERPETUAL SUCCESSION:
LLP shall continue to exist no matter its member may come and go, till it is
wound up in accordance with its provision of law
MUTUAL RIGHTS & DUTIES:
The mutual rights and duties between partners and those between the LLP and its
partners shall be governed by an agreement between the partners or between the
LLP and the partners.
LIABILITY:
Liability of partners being limited to their agreed contribution and the LLP as a
whole as a separate legal entity shall be liable to the full extent of its assets
NUMBER OF PARTNERS:
Minimum two and no upper limit
REGISTRATION :
It is compulsory for LLP to get registered to the ROC.
ASSIGNMENT AND TRANSFER OF PARTNERSHIP RIGHTS:
Rights of a partner to share the profits and losses of the LLP are transferable
either wholly or in part, however transfer of rights does not cause disassociation
of the partners from LLP or dissolution or winding up of the company.
FINANCIAL DISCLOSURES:
LLP shall be under an obligation to maintain annual accounts reflecting true and
fair view of its financial state of affairs
INVESTIGATION INTO THE AFFAIRS OF LLP:
Central Government have powers to investigate the affairs of an LLP, by
appointment of a competent inspector for the purpose
TAXATION OF LLP:
For the purpose of taxation LLPs will be treated as a ‘partnership firm’ under the
Indian Partnership Act, 1932
CONVERSION OF OTHER ENTITIES INTO LLP:
Other business entities like a firm or a company may convert themselves into an
LLP but the LLP act bars from converting an LLP into a company.
WHISTLE BLOWING:
Protection of whistle blowers
APPLICABILITY OF ARBITRATION AND CONCILIATION ACT
All disputes between the partners arising out of the LLP agreement which cannot
be resolved by the terms of the agreement, shall be referred for arbitration.
ADVANTAGES OF LLP
Over Partnership Structure
Limited Liability
• Protection of personal assets of partners
No maximum limit on the number of partners
LLP is a Body Corporate
• Perpetual Succession
• Separate legal entity
Partners are not agents of other partners
• Partners are not liable for the acts of other partners except in case of fraud
Easy Financing available from external sources
Foreign Direct Investment (FDI) in LLPs allowed
Over Company Structure
•Flexibility in operations
• The partners of a LLP have the freedom to run and manage the LLP as per
their will in accordance with the terms defined in the LLP Agreement
•Less Statutory Compliances
• No mandatory requirement to hold any meeting, maintain minutes or
statutory records
•Less Government Intervention
•Easy to dissolve or wind up
LIMITED LIABILITY PARTNERSHIP
Vs.
PARTNERSHIP
LIMITED LIABILITY PARTNERSHIP
PARTNERSHIP
Governing Law Limited Partnership Act 2009 The Indian Partnership
and various rules made there Act 1932 and rules made
under there under
Distinct Entity Separate legal entity Not a separate legal
entity
Registration Registration with the Registration is optional
registrar is required and
mandatory
Name of Entity Name to contain ‘Limited Any name as per choice
Liability Partnership’ or ‘LLP’
as suffix
Perpetual It has perpetual succession It does not have
Succession and partners may come and perpetual succession as
go. it depends upon the will
of the partners
Number of Minimum 2 partners and No Minimum 2 and
Members Maximum Limit Maximum 20
LIMITED LIABILITY partnership
PARTNERSHIP
Liability of Limited to the extent of Unlimited Liability of
Partners their contribution towards Partners
LLP
Obligation of the Obligation upon LLP is the Partners are severally
Partners sole obligation of it and not and jointly liable for
of its partners personally action of other partners
Principal/Agent Partners act as agents of Partners are agents of
Relationship LLP only and not of other the firm and its other
partners partners
Business Partners can enter into Partners cannot enter
Transaction b/w business transaction with into business
the firm and the LLP transaction with the
partners partnership firm.
WHO CAN BE A PARTNER IN AN
LIMITED LIABILITY PARTNERSHIP
Any individual or body corporate may be a partner in an LLP, except the
following individuals:
1. He has been found to be of unsound mind by a court;
2. He has been declared insolvent;
3. He has applied to be adjudicated as an insolvent and his application is
pending
Apart from these grounds, those who are competent to contract under Section 11
of the Indian Contract Act, 1872, can be a partner.
CHANGES IN DESIGNATED PARTNERS
A limited liability partnership may appoint a designated partner within thirty
days (30 days) of a vacancy arising for any reason.
Provided that if no designated partner is appointed, or if at any time there is only
one designated partner, each partner shall be deemed to be a designated partner
PUNISHMENT IN CASE OF BREACH
If the LLP contravenes the provisions “Designated Partner”, the limited liability
partnership and its every partner shall be punishable with fine which shall not be
less than ten thousand rupees but which may extend to five lakh rupees.
If the LLP contravenes any of the provisions of the “Liability of the Designated
Partner” then, the limited liability partnership and its every partner shall be
punishable with fine which shall not be less than ten thousand rupees but which
may extend to one lakh rupees
INCORPORATION
For a limited liability partnership to be incorporated,--
Two or more persons associated for carrying on a lawful business
with a view to share profit shall subscribe their names to an
incorporation document;
The incorporation document shall be filed in such manner and with
such fees, as may be prescribed with the Registrar of the State in
which the registered office of the LLP is to be situated; and
There shall be filed along with the incorporation document, a statement in the
prescribed form, made by either an advocate, or a Company Secretary or a
Chartered Accountant or a Cost Accountant, who is engaged in the
formation of the limited liability partnership and by anyone who subscribed
his name to the incorporation document, that all the requirements of this
Act and the rules made there under have been complied with, in respect of
incorporation and matters precedent and incidental thereto.
ESSENTIALS OF AN INCORPORATION
DOCUMENT
The incorporation document shall--
be in a form as may be prescribed;
state the name of the limited liability partnership;
state the proposed business of the limited liability partnership;
state the address of the registered office of the limited liability
partnership;
state the name and address of each of the persons who are to be
partners of the limited liability partnership on incorporation;
state the name and address of the persons who are to be designated
partners of the limited liability partnership on incorporation;
INCORPORATION BY REGISTRATION
On compliance of the conditions of the Incorporation the Registrar shall
within the period of 14 days:
register the incorporation document; and
give a certificate that the LLP is incorporated by the name specified
therein.
The Registrar may accept the statement delivered by the Advocate, Company
Secretary, Chartered Accountant or a Cost Accountant as sufficient evidence
that the requirement imposed has been complied with.
The certificate issued by the Registrar shall be signed by the Registrar and
authenticated by his official seal.
The certificate shall be conclusive evidence that the limited liability
partnership is incorporated by the name specified therein.
WINDING UP AND
DISSOLUTION OF LLP
WINDING UP ON
WINDING UP
VOLUNTARY PETITION BY THE
BY THE
WINDING UP CENTRAL
TRIBUNAL
GOVERNMENT
VOLUNTARY WINDING UP
Where an LLP is wound up by the partners, without any interference of the Court/tribunal.
It is done when a special resolution is passed to wind up LLP with approval of at least three-
fourth (3/4th) of the total number of partners.
The Designated partners need to make a declaration that the LLP does not have any debt or
that the LLP will pay the debts totally within not more than 1 year from the process of winding
up of an LLP.
LLP partners need to declare that the LLP is not winding up because of any frauds. This
statement of the declaration must be prepared along with the statement of the assets and the
liabilities until the most recent practicable date right before making the declaration for winding
up of the LLPs.
From the date of commencement of voluntary winding up, the LLP ceases to carry on its
business
WINDING UP BY THE TRIBUNAL
A limited liability partnership may be wound up by the Tribunal,--
a) if the limited liability partnership decides that limited liability partnership be
wound up by the Tribunal;
b) if, for a period of more than six months, the number of partners of the limited
liability partnership is reduced below two;
c) if the limited liability partnership is unable to pay its debts;
d) if the limited liability partnership has acted against the interests of the sovereignty
and integrity of India, the security of the State or public order;
e) if the limited liability partnership has made a default in filing with the Registrar the
Statement of Account and Solvency or annual return for any five consecutive
financial years; or
f) if the Tribunal is of the opinion that it is just and equitable that the limited liability
partnership be wound up.
WINDING UP ON PETITION BY
CENTRAL GOVERNMENT
If any such limited liability partnership is liable to be wound up under this Act or any other
law for the time being in force, and it appears to the Central Government from any such
report that it is expedient to do so by reason of:
a. an intent to defraud its creditors, partners or any other person, or
b. in a manner oppressive or unfairly prejudicial to some or any of its partners, or
c. that the limited liability partnership was formed for any fraudulent or unlawful
purpose; or
d. that the affairs of the limited liability partnership are not being conducted in
accordance with the provisions of this Act;
The Central Government may, unless the limited liability partnership is already being wound
up by the Tribunal, cause to be presented to the Tribunal by any person authorised by the
Central Government in this behalf, a petition for the winding up of the limited liability
partnership on the ground that it is just and equitable that it should be wound up.