chapter 12

the limited liability partnership act, 2008

Learning Outcomes

At the end of this chapter, you will be able to:

 Comprehend the meaning of the term ‘Limited Liability Partnership’,
its need, scope and advantages
 Know about the Incorporation of LLP, Partners and their relations,
financial disclosures, conversions, winding up and dissolution.
 Differentiate between ‘Limited Liability Partnership’ and other
forms of organization.

CHAPTER OVERVIEW

LLP

Partnership Financial Winding up

Introduction Incorporation and Their and
Disclosures Differences
Relations dissolution
with other
form of
organisation
Meaning
and Advantages Characteristics
concept

12.1 INTRODUCTION

The Ministry of Law and Justice on 9th January 2009 notified the Limited liability
Partnership Act, 2008.

12.1
The Parliament passed the Limited Liability Partnership Bill on 12th December,
2008 and the President of India has assented the Bill on 7th January, 2009 and
called as the Limited Liability Partnership Act, 2008 (the “LLP Act, 2008”).

 The LLP Act, 2008 is applicable to the whole of India

This Act has been enacted to make provisions for the formation and regulation of
Limited Liability Partnerships and for matters connected there with or incidental
thereto.

The LLP Act, 2008 has 81 sections (of which section 81 is now omitted with effect
from 1st April 2022) and 4 schedules.

The First Schedule deals with mutual rights and duties of partners and limited
liability partnership and its partners where there is absence of a formal
agreement amongst them.

The Second Schedule deals with conversion of a firm into LLP.

The Third Schedule deals with conversion of a private company into LLP.

The Fourth Schedule deals with conversion of unlisted public company into
LLP.

The Ministry of Corporate Affairs and the Registrar of Companies (ROC) are
entrusted with the task of administrating the LLP Act, 2008. The Central
Government has the authority to frame the Rules with regard to the LLP Act,
2008, and can amend them by notifications in the Official Gazette, from time to
time.

It is also to be noted that the Indian Partnership Act, 1932 is not applicable to
LLPs.

Note: The Limited Liability Partnership Act, 2008 has been

recently amended through the Limited Liability Partnership
(Amendment) Act, 2021 dated 13th August, 2021.

12.2
NEED OF NEW FORM OF LIMITED LIABILITY
PARTNERSHIP
The lawmakers envisaged the need for bringing out a new legislation for creation
of the Limited Liability Partnership to meet with the contemporary growth of the
Indian economy. A need has been felt for a new
corporate form that would provide an alternative to
the traditional partnership with unlimited personal
liability on the one hand and the statute-based
governance structure of the limited liability company
on the other hand. In order to enable professional
expertise and entrepreneurial initiative and to combine and operate in flexible,
innovative and efficient manner, the LLP Act, 2008 was enacted.

Thus, LLP as a form of business organization is an alternative corporate business

vehicle. It provides the benefits of limited liability but allows its members the
flexibility of organizing their internal structure as a partnership based on a
mutually arrived agreement. The LLP form enables entrepreneurs, professionals
and enterprises providing services of any kind or engaged in scientific and
technical disciplines, to form commercially efficient vehicles suited to their
requirements, Owing to flexibility in its structure and operation, the LLP is a
suitable vehicle for small enterprises and for investment by venture capital.

12.2 LIMITED LIABILITY PARTNERSHIP – MEANING

AND CONCEPT
MEANING

LLP is a new form of legal business entity with limited

liability. It is an alternative corporate business vehicle
that not only gives the benefits of limited liability at
low compliance cost but allows its partners the
flexibility of organizing their internal structure as a
traditional partnership. The LLP is a separate legal
entity and, while the LLP itself will be liable to the full extent of its assets, the
liability of the partners will be limited to the extent of their capital contribution.

LLP as a separate legal entity and business organisation is an alternative

corporate business form that gives the benefits of limited liability of a company
and the flexibility of a partnership.

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Since LLP contains elements of both ‘a corporate structure’ as well as ‘a
partnership firm structure’ LLP is called a hybrid between a company and a
partnership.

New form of
legal business
entity with
limited liability

Liability of
partners will Alternative
be limited to corporate
the extent of business
their capital vehicle
contribution

LLP
LLP itself will Allows the
be liable for partners the
flexibility of
the full organising
extent of its their internal
assets structure

DEFINITIONS
1. Address [(Section 2(1)(a)]: “Address” in relation to a
partner of a limited liability partnership, means—

i. If an individual, his usual residential address; and

ii. If a body corporate, the address of its registered office.

2. Body Corporate [(Section 2(1)(d)]: It means a company as defined in clause

(20) of section 2 of the Companies Act, 2013 and includes—

i. a LLP registered under this Act;

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 ii. a LLP incorporated outside India; and
iii. a company incorporated outside India,

But does not include—

i. A corporation sole;
ii. A co-operative society registered under any law for the time being in force;
and
iii. Any other body corporate (not being a company as defined in clause (20) of
section 2 of the Companies Act, 2013 or a limited liability partnership as
defined in this Act), which the Central Government may, by notification in
the Official Gazette, specify in this behalf.

Means Does not include

A company & includes - Corporation sole; co- operative
LLP, foreign LLP, foreign society & any other body
company, Corporate notified by Central
Government.

3. Business [Section 2(1) (e)]: “Business” includes every trade, profession,

service and occupation except any activity which the Central Government may,
by notification, exclude.

4. Chartered Accountant [Section 2(1) (f)]: means a Chartered Accountant as

defined in clause (b) of sub-section (1) of section 2 of the Chartered
Accountants Act, 1949 and who has obtained a certificate of practice under
sub-section (1) of section 6 of that Act.

5. Designated Partner [Section 2(1) (j)]: “Designated partner” means any

partner designated as such pursuant to section 7.

6. Entity [Section 2(1)(k)]: ‘’Entity” means anybody corporate and includes, for
the purposes of sections 18, 46, 47, 48, 49, 50, 52 and 53, a firm setup under
the Indian Partnership Act, 1932.

7. Financial Year [Section 2(1) (l)]: “Financial year”, in relation to a LLP, means
the period from the 1st day of April of a year to the 31st day of March of the
following year.

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 However, in the case of a LLP incorporated after the 30th day of September of
a year, the financial year may end on the 31st day of March of the year next
following that year.

Example 1

If a LLP has been incorporated on 15th October, 2022, then its financial year may
be from 15th October, 2022 to 31st March, 2024. However, the LLP can always
maintain its first accounts from 15th October, 2022 to 31st March, 2023 i.e. for a
period of less than 12 months. The period for which the first accounts of LLP are
prepared shall not exceed 18 months.

The Income Tax department has prescribed uniform financial year from 1st April
to 31st March of next year. In keeping with the Income tax law, the financial year
for LLP should always be from 1st April to 31st March each year.

8. Foreign LLP [section 2(1) (m)]: It means a LLP formed, incorporated or

registered outside India which establishes a place of business within India.

9. Limited liability partnership [Section 2(1) (n)]: Limited Liability

Partnership means a partnership formed and registered under this Act.

10. Limited Liability partnership agreement (Section 2(1)(0)]:

It means any written agreement between the partners of the
LLP or between the LLP and its partners which determines
the mutual rights and duties of the partners and their rights
and duties in relation to that LLP.

The First Schedule shall be applicable for all matters not covered by the
Agreement w.r.t the mutual rights and duties of the partners and their
rights and duties in relation to the LLP.

11. Name [Section 2(1)(p)]: in relation to a partner of a limited liability

Partnership, means—
i. if an individual, his forename, middle name and surname; and
ii. if a body corporate, its registered name;

12. Partner [Section 2(1)(q)]: Partner, in relation to a LLP, means any

person who becomes a partner in the LLP in accordance with the LLP
agreement.

13. Regional Director [Section 2(1)(ra)]: means a person appointed as

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 such by the Central Government for the purpose of this Act or the
Companies Act 2013, as the case may be.

14. Registrar [Section 2(1)(s)]: means a person appointed by Central

Government as Registrar, an Additional Registrar, a Joint Registrar, a
Deputy Registrar or an Assistant Registrar, for the purpose of this Act or
the Companies Act, 2013, as the case may be.
15. Small limited liability partnership [Section 2(1)(ta)]: It means a
limited liability partnership—

i. the contribution of which, does not exceed twenty-five lakh rupees or

such higher amount, not exceeding five crore rupees, as may be
prescribed; and
ii. the turnover of which, as per the Statement of Accounts and Solvency
for the immediately preceding financial year, does not exceed forty lakh
rupees or such higher amount, not exceeding fifty crore rupees, as may
be prescribed; or
iii. which meets such other requirement as may be prescribed, and fulfils
such terms and conditions as may be prescribed;

Contribution Up to Rs.25L, &

Turnover for immediately Up to Rs. 40 L, or
preceding F.Y
Fulfills Prescribed terms and
conditions

16. Tribunal [Section 2(1)(u)]: means the National Company Law

Tribunal Constituted u/s 408 of Companies Act of 2013.

Note: Applicability of the Companies Act, 2013: Words and

expressions used and not defined in this Act but defined in the
Companies Act, 2013 shall have the meanings respectively
assigned to them in that Act. [Section 2(2)]
Non-applicability of the Indian Partnership Act, 1932: Save as
otherwise provided, the provisions of the Indian Partnership Act,
1932 shall not apply to a LLP. [Section 4]

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CHARACTERISTIC OF LLP

Body Corporate
Perpetual Succession
Separate legal entity
Mutual Agency
LLP Agreement
Artifical Lrgal Person
Common Seal
Limited Liability
Management of business
Minimum & maximum number of members
Business for profit only
Investigation
Compromise or Arrangement
Conversion into LLP
E-filling of documents
Foreign LLPs

1. LLP is a body corporate: Section 2(1) (d) of the LLP Act, 2008 provides that a
LLP is a body corporate formed and incorporated under this Act. Section 3 of
the LLP Act provides that LLP is a legal entity separate from that of its
partners and shall have perpetual succession. Therefore, any change in the
partners of a LLP shall not affect the existence, rights or liabilities of the LLP.

2. Perpetual Succession: The LLP can continue its existence irrespective of

changes in partners. Death, insanity, retirement or insolvency of partners has
no impact on the existence of LLP. It is capable of entering into contracts and
holding property in its own name.

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3. Separate Legal Entity: Section 3 of LLP Act provides that a LLP is a body
corporate formed and incorporated under this Act and is a legal entity
separate from that of its partners. The LLP is liable to the full extent of its
assets but liability of the partners is limited to their agreed contribution in the
LLP. In other words, creditors of LLP shall be the creditors of LLP alone.

4. Mutual Agency: No partner is liable on account of the independent or un-

authorized actions of other partners, thus individual partners are shielded
from joint liability created by another partner’s wrongful business decisions
or misconduct. In other words, all partners will be the agents of the LLP alone.
No one partner can bind the other partner by his acts.

5. LLP Agreement: Mutual rights and duties of the partners within a LLP are
governed by an agreement between the partners. The LLP Act, 2008 provides
flexibility to partner to devise the agreement as per their choice. In the
absence of any such agreement, the mutual rights and duties shall be governed
by Schedule I of the LLP Act, 2008.

6. Artificial Legal Person: A LLP is an artificial legal person because it is created

by a legal process and is clothed with all rights of an individual. It can do
everything which any natural person can do, except of course that, it cannot be
sent to jail, cannot take an oath, cannot marry or get divorce nor can it practice
a learned profession like CA or Medicine. A LLP is invisible, intangible,
immortal (it can be dissolved by law alone) but not fictitious because it really
exists.

7. Common Seal: A LLP being an artificial person can act through its partners
and designated partners. LLP may have a common seal, if it decides to have
one [Section 14(c)]. Thus, it is not mandatory for a LLP to have a common seal.
It shall remain under the custody of some responsible official and it shall be
affixed in the presence of at least 2 designated partners of the LLP.

8. Limited Liability: Every partner of a LLP is, for the purpose of the business of
LLP, the agent of the LLP, but not of other partners (Section 26). The liability
of the partners will be limited to their agreed contribution in the LLP. Such
contribution may be of tangible or intangible nature or both.

Example 2

The professionals like Engineering consultants, Legal Advisors and Accounting

Professional are afraid of entering into business due to unlimited liability. Hence,
the LLP Act provides an avenue for these professionals to enter into Limited

12.9
Liability Partnership firms which restrict their liability to the agreed amount.
This has encouraged Professionals to form LLP.

9. Management of Business: The partners in the LLP are entitled to manage the
business of LLP. But only the designated partners are responsible for legal
compliances.

10. Minimum and Maximum number of Partners: Every LLP shall have at
least two partners and shall also have at least 2 individuals as designated
partners, of whom at least one shall be resident in India. There is no maximum
limit on the partners in LLP.

11. Business for Profit Only: The essential requirement for

forming LLP is carrying on a lawful business with a view to
earn profit. Thus, LLP cannot be formed for charitable or
non-economic purpose.

12. Investigation: The Central Government shall have powers to investigate

the affairs of an LLP by appointment of competent authority for the purpose.

13. Compromise or Arrangement: Any compromise or agreements including

merger and amalgamation of LLPs shall be in accordance with the provisions
of the LLP Act, 2008.

14. Conversion into LLP: A firm, private company or an unlisted public

company would be allowed to be converted into LLP in accordance with the
provisions of LLP Act, 2008.

15. E-Filling of Documents: Every form or application of document required

to be filed or delivered under the act and rules made thereunder, shall be filed
in computer readable electronic form on its website [Link] and
authenticated by a partner or designated partner of LLP by the use of
electronic or digital signature.

16. Foreign LLPs: Section 2(1) (m) defines foreign limited liability partnership
“as a limited liability partnership formed, incorporated, or registered outside
India which established a place of business within India”. Foreign LLP can
become a partner in an Indian LLP.

ADVANTAGES OF LLP FORM

LLP form is a form of business model which:

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 1. Is organised and operates on the basis of an agreement.
2. Provides flexibility without imposing detailed legal and procedural
requirements.
3. Easy to form.
4. All partners enjoy limited liability.
5. Easy to dissolve.

PARTNERS [SECTION 5]

Any individual or body corporate may be a partner in a LLP. However, an

individual shall not be capable of becoming a partner of a LLP, if—

a) he has been found to be of unsound mind by a

Court of competent jurisdiction and the finding
is in force;
b) he is an undischarged insolvent; or
c) He has applied to be adjudicated as an insolvent and his application is
pending.

The following persons can become partner in LLP:

i. Individuals (Resident Indians including Non Resident Indians & Overseas

Citizen of India as well as foreign nationals)*
ii. Limited Liability Partnerships
iii. Companies (including foreign companies)*
iv. Foreign Limited Liability Partnerships*
v. Limited Liability Partnerships incorporated outside India
vi. Foreign Companies.

Co-operative society and corporation sole cannot become partner in a LLP.

*In case of introduction of capital / acquisition of existing stake in LLP by Persons

resident outside India (other than NRIs & OCIs investing on a non- repatriation
basis), the Foreign Direct Investment (FDI) compliances shall have to be
undertaken by the LLP in which such investment is made.

MINIMUM NUMBER OF PARTNERS [SECTION 6]

i. Every LLP shall have at least two partners.
ii. If at any time the number of partners of a LLP is reduced
below two and the LLP carries on business for more than

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 six months while the number is so reduced, the person, who is the only
partner of the LLP during the time that it so carries on business after those
six months and has the knowledge of the fact that it is carrying on business
with him alone, shall be liable personally for the obligations of the LLP
incurred during that period.

DESIGNATED PARTNERS [SECTION 7]

1. Every LLP shall have at least two designated partners who are individuals and
at least one of them shall be a resident in India.

Provided, if in LLP, all the partners are bodies corporate or in which one or
more partners are individuals and bodies corporate, at least two individuals
who are partners of such LLP or nominees of such bodies corporate shall act
as designated partners.

Example 3

A LLP has three partners, one individual i.e. Mr. X and two bodies corporates viz.
M/s XYZ Ltd and M/s ABC Ltd. In this case Mr. X and one nominee of any body’s
corporate shall be designated partners.

Example 4
A LLP by the name SMY LLP has three partners namely 1. SI Limited, 2. MIS
Limited, 3. YI Private Limited. As there is no individual as partner in LLP,
nominees of any two said body corporates shall act as designated partners.

Resident in India: For the purposes of this section, the term “resident in India”
means a person who has stayed in India for a period of not less than one hundred
twenty days during the financial year.

Example 5

There is a LLP by the name Indian Helicopters LLP having 5 partners namely Mr.
A (Non Resident), Mr. B (Non Resident) Ms. C (resident), Ms. D (resident) and Ms.
E (resident). In this case, at least 2 should be named as Designated Partner out of
which 1 should be resident. Hence, if Mr. A and Mr. B are designated then it will
not serve the purpose. One of the designated partners should be there out of Ms.
C, Ms. D and Ms. E.

2. If the incorporation document

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 a) specifies who are to be designated partners, such persons shall be
designated partners on incorporation; or
b) states that each of the partners from time to time of LLP is to be
designated partners, every partner shall be a designated partners;

(ii) Any partner may become a designated partner by and in accordance

with the LLP Agreement and a partner may cease to be a designated
partners in accordance with LLP agreement.

3. An individual shall not become a designated partner in any LLP unless he

has given his prior consent to act as such to the LLP in such form and
manner as may be prescribed.
4. Every LLP shall file with the Registrar the particulars of every individual
who has given his consent to act as designated partners in such form and
manner as may be prescribed within 30 days of his appointment.
5. An individual eligible to be a designated partner shall satisfy such
conditions and requirements as may be prescribed.
6. Every designated partner of the LLP shall obtain a Designated Partner
Identification Number (DPIN) from the Central Government and the
provisions of sections 153 to 159 of the Companies Act, 2013 shall apply
mutatis mutandis for the said purpose.

LIABILITIES OF DESIGNATED PARTNERS [SECTION 8]

Unless expressly provided otherwise in this Act, a designated partner shall be—
a) Responsible for the doing of all acts, matters and things as are required to be
done by the limited liability partnership in respect of
compliance of the provisions of this Act including filing
of any document, return, statement and the like report
pursuant to the provisions of this Act and as may be
specified in the limited liability partnership agreement;
and

b) Liable to all penalties imposed on the limited liability partnership for any
contravention of those provisions.

CHANGES IN DESIGNATED PARTNERS [SECTION 9]

A limited liability partnership may appoint a designated partner within 30 days

of a vacancy arising for any reason and provisions of sub-section (4) and sub-
section (5) of section 7 shall apply in respect of such new designated partner,

12.13
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 for contravention of sections 7 and 9 [Section 10]

If the LLP contravenes the provisions of sub-section (1) of section 7 (meaning

that the number of designated partners are less than two or none of the
designated partner is a resident in India), the LLP and its every partner shall be
liable to a penalty of Rs. 10,000 and in case of continuing contravention, with
further penalty of Rs. 100 per day subject to maximum Rs. 1, 00,000 for LLP and
Rs. 50,000 for every partner of such LLP.

If the LLP contravenes the provisions of sub-section (4) of section 7 (failure to file
the consent of appointment of designated partner within 30 days of his
appointment), the LLP and its every designated partner shall be liable to a
penalty of Rs. 5,000 and in case of continuing contravention, with further penalty
of Rs. 100 per day subject to maximum Rs. 50,000 for LLP and Rs. 25,000 for
every designated partner.

12.3 INCORPORATION OF LLP

INCORPORATION DOCUMENT [SECTION 11]

The most important document needed for registration is the incorporation

document.
1. For a LLP to be incorporated:
a) two or more persons associated for carrying on a lawful business with a
view to earn profit shall subscribe their names to an incorporation
document;
b) 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 (Incorporation documents are
now processed electronically by Registrar, Central Registration Centre
since 2nd October 2018); and

c) Statement to be filed:

 there shall be filed along with the incorporation document, a

statement in the prescribed form:

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 o 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
LLP and
o by anyone who subscribed his name to the incorporation document,
o that all the requirements of this Act and the rules made thereunder have
been complied with,
o In respect of incorporation and matters precedent and incidental thereto.

2. The incorporation document shall—

a) be in a form as may be prescribed;

b) state the name of the LLP;
c) state the proposed business of the LLP;
d) state the address of the registered office of the LLP;
e) state the name and address of each of the persons who are to be partners of
the LLP on incorporation;
f) state the name and address of the persons who are to be designated
partners of the LLP on incorporation;
g) Contain such other information concerning the proposed LLP as may be
prescribed.

If a person makes a statement as discussed above which he—

a) knows to be false; or
b) does not believe to be true,
Shall be punishable (Penalty for false declaration)

 with imprisonment for a term which may extend to 2 years and

 with fine which shall not be less than `10,000 but which may extend to Rs. 5
Lakhs.

INCORPORATION BY REGISTRATION [SECTION 12]

1. When the requirements imposed by clauses (b) and (c) of sub-section (1) of
section 11 have been complied with, the Registrar shall retain the
incorporation document and, unless the requirement imposed by clause (a) of
that sub-section has not been complied with, he shall, within a period of 14
days—

a) register the incorporation document; and

b) give a certificate that the LLP is incorporated by the name specified therein.

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2. The Registrar may accept the statement delivered under clause (c) of sub-
section (1) of section 11 as sufficient evidence that the requirement imposed
by clause (a) of that sub-section has been complied with.
3. The certificate issued under clause (b) of sub-section (1) shall be signed by the
Registrar and authenticated by his official seal.
4. The certificate shall be conclusive evidence that the LLP is incorporated by the
name specified therein.

REGISTERED OFFICE OF LLP AND CHANGE THEREIN

[SECTION 13]
1. Every LLP shall have a registered office to which all communications and
notices may be addressed and where they shall be received.

2. A document may be served on a LLP or a partner or

designated partner thereof by sending it by post under
a certificate of posting or by registered post or by any
other manner, as may be prescribed, at the registered office and any other
address specifically declared by the LLP for the purpose in such form and
manner as may be prescribed.

3. A LLP may change the place of its registered office and file the notice of
such change with the Registrar in such form and manner and subject to
such conditions as may be prescribed and any such change shall take effect
only upon such filing.

4. If the LLP contravenes any provisions of this section, the LLP and its every
partner shall be punishable with penalty of ` 500 per day subject to
maximum Rs. 50,000.

EFFECT OF REGISTRATION [SECTION 14]

On Registration, LLP shall by its name, be capable of –

i. Suing and being sued;

ii. Acquiring, owning, holding and developing or disposing of property,
whether movable or immovable, tangible or intangible;
iii. Having a common seal, if it decides to have one; and
iv. Doing and suffering other acts and things as bodies corporate may lawfully
do and suffer.

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NAME [SECTION 15]

1. Every limited liability partnership shall have either the words “limited
liability partnership” or the acronym “LLP” as the last words of its name.
2. No LLP shall be registered by a name which, in the opinion of the Central
Government is—
a) undesirable; or
b) Identical or too nearly resembles to that of any other LLP or a company or a
registered trademark of any other person under the Trade Marks Act, 1999.

RESERVATION OF NAME [SECTION 16]

1. A person may apply in such form and manner and accompanied by such fee
as may be prescribed to the Registrar for the reservation of a name set out
in the application as—

a) the name of a proposed LLP; or

b) the name to which a LLP proposes to change its name.

2. Upon receipt of an application under sub-section (1) and on payment of the

prescribed fee, the Registrar may, if he is satisfied, subject to the rules
prescribed by the Central Government in the matter, that the name to be
reserved is not one which may be rejected on any ground referred to in
sub-section (2) of section 15, reserve the name for a period of 3 months
from the date of intimation by the Registrar.

RECTIFICATION OF NAME OF LLP [SECTION 17]

1. Notwithstanding anything contained in sections 15 and 16, if through
inadvertence, or otherwise, the LLP, on its first registration or on its
registration by new name, is registered by a name which is identical with
or too nearly resembles to-

a) that of any other LLP or a company; or

b) a registered trade mark of a proprietor under the Trade Marks Act, 1999
as likely to be mistaken, then on an application of such LLP or proprietor
referred to in clauses (a) and (b) respectively or a company, the Central
Government may direct such LLP to change its name or new name within a
period of 3 months from the date of issue of such direction,

12.17
 Provided that an application of the proprietor of the registered trade marks
shall be maintainable within a period of 3 years from the date of
incorporation or registration or change of name of the LLP under this Act.

2. Where an LLP changes its name or obtains new name, it shall within a
period of 15 days from the date of such change, give notice of the change to
Registrar along with the order of the Central Government, who shall carry
out necessary changes in the certificate of incorporation and within 30
days of such change in the certificate of incorporation, such LLP shall
change its name in the LLP agreement.

3. If the LLP is in default in complying with any direction given under sub-
section (1), the Central Government shall allot a new name to the LLP and
the Registrar shall enter the new name in the register of LLP in place of the
old name and issue a fresh certificate of incorporation with new name.

Provided that nothing contained in this sub-section shall prevent a LLP from
subsequently changing its name.

STEPS TO INCORPORATE LLP

• Reservation of name of LLP: Applicant has to

file e-form RUNLLP, for ascertaining availability
STEP 1 and resevtaion of the name of a LLP.

• File e- form Fillip for incorporating a new LLP:

contains the details of proposed LLP, details of
STEP 2 partners/designated partners and their consent.

• Execution of LLP Agreement is mandatory as per

section 23 of Act. It will be filed in e-form 3
STEP 3 within 30 days of incorporation of LLP

12.4 PARTNERS AND THEIR RELATIONS

ELIGIBILITY TO BE PARTNERS [SECTION 22]

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On the incorporation of a LLP, the persons who subscribed their names to the
incorporation document shall be its partners and any other person may become a
partner of the LLP by and in accordance with the LLP agreement.

RELATIONSHIP OF PARTNERS [SECTION 23]

1. Save as otherwise provided by this Act, the mutual

rights and duties of the partners of a LLP, and the
mutual rights and duties of a LLP and its partners,
shall be governed by the LLP agreement between the partners, or between
the LLP and its partners.

2. The LLP 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 LLP between

the persons who subscribe their names to the incorporation document may
impose obligations on the LLP, provided such agreement is ratified by all
the partners after the incorporation of the LLP.

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 LLP and the
partners shall be determined by the provisions relating to that matter as
are set-out in the First Schedule.

CESSATION OF PARTNERSHIP INTEREST [SECTION

24]
1. A person may cease to be a partner of a LLP in accordance with an
agreement with the other partners or, in the absence of agreement with the
other partners as to cessation of being a partner, by giving a notice in
writing of not less than 30 days to the other partners of his intention to
resign as partner.;=

2. A person shall cease to be a partner of a LLP-

a) On his death or dissolution of the LLP; or

b) If he is declared to be of unsound mind by a competent count; or
c) If he has applied to be adjudged as an insolvent or declared as an
insolvent.

12.19
 3. Where a person has ceased to be a partner of a LLP (hereinafter referred to
as “former partner”), the former partner is to be regarded (in relation to
any person dealing with the LLP) as still being a partner of the LLP
unless—

a) the person has notice that the former partner has ceased to be a partner
of the LLP; or
b) Notice that the former partner has ceased to be a partner of the LLP has
been delivered to the Registrar.

4. The cessation of a partner from the LLP does not by itself discharge the
partner from any obligation to the LLP or to the other partners or to any
other person which he incurred while being a partner.

5. Where a partner of a LLP ceases to be a partner, unless otherwise provided

in the LLP agreement, the former partner or a person entitled to his share
in consequence of the death or insolvency of the former partner, shall be
entitled to receive from the LLP—

a) an amount equal to the capital contribution of the former partner

actually made to the LLP; and
b) his right to share in the accumulated profits of the LLP, after the
deduction of accumulated losses of the LLP, determined as at the date
the former partner ceased to be a partner.

6. A former partner or a person entitled to his share in consequence of the

death or insolvency of the former partner shall not have any right to
interfere in the management of the LLP.

REGISTRATION OF CHANGES IN PARTNERS [SECTION

25]
1. Every partner shall inform the LLP of any change in his name or address
within a period of 15 days of such change.

12.20
2. A LLP shall—
a) where a person becomes or ceases to be a partner, file a notice with the
Registrar within 30 days from the date he becomes or ceases to be a
partner; and
b) Where there is any change in the name or address of a partner, file a notice
with the Registrar within 30 days of such change.

3. A notice filed with the Registrar under sub-section (2)—

a) shall be in such form and accompanied by such fees as may be prescribed;

b) shall be signed by the designated partner of the LLP and authenticated in a
manner as may be prescribed; and
c) if it relates to an incoming partner, shall contain a statement by such
partner that he consents to becoming a partner, signed by him and
authenticated in the manner as may be prescribed.
4. If the LLP contravenes the provisions of sub-section (2), the LLP and every
designated partner of the LLP shall be ‘liable to penalty of Rs.10,000.
5. If any partner contravenes the provisions of sub-section (1), such partner shall
be ‘liable to penalty of Rs.10, 000.
6. Any person who ceases to be a partner of a LLP may himself file with the
Registrar the notice referred to in sub-section (3) if he has reasonable cause to
believe that the LLP may not file the notice with the Registrar and in case of any
such notice filed by a partner, the Registrar shall obtain conformation to this
effect from the LLP has also filed such notice.
However, where no confirmation is given by the LLP within 15 days, the
registrar shall register the notice made by a person ceasing to be a partner
under this section.

EXTENT AND LIMITATION OF LIABILITY OF LLP AND

PARTNER
Partner as agent [Section 26]: Every partner of a LLP is, for the purpose of the
business of the LLP, the agent of the LLP, but not of other partners.

EXTENT OF LIABILITY OF LLP [SECTION 27]

1. A LLP is not bound by anything done by a partner in dealing with a person if—

a) the partner in fact has no authority to act for the LLP in doing a particular
act; and

12.21
 b) the person knows that he has no authority or does not know or believe him
to be a partner of the LLP.

2. The LLP is liable if a partner of a LLP is liable to any person as a result of a

wrongful act or omission on his part in the course of the business of the LLP or
with its authority.
3. An obligation of the LLP whether arising in contract or otherwise, shall be
solely the obligation of the LLP.
4. The liabilities of the LLP shall be met out of the property of the LLP.

EXTENT OF LIABILITY OF PARTNER [SECTION 28]

1. A partner is not personally liable, directly or indirectly for an obligation

referred to in sub-section (3) of section 27 solely by reason of being a
partner of the LLP.
2. The provisions of sub-section (3) of section 27 and sub-section (1) of this
section shall not affect the personal liability of a partner for his own
wrongful act or omission, but a partner shall not be personally liable for the
wrongful actor omission, but a partner shall not be personally liable for the
wrongful act or omission of any other partner of the LLP.

1. Any person,

 who by words spoken or written or by conduct,

 represents himself, or knowingly permits himself to be represented to be a
partner in a LLP
 is liable to any person
 who has on the faith of any such representation
 Given credit to the LLP, whether the person representing himself or
represented to be a partner does or does not know that the representation
has reached the person so giving credit.

However,

 where any credit is received by the LLP as a result of such representation,

 the LLP shall,
 without prejudice to the liability of the person so representing himself or
represented to be a partner,
 be liable to the extent of credit received by it or any financial benefit
derived thereon.
2. Where after a partner’s death the business is continued in the same LLP name,
the continued use of that name or of the deceased partner’s name as a part
12.22
 thereof shall not by itself make his legal representative or his estate liable for
any act of the LLP done after his death.

UNLIMITED LIABILITY IN CASE OF FRAUD [SECTION 30]

1. In case of fraud:

 In the event of an act carried out by a LLP, or any of its partners,

 with intent to defraud creditors of the LLP or any other person, or for any
fraudulent purpose,
 the liability of the LLP and partners who acted with intent to defraud
creditors or for any fraudulent purpose
 Shall be unlimited for all or any of the debts or other liabilities of the LLP.
However, in case any such act is carried out by a partner, the LLP is liable to the
same extent as the partner unless it is established by the LLP that such act was
without the knowledge or the authority of the LLP.

2. Where any business is carried on with such intent or for such purpose as
mentioned in sub-section (1), every person who was knowingly a party to
the carrying on of the business in the manner aforesaid shall be punishable
with

 imprisonment for a term which may extend to five

years and
 With fine which shall not be less than Rs. 50,000
but which may extend to Rs. 5 Lakhs.

3. Where a LLP or any partner or designated partner or employee of such LLP

has conducted the affairs of the LLP in a fraudulent manner, then without
prejudice to any criminal proceedings which may arise under any law for the
time being in force, the LLP and any such partner or designated partner or
employee shall be liable to pay compensation to any person who has suffered
any loss or damage by reason of such conduct.

However, such LLP shall not be liable if any such partner or designated
partner or employee has acted fraudulently without knowledge of the LLP.

WHISTLE BLOWING [SECTION 31]

1. The Court or Tribunal may reduce or waive any penalty leviable against
any partner or employee of a LLP, if it is satisfied that—‘

12.23
  such partner or employee of an LLP has provided useful information during
investigation of such LLP; or
 When any information given by any partner or employee (whether or not
during investigation) leads to LLP or any partner or employee of such LLP
being convicted under this Act or any other Act.

2. No partner or employee of any LLP may be discharged, demoted,

suspended, threatened, harassed or in any other manner discriminated
against the terms and conditions of his LLP or employment merely because
of his providing information or causing information to be provided
pursuant to sub-section (1).

CONTRIBUTIONS

Form of contribution [Section 32]

1. A contribution of a partner may consist of tangible, movable

or immovable or intangible property or other benefit to the
limited liability partnership, including money, promissory
notes, other agreements to contribute cash or property, and
contracts for services performed or to be performed.

2. The monetary value of contribution of each partner shall be accounted for

and disclosed in the accounts of the limited liability partnership in the
manner as may be prescribed.

12.5 FINANCIAL DISCLOSURES

1. Maintain proper books of account in presribed manner.
2. File Statement of Account and Solvency within 6 months from end of each
F.Y.
3. Statement of Account and Solvency shall be filed with the Registrar every
year in prescribed form and manner and with prescribed fees.
4. Audit of Accounts. Central Government may exempt.

MAINTENANCE OF BOOKS OF ACCOUNT, OTHER

RECORDS AND AUDIT, ETC. [SECTION 34]

1. Proper Books of account:

 The LLP shall maintain such proper books of account as may be
prescribed

12.24
  relating to its affairs for each year of its existence
 on cash basis or accrual basis and
 according to double entry system of accounting and
 shall maintain the same at its registered office
 for such period as may be prescribed.

2. Statement of Account and Solvency:

 Every LLP shall,

 within a period of 6 months from the end of each financial year,
 prepare a Statement of Account and Solvency
 for the said financial year as at the last day of the said financial year
 in such form as may be prescribed, and
 Such statement shall be signed by the designated partners of the LLP.
3. Every LLP shall file within the prescribed time, the Statement of Account
and Solvency prepared pursuant to sub-section (2) with the Registrar
every yearin such form and manner and accompanied by such fees as may
be prescribed.

4. The accounts of LLP shall be audited in accordance with such rules as

maybe prescribed. However, the Central Government may, by notification
in the Official Gazette, exempt any class or classes of LLP from the
requirements of this sub-section.

5. Penalty for non-compliances of provisions of sub-section 3-

LLP – ‘100 per day subject to maximum Rs. 1, 00, 000
Every Designated partners – Rs. 100 per day subject to maximum Rs.
50,000

6. Penalty for non-compliance of provisions of sub-section 1, 2 & 4 - LLP – not

less than Rs. 25,000 which may extend to Rs. 5 Lakhs.
Every designated partner –not less than Rs. 10,000 which may extend to Rs.
1 Lakh.

ACCOUNTING AND AUDITING STANDARDS [SECTION

34A]
Central Government may, in consultation with the National Financial
ReportingAuthority constituted under Section 132 of the Companies Act
2013 —

12.25
 a) Prescribe the standards of accounting; and
b) Prescribe the standards of auditing, as recommended by ICAI.

ANNUAL RETURN [SECTION 35]

1. Every LLP shall file an annual return duly authenticated with the Registrar
within 60 days of closure of its financial year in such form and manner and
accompanied by such fee as may be prescribed.

Example 6

Suppose, the financial year of a LLP closes on 31st March, 2022 then the LLP has
to file an annual return with the Registrar latest by 30th May, 2022.

Note: The LLP contra-distinct from Partnership Act, 1932 has prescribed the
filing of Annual Return in accordance with Companies Act, 2013. This is a
new feature of the LLPs.

2. Penalty for non-filing of annual return-

LLP – Rs. 100 per day subject to maximum Rs. 1, 00,000
Every Designated partners – Rs. 100 per day subject to maximum Rs. 50,000

INSPECTION OF DOCUMENTS KEPT BY REGISTRAR

[SECTION 36]
The incorporation document, name of partners and changes, if any, made therein,
Statement of Account and Solvency and annual return filed by each LLP with the
Registrar shall be available for inspection by any person in such manner and on
payment of such fees as may be prescribed.

PENALTY FOR FALSE STATEMENT [SECTION 37]

If in any return, statement or other document required by or for the purposes of
any of the provisions of this Act, any person makes a statement—

a) which is false in any material particular, knowing it to be false; or

b) which omits any material fact knowing it to be material,

he shall, save as otherwise expressly provided in this Act, be punishable with

imprisonment for a term which may extend to 2 years, and shall also be liable to

12.26
fine which may extend to 5 lakh rupees but which shall not be less than 1 lakh
rupees.

POWER OF REGISTRAR TO OBTAIN INFORMATION

[SCETION 38]
1. In order to obtain such information as the Registrar may consider
necessary for the purposes of carrying out the provisions of this Act, the
Registrar may require any person including any present or former partner
or designated partner or employee of a limited liability partnership to
answer any question or make any declaration or supply any details or
particulars in writing to him within a reasonable period.
2. In case any person referred to in sub-section (1) does not answer such
question or make such declaration or supply such details or particulars
asked for by the Registrar within a reasonable time or time given by the
Registrar or when the Registrar is not satisfied with the reply or
declaration or details or particulars provided by such person, the Registrar
shall have power to summon that person to appear before him or an
inspector or any other public officer whom the Registrar may designate, to
answer any such question or make such declaration or supply such details,
as the case may be.
3. Any person who, without lawful excuse, fails to comply with any summons
or requisition of the Registrar under this section shall be punishable with
fine which shall not be less than two thousand rupees but which may
extend to twenty-five thousand rupees.

COMPOUNDING OF OFFENCES [SECTION 39]

1. Notwithstanding anything contained in the code of criminal procedure,

1973, the Regional Director or any other office not below the rank of
Regional Director authorised by the Central Government may compound
any offence under this Act which is punishable with fine only, by collecting
from a person reasonably suspected of having committed the offence, a
sum which may extend to the amount of the maximum fine provided for the
offence but shall not be lower than the minimum amount provided for the
offence.

2. Nothing contained in sub-section (1) shall apply to an offence committed

by a limited liability partnership or its partner or its designated partner
within a period of three years from the date on which similar offence
committed by it or him was compounded under this section.

12.27
 Explanation.—For the removal of doubts, it is hereby clarified that any
second or subsequent offence committed after the expiry of the period of
three years from the date on which the offence was previously
compounded, shall be deemed to be the first offence.

3. Every application for the compounding of an offence shall be made to the

Registrar who shall forward the same, together with his comments thereon,
to the Regional Director or any other officer not below the rank of Regional
Director authorised by the Central Government, as the case may be.

4. Where any offence is compounded under this section, whether before or

after the institution of any prosecution, intimation thereof shall be given to
the Registrar within a period of seven days from the date on which the
offence is so compounded.

5. Where any offence is compounded before the institution of any

prosecution, no prosecution shall be instituted in relation to such offence.

6. Where the compounding of any offence is made after the institution of any
prosecution, such compounding shall be brought by the Registrar in
writing, to the notice of the court in which prosecution is pending and on
such notice of the compounding of the offence being given, the offender in
relation to which the offence is so compounded shall be discharged.

7. The Regional Director or any other officer not below the rank of Regional
Director authorised by the Central Government, while dealing with the
proposal for compounding of an offence may, by an order, direct any
partner, designated partner or other employee of the LLP to file or register,
or on payment of fee or additional fee as required to be paid under this Act,
such return, account or other document within such time as may be
specified in the order.

8. Notwithstanding anything contained in this section, if any partner or

designated partner or other employee of the LLP who fails to comply with
any order made by the Regional Director or any other officer not below the
rank of Regional Director authorised by the Central Government, under
sub- section (7), the maximum amount of fine for the offence, which was
under consideration Regional Director or such authorised officer for
compounding under this section shall be twice the amount provided in the
corresponding section in which punishment for such offence is provided.

12.28
12.6 ASSIGNMENT AND TRANSFER OF PARTNERSHIP
RIGHTS

PARTNER’S TRANSFERABLE INTEREST [SECTION 42]

1. The rights of a partner to a share of the profits and losses of the limited
liability partnership and to receive distributions in accordance with the
limited liability partnership agreement are transferable either wholly or in
part.
2. The transfer of any right by any partner pursuant to sub-section (1) does
not by itself cause the disassociation of the partner or a dissolution and
winding up of the limited liability partnership.
3. The transfer of right pursuant to this section does not, by itself, entitle the
transferee or assignee to participate in the management or conduct of the
activities of the limited liability partnership, or access information
concerning the transactions of the limited liability partnership.

12.7 CONVERSION INTO LLP

Conversion from firm into LLP [SECTION 55]: A firm may convert into an LLP
in accordance with the provisions of this Chapter and the Second Schedule.

Conversion from private company into LLP [Section 56]: A private company
may convert into an LLP in accordance with the provisions of this Chapter and
the Third Schedule.

Conversion from unlisted public company into LLP [Section 57]: An unlisted
public company may convert into an LLP in accordance with the provisions of
this Chapter and the Fourth Schedule.

REGISTRATION AND EFFECT OF CONVERSION

[SECTION 58]

i. The Registrar, on satisfying that a firm, private company or an unlisted

public company, as the case may be, has complied with the respective
Schedules, provisions of this Act and the rules made thereunder, register
the documents submitted under such schedules and issue a certificate of
registration in such form as the Registrar may determine stating that the
LLP is, on and from the date specified in the certificate, registered under
this Act.

12.29
 ii. The LLP shall, within 15 days of the date of registration, inform the
concerned Registrar of Firms or Registrar of Companies, as the case may
be, with which it was registered under the provisions of the Indian
Partnership Act, 1932 or the Companies Act, 1956 (Now Companies Act,
2013) as the case may be, about the conversion and of the particulars of the
LLP in such form and manner as may be prescribed.
iii. Upon such conversion, the partners of the firm, the shareholders of private
company or unlisted public company, as the case may be, the LLP to which
such firm or such company has converted, and the partners of the LLP shall
be bound by the respective Schedules, as the case may be, applicable to
them.
iv. Upon such conversion, on and from the date of certificate of registration,
the effects of the conversion shall be such as specified in the respective
schedules, as the case may be.

Effect of Registration: Notwithstanding anything contained in any other law for

the time being in force on and from the date of registration specified in the
certificate of registration issued under the respective schedule, as the case may
be,-

a) there shall be a LLP by the name specified in the certificate of registration

registered under this Act;
b) all tangible (movable or immovable) and intangible property vested in the
firm or the company, as the case may be, all assets, interests, rights,
privileges, liabilities, obligations relating to the firm or the company, as the
case may be, and the whole of the undertaking of the firm or the company,
as the case may be, shall be transferred to and shall vest in the limited
liability partnership without further assurance, act or deed; and
c) The firm or the company, as the case may be, shall be deemed to be
dissolved and removed from the records of the Registrar of Firms or
Registrar of Companies, as the case may be.

FOREIGN LLP
FOREIGN LIMITED LIABILITY PARTNERSHIPS
[SECTION 59]
The Central Government may make rules for provisions in relation to
establishment of place of business by foreign LLP within India and carrying on
their business therein by applying or incorporating, with such modifications, as
appear appropriate, the provisions of the Companies Act, 2013 or such regulatory
mechanism with such composition as may be prescribed.

12.30
12.8 COMPROMISE ARRANGEMENT OR
RECONSTRUCTION OF LIMITED LIABILITY
PARTNERSHIPS

COMPROMISES OR ARRAGEMENT OF LIMITED

LIABILITY PARTNERSHIPS [SECTION 60]
1. Where a compromise or arrangement is proposed—

a) between a limited liability partnership and its creditors; or

b) between a limited liability partnership and its partners,

The Tribunal may, on the application of the limited liability partnership or

of any creditor or partner of the limited liability partnership, or, in the case
of a limited liability partnership which is being wound up, of the liquidator,
order a meeting of the creditors or of the partners, as the case may be, to be
called, held and conducted in such manner as may be prescribed or as the
Tribunal directs.

2. If a majority representing three-fourths in value of the creditors, or

partners, as the case may be, at the meeting, agree to any compromise or
arrangement, the compromise or arrangement shall, if sanctioned by the
Tribunal, by order be binding on all the creditors or all the partners, as the
case may be, and also on the limited liability partnership, or in the case of a
limited liability partnership which is being wound up, on the liquidator and
contributories of the limited liability partnership:

Provided that no order sanctioning any compromise or arrangement shall

be made by the Tribunal unless the Tribunal is satisfied that the limited
liability partnership or any other person by whom an application has been
made under sub-section (1) has disclosed to the Tribunal, by affidavit or
otherwise, all material facts relating to the limited liability partnership,
including the latest financial position of the limited liability partnership
and the pendency of any investigation proceedings in relation to the limited
liability partnership.
3. An order made by the Tribunal under sub-section (2) shall be filed by the
limited liability partnership with the Registrar within thirty days after
making such an order and shall have effect only after it is so filed.

4. If default is made in complying with the provisions of sub-section (3),

theLLP and its every designated partner shall be ‘liable to a penalty of Rs.
12.31
 10,000 and in case of continuing default, with further penalty of Rs. 100 for
each day after the first during which such default continues, subject to
maximum Rs. 1, 00,000 for LLP and Rs. 50,000 for every designated
partner.

5. The Tribunal may, at any time after an application has been made to it
under this section, stay the commencement or continuation of any suit or
proceeding against the limited liability partnership on such terms as the
Tribunal thinks fit, until the application is finally disposed of.

POWER OF TRIBUNAL TO ENFORCE COMPROMISE

OR ARRANGEMENT (SECTION 61)
1. Where the Tribunal makes an order under section 60 sanctioning a
compromise or an arrangement in respect of a limited liability partnership,
it—

a) shall have power to supervise the carrying out of the compromise or an

arrangement; and
b) may, at the time of making such order or at any time thereafter, give
such directions in regard to any matter or make such modifications in
the compromise or arrangement as it may consider necessary for the
proper working of the compromise or arrangement.

2. If the Tribunal aforesaid is satisfied that a compromise or an arrangement

sanctioned under section 60 cannot be worked satisfactorily with or
without modifications, it may, either on its own motion or on the
application of any person interested in the affairs of the limited liability
partnership, make an order for winding up the limited liability partnership,
and such an order shall be deemed to be an order made under section 64 of
this Act.

PROVISION FOR FACILITATING RECONSTRUCTION

OR AMALGAMATION OF LIMITED LIABILITY
PARTNERSHIP [SECTION 62]

1. Where an application is made to the Tribunal under section 60 for

sanctioning of a compromise or arrangement proposed between a limited
liability partnership and any such persons as are mentioned in that section,
and it is shown to the Tribunal that—

12.32
a) compromise or arrangement has been proposed for the purposes of, or
in connection with, a scheme for the reconstruction of any limited
liability partnership or limited liability partnerships, or the
amalgamation of any two or more limited liability partnerships; and
b) under the scheme the whole or any part of the undertaking, property or
liabilities of any limited liability partnership concerned in the scheme
(in this section referred to as a "transferor limited liability partnership’’)
is to be transferred to another limited liability partnership (in this
section referred to as the ‘’transferee limited liability partnership"), the
Tribunal may, either by the order sanctioning the compromise or
arrangement or by a subsequent order, make provisions for all or any of
the following matters, namely:—

i. the transfer to the transferee limited liability partnership of the

whole or any part of the undertaking, property or liabilities of any
transferor limited liability partnership;
ii. the continuation by or against the transferee limited liability
partnership of any legal proceedings pending by or against any
transferor limited liability partnership;
iii. the dissolution, without winding up, of any transferor limited liability
partnership;
iv. the provision to be made for any person who, within such time and in
such manner as the Tribunal directs, dissent from the compromise or
arrangement; and
v. such incidental, consequential and supplemental matters as are
necessary to secure that the reconstruction or amalgamation shall be
fully and effectively carried out:

Provided that no compromise or arrangement proposed for the purposes

of, or in connection with, a scheme for the amalgamation of a limited
liability partnership, which is being wound up, with any other limited
liability partnership or limited liability partnerships, shall be sanctioned by
the Tribunal unless the Tribunal has received a report from the Registrar
that the affairs of the limited liability partnership have not been conducted
in a manner prejudicial to the interests of its partners or to public interest:

Provided further that no order for the dissolution of any transferor limited
liability partnership under clause (iii) shall be made by the Tribunal unless
the Official Liquidator has, on scrutiny of the books and papers of the
limited liability partnership, made a report to the Tribunal that the affairs
of the limited liability partnership have not been conducted in a manner
prejudicial to the interests of its partners or to public interest.

12.33
 2. Where an order under this section provides for the transfer of any property
or liabilities, then by virtue of the order, that property shall be transferred
to and vest in, and those liabilities shall be transferred to and become the
liabilities of, the transferee limited liability partnership; and in the case of
any property, if the order so directs, freed from any charge which is, by
virtue of the compromise or arrangement, to cease to have effect.

3. Within thirty days after the making of an order under this section, every
limited liability partnership in relation to which the order is made shall
cause a certified copy thereof to be filed with the Registrar for registration.

4. If default is made in complying with the provisions of sub-section (3), the

LLP and its every designated partner shall be ‘liable to a penalty of Rs. 10,000
and in case of continuing contravention, with further penalty of Rs. 100 for
each day after the first during which such default continues, subject to
maximum `1, 00,000 for LLP and `50,000 for every designated partner’.

Explanation: (i) In this section "property" includes property, rights and powers
of every description; and "liabilities" includes duties of every description.

(ii) A LLP shall not be amalgamated with a company.

12.9 WINDING UP AND DISSOLUTION

Winding up and dissolution [section 63]: The winding up of a LLP may be

either voluntary or by the Tribunal and LLP, so wound up may be dissolved.

Circumstances in which LLP may be wound up by Tutorial [Section 64]: A

LLP may be wound up by the Tribunal:

a) if the LLP decides that LLP be wound up by the Tribunal;

b) if, for a period of more than six months, the number of partners of the LLP
is reduced below two;
c) if the LLP has acted against the interests of the sovereignty and integrity of
India, the security of the State or public order1;
d) if the LLP has made a default in filling with the Registrar the Statement of
Account and solvency or annual return for any five consecutive financial
years; or
e) If the Tribunal is of the opinion that it is just and equitable that the LLP be
wound up.

12.34
Rules for winding up and dissolution [Section 65]: The Central Government
may make rules for the provisions in relation to winding up and dissolution of
LLP.

12.10 MISCELLANEOUS
Business Transactions of Partner with LLP [Section 66]: A partner may lend
money to and transact other business with the LLP and has the same rights and
obligations with respect to the loan or other transactions as a person who is not a
partner.

Application of the Provisions of the Companies Act [Section 67]

1. The Central Government may, by notification in the Official Gazette, direct

that any of the provisions of the Companies Act, 1956 specified in the
notification—
 shall apply to any LLP; or
 shall apply to any LLP with such exception, modification and adaptation, as
may be specified, in the notification.

2. A copy of every notification proposed to be issued under sub-section (1)

 shall be laid in draft before each House of Parliament, while it is in session,
 for a total period of 30 days which may be comprised in one session or in
two or more successive sessions, and
 if, before the expiry of the session immediately following the session or the
successive sessions aforesaid, both Houses agree in disapproving the issue
of the notification or both Houses agree in making any modification in the
notification,
 the notification shall not be issued or, as the case may be,

Shall be issued only in such modified form as may be agreed upon by both the
Houses.

PAYMENT OF ADDITIONAL FEE [SECTION 69]

Any document or return required to be registered or filed under this Act with
Registrar, if, is not registered or filed in time provided therein, may be registered
or filed after that time, on payment of such additional fee as may be prescribed in
addition to any fee as is payable for filing of such document or return:

Provided that such document or return shall be filed after the due date of filing,
without prejudice to any other action or liability under this Act:

12.35
Provided further that a different fee or additional fee may be prescribed for
different classes of limited liability partnerships or for different documents or
returns required to be filed under this Act or rules made thereunder.

ENHANCED PUNISHMENT [SECTION 70]

In case a limited liability partnership or any partner or designated partner of
such limited liability partnership commits any offence, the limited liability
partnership or any partner or designated partner shall, for the second or
subsequent offence, be punishable with imprisonment as provided, but in case of
offences for which fine is prescribed either along with or exclusive of
imprisonment, with fine which shall be twice the amount of fine for such offence.

DIFFERENCES WITH OTHER FORMS OF

ORGANISATION
Distinction between LLP and Partnership Firm: The points of distinction
between a limited liability partnership and partnership firm are tabulated as
follows:

Basis LLP Partnership firm

1. Regulating Act The Limited Liability The Indian Partnership
Partnership Act, 2008. Act, 1932.
2. Body It is a body corporate It is not a body
Corporate corporate
3. Separate Legal It is a legal entity It is a group of persons
entity separate from its with no separate legal
members. entity.
4. Creation It is a created by a legal It is created by an
process called agreement between the
registration under the partners.
LLP Act, 2008.
5. Registration Registration is Registration is
mandatory. LLP can sue voluntary only the
and be sued in its own registered partnership
name. firm can sue the third
parties.
6. Perpetual The death, insanity, The death, insanity,
Succession retirement or retirement or
insolvency of the insolvency of the
partner(s) does not partner(s) may affect

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 affect its existence of its existence. It has no
LLP. Members may join perpetual succession.
or leave but its
existence continues
forever.
7. Name Name of the LLP to No guidelines. The
contain the word partners can have any
limited liability name as per their
partners (LLP) as suffix. choice.
8. Liability Liability of each partner Liability of each
limited to the extent to partner is unlimited. It
agreed contribution can be extended up to
except in case of wilful the personal assets of
fraud. the partners.
9. Mutual agency Each partner can bind Each partner can bind
the LLP by his own acts the firm as well as
but not the other other partners by his
partners. own acts.
10. Designated At least two designated There is no provision
partners partners and at least for such partners
one of them shall be under the Partnership
resident in india. Act, 1932.
11. Common seal It may have its common There is no such
seal as its official concept in partnership
signatures.
12. Legal Only designated All partners are
compliances partners are responsible for all the
responsible for all the compliances and
compliances and penalties under the
penalties under this Act. Act.
13. Annual filing LLP is required to file: Partnership firm is not
of documents i. Statement if required to file any
accounts and annual document with
solvency (to be the registrar of firms.
filed annually)
ii. Annual return
with the
registration of
LLP every year.
14. Foreign Foreign nationals can Foreign nationals
partnership become a partner in a cannot become a
LLP.
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 partner in a
partnership firm.
15. Minor as Minor cannot be Minor can be admitted
partner admitted to the benefits to the benefits of the
of LLP. partnership with the
prior consent of the
existing partners.

Distinction between LLP and Limited Liability Company

Basis LLP Limited Liability

Company
1. Regulating Act The LLP Act, 2008. The Companies Act,
2013.
2. Members/ The persons who The persons who invest
Partners contribute to LLP are the money in the shares
known as partners of are known as members
the LLP. of the company.
3. Internal The internal The internal
governance governance structure of governance structure of
structure a LLP is governed by a company is regulated
contract agreement by statute (i.e.,
between the partners. Companies Act, 2013).
4. Name Name of the LLP to Name of the public
contain the word company to contain the
“Limited Liability word “limited” and Pvt.
partnership” or “LLP” Co. to contain the word
as suffix. “Private limited” as
suffix.
5. No. of Minimum – 2 members Private Company:
members/partn Maximum – No such Minimum – 2 members
ers limit on the members in Maximum 200 members
the Act. The members Public Company:
of the LLP can be Minimum – 7 members
individuals/ or body Maximum- No such
corporate through the limit on the members.
nominees. Members can be
organizations, trusts,
another business form
or individuals.

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6. Liability of Liability of a partners is Liability of a member is
members/ limited to the extent of limited to the amount
partners agreed contribution in unpaid on the shares
case of intention is held by them.
fraud.
7. Management The business of the The affairs of the
Company is managed company are managed
by the partners by board of directors
including the elected by the
designated partners shareholders.
authorized in the
agreement.
8. Minimum Minimum 2 designated Pvt. Co. – 2 directors
number of partners Public Co. – 3 directors
directors/
designated
partners

SUMMARY
 Applicability: From 31st March, 2009 (Extends whole of India)
 Non – Applicability: The Indian Partnership Act, 1932 to LLPs.

 Who can be a partner in LLP: Any individual or body corporate may be a

partner in a LLP. But not, person of unsound mind, undischarged insolvent;
or who has applied to be adjudicated as an insolvent.
 Minimum partners:
1. Two partners.
2. If LLP carries on business for more than 6 months with only one partner, he
shall be liable personally for the obligations of the LLP incurred during that
period.
 Designated Partners:

1. At least two designated partners who are individuals and at least one of
them shall be a resident in India.
2. Resident in India: a person who has stayed in India for a period of not less
than 120 days during the immediately preceding one year.

 Registration of conversion to LLP

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 1. Registrar, on satisfying, will register the documents and issue a certificate
of registration.
2. Information of conversion to Registrar of Firms or Companies by LLP,
within 15 days from registration.
3. Upon such conversion, provisions of LLP will be applicable.

 Effect of Registration of conversion

1. There shall be a LLP by name specified in certificate of registration.

2. All tangible (movable or immovable) and intangible property of firm or the
company, shall vest in LLP 3. Firm or company shall be deemed to be
dissolved.

 Name of LLP:
1. Use of words “limited liability partnership” or “LLP” as the last words of
its name.
2. No LLP registration by a name which, in the opinion of the CG is—
a) undesirable; or
b) Identical or too nearly resembles to any other partnership firm or LLP or
company or a registered trade mark.

 Change of name of LLP: If name of registered LLP is identical or too nearly

resembles to any other partnership firm or LLP or company or a registered
trade mark, CG may direct such LLP to change its name within 3 months.
(On Application)
 Extent & Limitation of Liability of LLP & Partner
 Partner as agent: Agent of the LLP, but not of other partners.
 Liability of LLP:

1. LLP not bound by anything done by a partner if Partner has no

authority.
2. Obligation of the LLP shall be solely the obligation of the LLP.
3. Liabilities of LLP shall be met out of the property of LLP.

 Liability of partner:
1. Partner is not personally liable for obligations of the LLP.
2. Partner is personally liable for his own wrongful act or omission

 Unlimited liability in case of Fraud:

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 1. If act carried out by a LLP or partner to defraud creditors, liability of LLP
and partners shall be unlimited.
2. Penalty: imprisonment upto 5 years and fine of Rs. 50,000 to Rs. 5 Lakhs.
3. Defaulted person also liable to pay compensation.

TEST YOUR KNOWLEDGE

MCQ BASED QUESTIONS

Question 1

Which of the following cannot be converted into LLP?

a) Partnership firm
b) Private company
c) Listed company
d) Unlisted company
Answer: Option (c)

Question 2

The approved name of LLP shall be valid for a period of ___ from the date of
approval:
a) 1 Month
b) 2 Months
c) 3 months
d) 6 months
Answer: Option (a)

Question 3

Name of the Limited Liability Partnership shall be ended by:

a) Limited
b) Limited Liability partnership or LLP
c) Private Limited
d) OPC
Answer: Option (b)

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Question 4

Which one of the following statements about limited liability partnerships

(LLPs) is incorrect?
a) An LLP has a legal personality separate from that of its members.
b) The liability of each partner in an LLP is limited.
c) Members of an LLP are taxed as partners.
d) A listed company can convert to an LLP.
Answer: Option (b)

Question 5

For the purpose of LLP, Resident in India means:

a) Person who has stayed in India for a period of not less than 182 days
during the current year.
b) Person who has stayed in India for a period of not less than 180 days
during the immediately preceding one year.
c) Person who has stayed in India for a period of not less than 181 days
during the immediately preceding one year
d) Person who has stayed in India for a period of not less than 120 days
during the financial year.
Answer: Option (d)

DESCRIPTIVE QUESTIONS

Question 1

“LLP is an alternative corporate business form that gives the benefits of limited
liability of a company and the flexibility of a partnership”. Explain.
Answer:
LLP is an alternative corporate business form that gives the benefits of limited
liability of a company and the flexibility of a partnership Limited Liability: Every
partner of a LLP is, for the purpose of the business of LLP, the agent of the LLP,
but not of other partners (Section 26 of the LLP Act, 2008). The liability of the
partners will be limited to their agreed contribution in the LLP, while the LLP
itself will be liable for the full extent of its assets.

Flexibility of a partnership: The LLP allows its members the flexibility of

organizing their internal structure as a partnership based on a mutually arrived
agreement. The LLP form enables entrepreneurs, professionals and enterprises

12.42
providing services of any kind or engaged in scientific and technical disciplines,
to form commercially efficient vehicles suited to their requirements. Owing to
flexibility in its structure and operation, the LLP is a suitable vehicle for small
enterprises and for investment by venture capital.

Question 2

Mr. Ankit Sharma wants to form a LLP taking him, his wife Mrs. Archika Sharma
and One HUF as partners for that. Whether this LLP can be incorporated under
LLP Act, 2008? Explain.
Answer:
Section 5 of Limited Liability Partnership Act, 2008 provides any individual or
body corporate may be a partner in an LLP. However, an individual shall not be
capable of becoming a partner of a LLP, if—

a) he has been found to be of unsound mind by a Court of competent

jurisdiction and the finding is in force;
b) he is an undischarged insolvent; or
c) he has applied to be adjudicated as an insolvent and his application is
pending.

Further, Section (2)(1)(e) provides that a Body Corporate it means a company

as defined in ‘clause (20) of section 2 of the Companies Act, 2013 and
includes—

i. an LLP registered under this Act;

ii. an LLP incorporated outside India; and
iii. a company incorporated outside India,

But does not include—

i. a corporation sole;
ii. a co-operative society registered under any law for the time being in
force; and
iii. any other body corporate (not being a company as defined in ‘clause
iv. (20) of section 2 of the Companies Act, 20132’ or a limited liability
partnership as defined in this Act), which the Central Government may,
by notification in the Official Gazette, specify in this behalf.

Therefore, HUF is not covered in the definition of body corporate and cannot
be partner in LLP.

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Question 3

There is an LLP by the name Ram Infra Development LLP which has 4 partners
namely Mr. Rahul, Mr. Raheem, Mr. Kartar and Mr. Albert. Mr. Rahul and Mr.
Albert are non – resident while other two are resident. LLP wants to take Mr.
Rahul and Mr. Raheem as Designated Partner. Explain in the light of Limited
Liability Partnership Act, 2008 whether LLP can do so?
Answer:
According to Section 7 of LLP Act, 2008 every LLP shall have at least two
designated partners who are individuals and at least one of them shall be a
resident in India. Further, explanation to the section provides, the term “resident
in India” means a person who has stayed in India for a period of not less than one
hundred twenty days during the financial year. Hence, in the given problem,
besides Mr. Ram and Mr. Raheem, Mr. Albert should also be designated partners.

Question 4

Mr. Mudit is the creditor of Devi Ram Food Circle LLP. He has a claim of Rs. 10,
00,000 against the LLP but the worth of the assets of LLP are only Rs. 7, 00,000.
Now Mr. Mudit wants to make the partners of LLP personally liable for the
deficiency of Rs.3, 00,000. Whether by virtue of provisions of Limited Liability
Act, 2008, Mr. Mudit can claim the deficiency from the partners of Devi Ram Food
Circle LLP?
Answer:
A limited liability partnership is a body corporate formed and incorporated
under this Act and is a legal entity separate from that of its partners. The LLP
itself will be liable for the full extent of its assets but the liability of the partners
will be limited. Creditors of LLP shall be the creditors of LLP alone. In other
words, creditors of LLP cannot claim from partners. The liability of the partners
will be limited to their agreed contribution in the LLP. Hence the creditors of Devi
Ram Food Circle LLP are the creditors of Devi Ram Food Circle LLP only. Partners
of LLP are not personally liable towards creditors Mr. Mudit cannot claim his
deficiency of Rs. 3,00,000 from the partners of Devi Ram Food circle LLP.

Question 5

M/s Vardhman Steels LLP was incorporated on 01.09.2022. On 01.01.2023, one

partner of a partnership firm named M/s Vardhimaan Steels is registered with
Indian Partnership Act, 1932 since 01.01.2000 requested ROC that as the name of
12.44
LLP is nearly resembles with the name of already registered partnership firm, the
name of LLP should be changed. Explain whether M/s Vardhman Steels LLP is
liable to change its name under the provisions of Limited Liability Act, 2008?
Answer:
Section 15 of LLP Act, 2008 provides no LLP shall be registered by a name which,
in the opinion of the Central Government is—
a) undesirable; or
b) identical or too nearly resembles to that of any other ‘LLP or a company or
a registered trade mark of any other person under the Trade Marks Act,
1999’.
Further, section 17 provides, if the name of LLP is identical with or too nearly
resembles to-

a) that of any other LLP or a company; or

b) a registered trade mark of a proprietor under the Trade Marks Act, 1999

then on an application of such LLP or proprietor referred to in clauses (a) and (b)
respectively or a company, the CG may direct that such LLP to change its name
within a period of 3 months from the date of issue of such direction.

Following the above provisions, LLP need not change its name if its name
resembles with the name of a partnership firm. These provisions are applicable
only in case where name is resembles with LLP, company or a registered trade
mark of a proprietor.

Hence, M/s Vardhman Steels LLP need not change its name even it resembles
with the name of partnership firm.

Question 6

Kanik, priyansh, Abhinav and Bhawna were partners in Singh jain and Associated
LLP. Abhinav resigned from the firm w.e.f. 01.11.2022 but this was not informed
to ROC by LLP or Abhinav. Whether Abhinav will still be liable for the loss of firm
of the transactions entered after 01.11.2022?
Answer:
According to section 24(3), where a person has ceased to be a partner of a LLP
(hereinafter referred to as “former partner”), the former partner is to be
regarded (in relation to any person dealing with the LLP) as still being a partner
of the LLP unless—

12.45
 a) the person has notice that the former partner has ceased to be a partner of
the LLP; or
b) notice that the former partner has ceased to be a partner of the LLP has
been delivered to the Registrar.

Hence, by virtue of the above provisions, as no notice of resignation was given to

ROC, Abhinav will still be liable for the loss of firm of the transactions entered
after 01.11.2022.

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