Limited Liability Partnership: India

Limited Liability Partnership (LLP) is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.

LLP is an incorporated partnership formed and registered under the Limited Liability Partnership Act 2008 with limited liability and perpetual succession. The Act came into force, for most part, on 31st March 2009 followed by its Rules on 1st April 2009 and the registration of the first LLP on 2nd April 2009.This new entity combines the benefits of managerial and financial flexibility of the partnership firm registered under the Indian Partnership Act, 1932 with the limited liability and perpetual succession of a company incorporated under the Companies Act. LLP is a new corporate form of doing any lawful business for profit. ‘Business’ includes trade, commerce, manufacture, service, profession etc. This new entity should prove highly beneficial especially for small entrepreneurs in business and industry including knowledge or technology-based units, venture capitalists, professional service providers like Company Secretaries, Chartered Accountants, Cost Accountants, Advocates, Consultants and the like.

A limited liability partnership (LLP) is a body corporate, with a distinct legal entity separate from that of its partners. It has perpetual succession and a common seal. A limited liability partnership, which is a separate legal person, will be liable to the third parties independent of the other partners. Any change in its partners, will not affect the existence, rights or liabilities of the limited liability partnership. Like a company, a limited liability partnership can do all the things an individual or company can do. It can make contracts, sue or be sued, hold property or become insolvent.

A limited liability partnership can at best be described as a hybrid between a company and a partnership that 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.

Features of Limited Liability Partnership

The salient features of the LLP Act 2008 inter alia are as follows: -
(i) The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership.  The LLP will have perpetual succession.

(ii) The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008.  The act provides flexibility to devise the agreement as per their choice.  In the absence of any such agreement, the provisions of shall govern the mutual rights and duties proposed the LLP Act.

(iii) The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have 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.

(iv) Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law.

(v) The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs.  A statement of accounts and solvency shall be filed by every LLP with the Registrar every year.  The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government.

(vi) The Central Government have powers to investigate the affairs of an LLP, if required, by appointment of competent Inspector for the purpose.

(vii) The compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the LLP Act 2008.

(viii) A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the LLP Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, 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.

(ix) The winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court.

(x) The LLP Act 2008 confers powers on the Central Government to apply provisions of the Companies Act, 1956 as appropriate, by notification with such changes or modifications as deemed necessary.  However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses.

(xi) The Indian Partnership Act, 1932 shall not be applicable to LLPs

Who can be a Partner in LLP

(i) An individual (other than one who has been found to be of unsound mind by Court, an undischarged insolvent; has applied to be adjudged insolvent and application is pending)

(ii) Indian private and/or public company

(iii) Foreign company

(iv) Any other LLP

(v) LLP registered outside India.

Who cannot be a Partner in LLP

(i) a corporation sole

(ii) a co-operative society

(iii) any other body corporate ( not being a company as defined in section 3 of Companies Act,1956 or limited liability partnership as defined in this Act),which the Central Government may, by notification in the Official Gazette specify in this behalf.

Merits of LLP

§  Easy and less expensive formation.

§  Flexibility in management.

§  No requirement of any minimum capital contribution by partners.

§  No restriction as to maximum number of partners.

§  LLP is a separate legal entity.

§  Partners are not liable for acts of other partners.

§  Low Compliance cost.

§  No exposure to personal assets of the partners except in case of fraud.

§  Fewer requirements as to maintenance of statutory records.

§  Less Government Intervention.

§  Easy to dissolve or wind-up.

§  Professionals can form Multi-disciplinary Professional LLP, which was not allowed earlier.

Governance of LLP

The Act comprises of 81 sections in 14 Chapters and 4 Schedules. The Rules comprise of 41 rules in 18 chapters, with 31 forms and 4 annexures (A to D). The Registrar of Companies and the Ministry of Corporate Affairs (MCA) are the administrative authorities to regulate the LLP Act 2008. The Ministry is primarily concerned with the administration of the Limited Liability Partnership Act 2008 and the rules framed there under. Every year, LLP shall file with Registrar of Companies, (i) statement of account and solvency of LLP, signed by designated partners and (ii) Annual Return. The existing partnership law is specifically excluded from application to LLPs and should not be looked upon as applying in any form of default basis. The LLP Act 2008 empowers the Central Government to apply the provisions of the Companies Act 1956 or any other Act with appropriate exception, modifications and adaptation to LLP.