1.

LLP Act 2008- Introduction:

The Lok Sabha passed the Limited Liability Partnership Bill on 13 December 2008 thereafter
it received the assent of the President on 7 January 2009 and thereby it has received legal status
as Limited Liability Partnership Act, 2008.

In India, businesses mainly operate as companies, sole proprietorship and partnership. The
introduction of LLP has provided a platform to small and medium enterprises and professional
firms of company secretaries, chartered accountants, advocates etc. to conduct their
business/profession efficiently which would, in turn, increase their global competitiveness.
Limited Liability Partnerships have gotten quite popular in the last few years.

2. Need of Limited Liability Partnership:

For a long time, a need has been felt to provide for a business format that would combine the
flexibility of a Partnership firm firm and the advantages of Limited Liability of a Private
Limited Company at a low compliance cost. The limitations of the partnership firms and the
rigidity of the companies has led to the birth of what we call it as Limited Liability
Partnership(LLP).

The Limited Liability Partnership format is an alternative corporate business vehicle that
provides the benefits of limited liability of a company but allows its members the flexibility of
organizing their internal management on the basis of a mutually arrived agreement, as is the
case in a partnership firm.This format would be quite useful for small and medium enterprises
in general and for the enterprises in the services sector in particular.

3. Object of the Limited Liability Partnership Act, 2008:

With the 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 is viewed as an alternative corporate business vehicle 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. The LLP form
would enable 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.

4. What is Limited Liability Partnership / what LLP

means?
A limited liability partnership (LLP) is a formal partnership between at least two business
partners. Each business partner is provided with limited liability, which means they aren’t fully
responsible for the business’ debts or liabilities. Partners in an LLP aren’t liable for the
negligent acts or malpractice of a single partner, each partner is accountable for their own
negligence.

Hence we can say that, LLP means a body corporate and a legal entity separate from its
partners. It has perpetual succession. While the LLP will be a separate legal entity, liable to the
full extent of its assets, the liability of partners would be limited to their agreed contribution.

5. Salient features of Limited Liability Partnership Act,

2008:
Hybrid form of organisation: An LLP is a hybrid form of organisation having features of a
partnership firm under the Partnership Act, 1932 and a company under the Companies Act,
1956 / 2013. However, the Indian Partnership Act, 1932 shall not be applicable to LLPs.And
The LLP’s are administered by the Registrar of Companies.

Separate legal entity: The LLP shall be a body corporate and a legal entity separate from its
partners. Hence, it would be liable to the full extent of its assets, with the liability of the partners
being limited to their agreed contribution in the LLP.

No partner would be liable on account of the independent or unauthorised actions of other

partners or their misconduct. The liabilities of the LLP and its 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.

Perpetual Succession: Since, LLP is a body corporate and a legal entity separate from its
partners, It has perpetual succession. Thus, an LLP is capable, in its own name, of acquiring,
owning, holding, disposing of property, whether movable, immovable, tangible or intangible.
It can sue and can be sued, and is capable of doing and suffering other acts as a body corporate
may do or suffer.

Number of partners: LLP must have at least two individuals as Designated Partners. At least
one of the Designated Partners must be resident in India. A body corporate partner of the LLP
may nominate an individual as a Designated Partner. There is no limit on the maximum number
of partners.

Rights and duties of partners: Rights and duties of partners of an LLP and mutual rights and
duties between an LLP and its partners are governed by the LLP Agreement between the
partners or between the LLP and its partners.

Books of Account of an LLP: 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.

All filings under the LLP Act to be done electronically. Similarly, the Registrar may furnish
information or provide copies and extracts certifying the same by affixing digital signature.
Conversion in to LLP: A partnership under the Partnership Act, 1932 may be converted into
an LLP. A private company or an unlisted public company may also be converted into an LLP
provided there is no ‘security interest’ subsisting on the date of application for conversion.

Winding up of LLP: 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;

Changes in LLP: the compromise or arrangement including merger and amalgamation of

LLPs shall be in accordance with the provisions of the act

Heavy penalties have been provided in case of non-compliance of provisions of the LLP Act.

6. Nature And Scope of LLP Act 2008:

Limited Liability Partnership is a partnership formed and registered under the said Act. 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. A limited liability partnership shall have
perpetual succession. Any change in the partners of a limited liability partnership shall not
affect its existence, rights or liabilities of the limited liability partnership.

Limited Liability Partnership agreement is a written agreement between the partners of the
limited liability partnership or between the limited liability partnership and its partners which
determines the mutual rights and duties of the partners and their rights and duties in relation to
such partnership, and partner in relation to limited liability partnership, as any person who
becomes a partner in the limited liability partnership in accordance with the limited liability
partnership agreement.

7. Partners in LLP :
Any individual or a body corporate may become a partner in an LLP provided the said person
is of sound mind, is not insolvent, and has not applied for adjudication for insolvency.

A LLP shall consist of at least two partners and there is no restriction on the maximum number
of partners.

The Act provides that in a situation where the number of partners is reduced to one and such
LLP carries on business with such sole partner for more than six months and then such partner,
if having knowledge of such a situation, shall be liable personally for the obligations of the
LLP.

The LLP act has made provisions that a LLP shall have at least two designated partners who
shall be individuals and at least one of them shall be resident in India.

 The responsibilities and liabilities of the designated partner are as provided:

Responsible for the doing of all acts, matters and things as are required to be done by the LLP
in respect of compliance of the said Act; and liable to all penalties imposed on the LLP for any
contravention of those provisions.
The LLP Act has provided for a 30 days period for filling up of a vacancy of a designated
partner. If no designated partner is appointed, or if at any time there is only one designated
partner, each partner of the LLP shall be deemed to be a designated partner.

If the LLP fails to appoint designated partners, then the LLP and its every partner shall be
punishable with fine The Act provides that any agreement, made before the incorporation of
the LLP, between the partners who subscribe their names to the incorporation document may
impose obligations on LLP, if ratified by all the partners after its incorporation.

 Extent and Limitation of Liability of Partners:

Every partner of an LLP for the purpose of its business is an agent of the LLP but is not an
agent of other partners.

Obligations of LLP are solely its obligations and liabilities of LLP are to be met out of
properties of LLP.

LLP is not bound by anything done by a partner in dealing with another person if the partner
had no authority to do the act on behalf of the LLP and the person either knows that the partner
had no authority; or did not know or did not believe him to be a partner of the LLP.

It, further, provides that an obligation of the LLP, whether arising out of contract or otherwise
shall be solely the obligation of the LLP.

The LLP receiving the credit is liable to the extent of the credit received or any financial benefit
derived thereon.

If an LLP or any of its partners act with the intent to defraud creditors of the LLP or any other
person or for any fraudulent purpose, then the liability of the LLP and the concerned partners
is unlimited.

However, where the fraudulent act is carried out by a partner, the LLP is not liable if it is
established by the LLP that the act was without the knowledge or authority of the LLP.

Where the business is carried out with fraudulent intent or for fraudulent purpose, every person
who was knowingly a party is punishable with imprisonment and fine.

Also the LLP, its partners and designated partners or employees conducting its affairs in a
fraudulent manner are liable to pay compensation.

After a partner’s death, the business is continued in the same LLP, the continued use of that
name or of the deceased partner’s name as a part thereof shall not of itself make his legal
representative or his estate liable for any act of the LLP done after his death.

 Contribution by the partners:

The contribution may consist of money, tangible or intangible property, or any other benefits
such as promissory notes, contracts for services performed or to be performed.
The obligation of a partner to contribute money or property to a LLP shall be as per the LLP
agreement.

8. LLP registration / Incorporation and name of the LLP:

Two or more persons are required to file an incorporation / registration documents for
incorporating an LLP with the Registrar of Companies (ROC) in the State in which the
registered office of the LLP is situated.

A statement in the prescribed form shall be filed , along with the incorporation document, that
all the requirements of the act and the rules have been complied with.

Every LLP needs to have a registered office to which all communications will be made and
received.

The act has imposed an obligation on every LLP to suffix “limited liability partnership” or
“LLP” with its name.

The clause also seeks to provide that no LLP shall be registered with an undesirable name or a
name which is identical or nearly resembles that of any other partnership firm or an LLP or a
body corporate or a registered trade mark or a trade mark, the application of which is pending.

9. Annual Compliance of LLP:

Proper books of account are to be maintained by the LLP relating to its affairs for each year
and for filing of an Annual Statement of Accounts and Solvency in form 8 with the Registrar
in such form and manner as may be prescribed.

The accounts of the LLPs shall be audited as provided by the rules which are made by the
Government.

Every LLP shall be required to file with the Registrar an annual return duly authenticated in
Form 11 every year.

Incorporation document, names of partners and changes, if any.

Statement of Account and Solvency and Annual Return filed by each LLP with the Registrar
shall be available for inspection in the office of the Registrar by the public.

10. Assignment and transfer of partnership rights:

The rights of a partner to a share of the profits and losses of the LLP and to receive distributions
in accordance with the LLP agreement are transferable either wholly or in part.

The transfer of any rights by any partner would not by itself cause the disassociation of the
partner or a dissolution and winding of an LLP.
The transfer of rights would not entitle the transferee or assignee to participate in the
management or conduct of the activities of the LLP or access information concerning the
transactions of the LLP.

11. Investigation of affairs of LLP:

The act provides for the circumstances under which investigation of the affairs of an LLP may
be ordered by the Central Government.

The act also empowers the Central Government, if it feels it is necessary in public interest, to
initiate proceedings against the LLP for recovery of property and damages.

12. Conversion of existing firms into a LLP:

A partnership firm may convert itself into an LLP as per Section 55 and second schedule of the
act.

A private Limited company may convert itself into an LLP as per section 56 and third schedule
of the act.

An unlisted Public company may be converted into an LLP as per section 57 and the fourth
schedule 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 act.

On and from the date of LLP registration specified in the certificate of registration, all tangible
(movable or immovable) 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.

13. Provisions for incorporation of Foreign LLP:

Foreign LLP can establish a place of business in India and its regulatory mechanism will be as
per the rules prescribed by the Central Government.

14. Compromise, arrangement or reconstruction of LLP

The LLP act provides compromise or arrangement including mergers and amalgamations,
winding up and dissolution of LLP. These should be agreed by majority of members and
creditors of LLP representing three-fourths in value and confirmed by the National Company
Law Tribunal.

15. WINDING UP AND DISSOLUTION:

The winding up of an 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 Tribunal:

An LLP may be wound up by the Tribunal:

if the LLP decides that LLP be wound up by the Tribunal

if, for a period of more than six months, the number of partners of the LLP is reduced below
two

if the LLP is unable to pay its debts

if the LLP has acted against the interests of the sovereignty and integrity of India, the security
of the State or public order

if the LLP has made a default in filing with the Registrar the Statement of Account and
Solvency or annual return for any five consecutive financial years; or

if the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.

 Rules for Winding up and Dissolution:

The Central Government may make rules for the provisions in relation to winding up and
dissolution of limited liability partnerships.

Conclusion:

The first LLP was registered on 2nd April, 2009 and till the 25th of April, 2011, 4580 LLPs
were registered. With the liberalisation and globalisation of Indian economy, the LLP, as an
alternate mode of carrying business, will encourage joint ventures and would make Indian
service sectors globally competitive. The hybrid structure of LLP will facilitate entrepreneurs,
service providers and professionals to organize and operate in an innovative and efficient
manner for effectively competing in the global market.