Commented [M1]:

Formation of ACT in INDIA

STEP 1 STEP 2 STEP 3

PRESENTED IN Presented to the
Govt Prepare draft
PARLIAMENT parliament for the
paper
assent.Then after
approval of the bill it
Discuss with experts LOK RAJYA becomes
SABHA SABHA ACT
Convert Draft paper After that it is
applicable to whole of
PASS PASS INDIA after
notification in official
Gazette.
BILL
 THE LIMITED LIABILITY PARTNERSHIP ACT,
2008

Introduction
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, and many of its sections got enforced from 31st March 2009.
This Act have 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 and 4 schedules.
The First Schedule deals with mutual rights and duties of partners, as
well limited liability partnership and its partners where there is absence
of formal agreement with respect to 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 (MCA) 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.

Need of new form of Limited Liability Partnership

The lawmakers envisage the needs for bringing out the 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 to
combine, organize and operate in flexible, innovative and efficient manner.
The Limited Liability Partnership (LLP) is viewed as 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.
LIMITED LIABILITY PARTNERSHIP - MEANING AND CONCEPT
Meaning: A 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 for the full extent of its assets, the liability of the
partners will be limited.
LLP is an alternative corporate business form that gives the benefits of
limited liability of a company and the flexibility of a partnership.
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.
Characteristic/Salient Features of LLP:-

1. LLP is a body corporate: 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.
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.
3. Separate Legal Entity: The LLP is a separate legal entity, 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: Further, 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 the provisions 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.
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 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 pro t. Thus LLP
cannot be formed for charitable or non-economic purpose.
12. Investigation: The Central Government shall have powers to
investigate the a airs of an LLP by appointment of competence authority
for the purpose.
13. Compromise or Arrangement: Any compromise or arrangement
including merger and amalgamation of LLP in accordance with the
provisions of 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 led in computer readable electronic form on its
website www.mca.gov.in 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:
INCORPORATION OF LLP
Essential elements to incorporate LLP - Under the LLP Act, 2008, the
following elements are very essential to form a LLP in India:
(i) To complete and submit incorporation document in the form
prescribed with the Registrar electronically;
(ii) To have at least two partners for incorporation of LLP [Individual or
body corporate];
(iii) To have registered office in India to which all communications will
be made and received;
(iv) To appoint minimum two individuals as designated partners who
will be responsible for number of duties including doing of all acts,
matters and things as are required to be done by the LLP. At least one
of them should be resident in India.
(v) A person or nominee of body corporate intending to be appointed as
designated partner of LLP should hold a Designated Partner
Identification Number (DPIN) allotted by MCA.
(vi) To execute a partnership agreement between the partners inter se or
between the LLP and its partners. In the absence of any agreement the
provisions as set out in First Schedule of LLP Act, 2008 will be applied.
(vii) LLP Name.

Limited Liability Partnerships are bodies corporate and must be registered

with the Registrar of LLP after following the provisions specified in the LLP
Act, in a similar way of setting up a company with distinct name. The LLP
cannot have the same name with any other LLP, Partnership Firm or
Company. To create a LLP proper formation documents must be filed with
the registrar along with the necessary filing fees.
*Contents of LLP Agreement
1. Name of LLP
2. Name & address of Partners & Designated Partners.
3. Form of contribution & interest on contribution
4. Profit sharing ratio
5. Remuneration of Partners
6. Rights & Duties of Partners
7. Proposed Business
8. Rules for governing LLP.
Distinction between LLP and Partnership Firm:

Basis LLP Partnership firm

1. Regulating Act The Limited Liability The Indian Partnership Act,
Partnership Act, 2008. 1932.
2. Body corporate It is a body corporate. It is not a body corporate.
3. Separate legal It is a legal entity separate It is a group of persons
entity from its members. with no separate legal
entity.
4. Creation It is created by a legal It is created by an
process called registration agreement between the
under the LLP Act, 2008. partners.
5. Registration Registration is Registration is voluntary.
mandatory. LLP can sue Only the registered
and be sued in its own partnership firm can sue
name. the third parties.
6. Perpetual The death, insanity, The death, insanity
succession retirement or insolvency of retirement or insolvency
the partner(s) does not of the partner(s) may
affect its existence of LLP. affect its existence. It has
Members may join or leave no perpetual succession.
but its existence continues
forever.
7. Name Name of the LLP to No guidelines. The partners
contain the word limited can have any name as per
liability partners (LLP) as their choice.
suffix.
8. Liability Liability of each partner Liability of each partner is
limited to the extent to unlimited. It can be
agreed contribution extended upto the personal
except in case of willful assets of the partners.
fraud.
9. Mutual agency Each partner can bind the Each partner can bind the
LLP by his own acts but not firm as well as other
the other partners. partners by his own acts.
10 Designated At least two designated There is no provision for
. partners partners and at least one such partners under the
of them shall be resident in Indian partnership Act,
India. 1932.
11 Common seal It may have its common There is no such Concep in
. seal as its official partners
signatures.
12 Legal Only designated partners All partners are responsible
. compliances are responsible for all the for all the compliances and
compliances and penalties penalties under the Act.
under this Act.
 13 Annual filing of LLP is required to file: Partnership firm is not
. docum (i) Annual statement of required to file any annual
ents accounts document with the
(ii) Statement of solvency registrar of firms.
(iii) Annual return with
the registration of LLP
every year.
14 Foreign Foreign nationals can Foreign nationals cannot
. partnership become a partner in a become a partner in a
LLP. partnership firm.
15 Minor as Minor cannot be admitted Minor can be admitted to
. partner to the benefits of LLP. the benefits of the
partnership with the prior
consent of the existing
partners.

Multiple Choice Questions

1. Ministry of Corporate affairs enforced the LLP Act, with effect from-
(a) 31st March, 2008
(b) 1st April, 2008
(c) 31st March, 2009
(d) 1st April, 2009
2. Whether partnership law applies to the LLP-
(a) Yes
(b) No
3. State which of the statement is correct under the Limited Liability
Partnership Act, 2008-
(a) All partners have unlimited liability
(b) All partners have limited liability
Answers to the MCQs
1 (c) 2 (b) 3 (b)