Limited Liability Partnership Act 2008

IMPORTANT QUESTIONS
Q. No. Questions
1. Explain the concept of Limited Liability Partnership alongwith its features.
Ans. LLP is a new form of legal business entity with limited liability. It is an alternative corporate business
vehicle that gives the benefits of limited liability but allows its partners the flexibility of organizing their
internal structure as a traditional partnership.
Concept of the Limited Liability Partnership:
 The LLP can continue its existence irrespective of changes in partners. It is capable of entering into
a contract and holding property in its own name.
 The LLP is a separate legal entity, is liable to the full extent of its assets, but the liability of the
partners is limited to the agreed contribution in the LLP.
 In an LLP, no partner is liable on account of the independent or unauthorized actions of other
partners.
 Mutual rights and duties of the partners within an LLP are governed by an agreement between the
partners.
 Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’,
an LLP is called a hybrid between a company and a partnership.

Features of LLP:
As per the provision of the Limited Liability Partnership Act, 2008, features of LLP are: -
1) LLP is a body corporate: LLP is a separate legal entity, and all assets and liabilities of LLP
belong to LLP, not to its partners.
2) Perpetual Succession: LLP is created by the process of law, and it can be destroyed by the
process of law only. Death, insanity, etc., of its partners cannot affect the existence or continuity of LLP.
3) Mutual Agency: Partners of LLP are the agents of LLP only, not of other partners. Acts done by
partners are bounded on LLP only, not on other partners directly.
4) Formation of Agreement: Agreement between partners under LLP Act decides mutual rights
and duties of the partners. In the absence of agreement, mutual rights and duties shall be governed by
provisions of the Limited Liability Partnership Act, 2008.
5) Common Seal: It is not mandatory for a company to have a common seal. If there is a common
seal of LLP, it shall be under the custody of some responsible officer. The common seal shall be affixed
in the presence of at least two designated partners of LLP.
6) Limited Liability: Since every partner is an agent of LLP only, the liability of partners shall be
limited to their agreed contribution in LLP.
7) Minimum and Maximum number of Partners:Minimum number of designated partners should
be 2, one of whom must be a resident of India. There is no limit to the maximum number of partners in
LLP.
8) Business for profits only: While forming LLP, the intention should be to earn profits. LLP cannot
be formed for charitable or non-economic purposes.
9) Conversion into LLP: A firm, private or an unlisted public company would be allowed to be
converted into LLP in accordance with the provisions of the LLP Act, 2008.
10) E-filing of Documents: Every form or application, or document needed to be filed, shall be filed
in a computer-readable electronic form on the website www.mca.gov.in. The documents filed must be
authenticated by a partner or designated partner of LLP by the use of the electronic or digital signature.
2. Define the following as per LLP Act 2008:
1. Small LLP
2. Business
3. Foreign LLP
2. 1. Small Limited Liability partnership to denote any LLP
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
which meets such other requirements as may be prescribed, and fulfils such terms and conditions
as may be prescribed;

2. Business: “Business” includes every trade, profession, service and occupation except any
activity which the Central Government may, by notification, exclude.

3.Foreign LLP: LLP formed/incorporated/registered outside India, which establishes a place of

business within India. Foreign LLP can become a partner in an Indian LLP.
3. Mr Raman and Sohan have plans of setting up a grocery shop in their locality. They are confused as
to whether to register as a traditional partnership or as a Limited Liability Partnership. As an
advisor, enumerate the differences between the two forms of business highlighting the
compliances and other legal formalities.
Ans Comparison between an LLP and partnership can be analysed on the below tabulated parameters:
Basis LLP Partnership Firm
Regulating Act The Limited Liability The Indian Partnership Act,
Partnership Act, 2008. 1932.
Body corporate It is a body corporate. It is not a body corporate,
Separate legal entity It is a legal entity separate It is a group of persons with
from its members. no separate legal entity.
Creation It is created by a legal process It is created by an agreement
called registration under the between the partners.
LLP Act, 2008.
Registration Registration is mandatory. Registration is voluntary. Only
LLP can sue and be sued in its the registered partnership
own name. firm can sue the third parties.
Perpetual succession The death, insanity, The death, insanity,
retirement or insolvency of retirement or insolvency of
the partner(s) does not affect the partner(s) may affect its
its existence of LLP. Members existence. It has no perpetual
may join or leave but its succession.
existence continues forever.
Name Name of the LLP to contain No guidelines. The partners
the word limited liability can have any name as per
partners (LLP) as suffix. their choice.
Liability Liability of each partner Liability of each partner is
 limited to the extent to agreed unlimited. It can be extended
contribution except in case of upto the personal assets of the
willful fraud. partners.
Mutual agency Each partner can bind the LLP Each partner can bind the firm
by his own acts but not the as well as other partners by
other partners. his own acts.
Designated partners At least two designated There is no provision for such
partners and atleast one of partners under the
them shall be resident in Partnership Act, 1932.
India.
Common seal It may have its common seal There is no such concept in
as its official signature. partnership.
Legal compliances Only designated partners are All partners are responsible
responsible for all the for all the compliances and
compliances and penalties penalties under the Act.
under this Act.
Annual filing of documents LLP is required to file Partnership firm is not
annually Statement of Account required to file any annual
& Solvency and Annual Return document with the Registrar
with the Registrar of LLP of Firms.
every year.
4. Ms Kanika and Anshika wants to set up a Limited liability Partnership for their business. Guide them
through the process of Incorporation of Limited Liability Partnerships.
Ans 1. Name reservation:
a) The first step in the incorporation of an LLP is to reserve the name of the LLP.
b) The applicant has to file an e-form 1 with the Registrar to reserve the name of the LLP.
2. Incorporation:
a) After reserving the name, the applicant has to file e-form 2 for incorporating the LLP.
b) Details contained in e-form 2:
 Details of LLP proposed to be incorporated.
 Details of partners and designated partners.
 Consent of such partners and designated partners to act as partners and designated
partners.
3. LLP Agreement:
a) An LLP agreement shall be mandatorily executed as per the LLP Act, 2008.
b) The LLP agreement shall be filed in e-form 3 within 30 days of the incorporation of the LLP.
5. Explain the concept of registration of change in Partners as per LLP Act 2008

Ans  Every partner shall inform the LLP of any change in his Name or Address within a period of 15
days of such change.
 LLP shall file the following changes with the Registrar within 30 of such change:
 Person becomes the partner; or
 Ceases to be a partner; or
 Person changes its name or address.
 If the LLP fails to file such changes with the Registrar, the LLP & its every designated partner
shall be liable to a penalty of ₹10,000.
 If any partner fails to file changes w.r.t. his name or address with the LLP within the specified
 time, such partner shall be liable to a penalty of ₹10,000.
 The forms to be submitted by LLP to the ROC shall be signed by all the partners.
 If it relates to an incoming partner, shall contain a statement by such partner that he consents to
becoming a partner, signed by him.
 A partner can himself submit his cessation to ROC, and ROC shall obtain confirmation from LLP
within 15 days
6. State the circumstances under which an LLP and its partners may face unlimited liability under the
Limited Liability Partnership Act, 2008.
Ans. As per the provisions of the Limited Liability Partnership Act, 2008, in case of fraud, an act carried
out by a LLP, or any of its partners, with an intent to defraud creditors of the LLP or any other
person, or for any fraudulent purpose, the liability of the LLP and such partners shall be unlimited
for all or any of the debts or other liabilities of the LLP.
However, if the LLP proves that such act, which is carried out by a partner, is carried out without
the knowledge or authority of the LLP, then only such partner shall be liable.
1. Punishment: Every person, who was knowingly a party to such fraud, shall be punishable with:
 imprisonment for a term which may extend to 5 years, and
 with fine which shall not be less than ₹50,000 but which may extend to ₹5 Lakhs.
2. If an LLP or any of its partner or its designated partner or its employee has conducted the affairs
of the LLP in a fraudulent manner, then such 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 (without any prejudice to criminal proceedings).
However, such LLP shall not be liable if any such partner or designated partner or employee has
acted fraudulently without knowledge of the LLP.
7. State the rules regarding the maintainance of books of accounts of a Limited Liability Partnership as
per provisions of the Limited Liability Partnership Act. 2008.
Ans. 1. As per the provisions of the Limited Liability Partnership Act, 2008, the LLP shall maintain
such proper books of account as may be prescribed relating to its affairs for each year on cash basis
or accrual basis and according to double entry system of accounting. The LLP shall maintain its
books of account at its registered office for such period as may be prescribed.
2. Every LLP shall, within 6 months from the end of each financial year, prepare a Statement of
Account and Solvency for 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, within the prescribed time, file the Statement of Account and Solvency with
the Registrar every year in 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 may be prescribed.

Any LLP which fails to file the Statement of Account & Solvency with the Registrar, such LLP and its
designated partners shall be liable to a penalty of ₹100 for each day during which such failure
continues,subject to a maximum of ₹1 Lakh for LLP & ₹50,000 for every designated partner.
Any LLP which fails to:
 prepare & maintain Books of account in the prescribed manner; or
 prepare Statement of Account & Solvency; or
 get its accounts audited as per the prescribed rules,
such LLP shall be punishable with fine which shall not be less than ₹25,000, but may extend to ₹5
Lakhs, and its every designated partner shall be punishable with fine which shall not be less than
₹10,000, but may extend to ₹1 Lakh.
8. Write a short note on concept of whistle blowing in LLP Act 2008

The Court or Tribunal may reduce/waive any penalty against any partner/employee of an LLP, if it
is satisfied that:
 such partner/employee has provided useful information during the investigation; or
 given any information that leads to the conviction of the LLP/any of its partner/its
employee.
 No partner/employee of any LLP may be:
 discharged,
 demoted,
 suspended,
 threatened,
 harassed, or
 in any other manner discriminated
merely because of providing information related to the investigation on the LLP.

9. Explain the process of conversion into LLP.

Ans.  Conversion from firm into LLP: A firm may convert into a LLP in accordance with the provisions
of LLP Act 2008 & Second Schedule.
 Conversion from private company into LLP: A private company may convert into a LLP in
accordance with the provisions of LLP Act 2008 & Third Schedule.
 Conversion from unlisted public company into LLP: An unlisted public company may convert
into a LLP in accordance with the provisions of LLP Act 2008 & Fourth Schedule.
Procedure for conversion into llp
1) The Registrar, on satisfying that a firm, private company or an unlisted public company, has
complied with the provisions of LLP, register it as an LLP and issue a certificate of registration by
stating that on and from the date of certificate of registration it will be treated as LLP.
2) The LLP shall, within 15 days of the date of registration, inform ROC/ROF under which it was
previously registered.
10. Can LLP be wound up? Mention the circumstances where Tribunal may pass such orders.

Ans. As per the provision of the Limited Liability Partnership Act, 2008, circumstances in which the
Tribunal may order for the winding up of an LLP are: -
1) LLP decides that LLP be wound up by the Tribunal.
2) If, for a period of more than six months, the number of partners of the LLP is reduced below two.
3) LLP is unable to pay its debts.
4) LLP has acted against the interests of the sovereignty and integrity of India, the security of the
State or public order.
5) LLP has made a default in filing with the Registrar the Statement of Accounts & Solvency or
Annual Return for any five consecutive financial years.
6) The Tribunal is of the opinion that it is just and equitable that the LLP be wound up.