Limited Liability Partnership Act 2008 [Business Laws Notes NEP Syllabus]

Limited Liability Partnership Act 2008

[Business Law Notes for BCOM NEP Syllabus]

FOR B.COM/CA/CS/CMA EXAM

In this page, you will get Limited Liability Partnership Act 2008 which are useful for B. Com and Various Professional Exams Like CA/CMA and CS.

These Notes are Useful for:

- Dibrugarh University

- Gauhati University

- Assam University

- IGNOU

We update this page frequently to add new questions. Chapter wise Business Law Notes are also included in this post. 

📑 Table of Contents

• Introduction of LLP and LLP Act, 2008
• Meaning of LLP
• Features of LLP
• Documents required for Registration of LLP
• LLP Agreement
• Meaning of Partner & Eligibility to become a partner
• Designated Partner
• Disqualification of Designated Partner
• Advantages and Disadvantages of LLP
• Difference between LLP, Partnership & Company
• Rights & Liabilities of Partners in LLP
• Incorporation of LLP

Introduction of LLP and LLP Act, 2008

The Partnership Act was enacted during the year 1932. Business environment is changing day by day but the Indian Partnership Act is not compatible with the development of world economy now because it suffers from many limitations such as:

a) Liability of partners is unlimited.

b) The partners are jointly and severally liable for the debts and liabilities of the firm.

c) The partner is not having right to transfer his holding in the partnership.

d) The number of partners is limited.

A need has been felt for a long time to provide for a business format that would combine the flexibility of a partnership and the advantages of the limited liability of the company at a low compliance cost. For this purpose, Limited Liability Partnership Bill, 2006 was introduced in Rajya Sabha on 15-12-2006. It later on it was scraped and New Limited Liability Partnership Bill was introduced with some modification and it was enacted in the Year 2009.

Meaning of LLP

LLP is simply a combination of Partnership and Company form of business organisation. It is a corporate business vehicle that enables profession expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner. It provides an alternative to the traditional partnership firm with unlimited liability.

Section 2(1) (n) defines the expression ‘limited liability partnership’ as a partnership formed and registered under LLP Act.

Features of LLP

a) An LLP is a body corporate formed and incorporated under this Act and is legal entity separate from its partners.

b) It is an alternative corporate business from that gives the benefit of limited liability of a company and the flexibility of the partnership;

c) An LLP shall have perpetual succession.

d) Minimum number of members for a LLP is 2 and no limit for maximum numbers.

e) Individuals and Corporate body can be partners in an LLP.

f) It can continue its existence irrespective of changes in partners. Admission, retirement or death of a partner does not affect the existence, rights or liabilities of the LLP.

g) It is capable of entering into contracts and holding property in its own name;

h) The provisions of the Indian Partnership Act, 1932 shall not apply to an LLP.

h) 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.

i) LLP can be dissolved by complying with the provisions of LLP (Winding up and Dissolution) Rules, 2012.

j) Registration of LLP is compulsory with ROC.

k) The term “LLP” is added with the name of an LLP.

l) Annual Statement of accounts and return is required to be file with ROC by an LLP.

Documents required for Registration of LLP

LLP is required to be registered with registrar of companies (ROC). Both documents relating to partners and LLP is required for registration of an LLP.

Documents of Partners:

a) ID proofs the partners such as PAN card.

b) Address proof of the partners such as electricity bill, telephone bill, mobile bill, passport, driving license etc.

c) Photographs of the partners.

d) In case of foreign nationals and NRIs, passport of the foreign nationals.

Documents of LLP:

a) Registered office proof of the LLP.

b) Digital signature certificate duly signed by the authorised signatory.

LLP Agreement

LLP Agreement is a very important document which defines the mutual rights and obligations of the partners. Sec. 2 (o) of the LLP Act, 2008 defines LLP Agreement as under:

“Limited Liability Partnership Agreement” means any 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 that limited liability partnership.

The LLP agreements provides the:

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

b) The LLP agreement and any changes made therein shall be filed with the registrar of the LLPs.

Meaning of Partner & Eligibility to become a partner

According to Sec. 2 (q) of the LLP Act, 2008, A partner in relation to an LLP means any person who becomes a partner in the limited liability partnership in accordance with the limited liability partnership agreement.

Section 5 provides that any individual or body corporate may be a partner in a LLP. The expression ‘body corporate’ is defined under Section 2(1)(d) of the Act as a company as defined in Section 3 of the Companies Act, 1956 and includes:

a) a limited liability partnership registered under the Act;

b) a limited liability partnership incorporated outside India; and

c) a company incorporated outside India;

but does not include:

a) a corporation sole;

b) a co-operative society registered under any law for the time being in force; and

c) any other body corporate, not being a company, or a LLP, which the Central Government may, by notification in the Official Gazette, specify in this behalf.

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

a) he has been found to be of unsound mind by a Court of competent jurisdiction and the findings are in force;

b) he is undischarged insolvent; or

c) he has applied to be adjudicated as an insolvent and his application is pending.

Designated Partner

Section 7(1) provides that every LLP shall have at least two designated partners. The designated partners shall be individual and at least one of them shall be a resident of India, who has stayed in India for a period not less 182 days during the preceding one year. In case all the partners of the LLP are bodies corporate or one or more partners are individuals and bodies corporate then at least two individual partners or nominees of bodies corporate shall act as designated partners.

a)       If the incorporation document specifies who are to be designated partners, such persons shall be designated partners on incorporation;

b)      If the incorporation document states that each of the partners from time to time of LLP is to be designated partner, every partner shall be a designated partner;

c)       Any partner may become or cease to be a designated partner in accordance with LLP agreement;

Filing requirement: Section 7(4) provides that

a) an individual shall give his consent to become a designated partner in Form – 9;

b) The particulars of an individual who has given his consent to act as designated partner shall be filed in Form No.-4;

c) The individual who has given consent to act as partner or a designated partner shall file consent in Form -2 along with fee.

Disqualification of Designated Partner

Rule 9 prescribes that a person shall not be capable of being appointed as a designated partner of a LLP, if he:

a) has at any time within the preceding five years been adjudged insolvent; or

b) suspends, or has at any time within the preceding five years suspended payment to his creditors and has not any time within the preceding five years made, a composition with them; or

c) has been convicted by a Court for any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months; or

d) has been convicted by a Court for an offence involving section 30 of the Act.

Advantages and Disadvantages of LLP

Advantages of LLP: An LLP has the following advantages:

a) Easy formation: The process of formation is very simple as compared to companies and does not involve too much formality.

b) Separate Legal Entity: It has separate legal entity distinct from its members. LLP is known by its name and not by the name of its partners.

c) Perpetual Existence: It has perpetual existence irrespective of change in partners.  The LLP shall continue to exist till it is wound up in accordance with the provisions of the relevant law.

d) Limited restrictions: In LLPs, there is no requirement of minimum capital contribution, no restrictions as to maximum number of partners.

e) Less Cost: Cost of formation of an LLP is less as compared to a company.

f) No need to maintain statutory record: There is no requirement to maintain statutory record except books of accounts and return which is required to be submitted with ROC.

g) Less Tax: Another benefit of an LLP is low tax rate. LLP is taxed at a lower rate as compared to company.

h) Easy winding up: An LLP can be wound up easily. There are limited formalities to wind up an LLP.

i) One partner is not liable for the act of other partner: 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.

j) Audit is not compulsory: There is no mandatory audit requirement in case of an LLP. Audit of an LLP is necessary only when the annual turnover exceeds Rs. 40 lakhs or contribution exceeds Rs. 25 lakhs.

Disadvantages of LLP: The limitations of an LLP are listed below:

a) An LLP cannot raise funds from public.

b) Sometime private estate of partners is also liable against LLP’s debt.

c) Ownership and management are in the same hand which is normally not seen in case of a company.

d) An act of a partner without other partner may bind the LLP.

e) The framework for incorporating a LLP is in place but currently registrations are centralized at Delhi.

Difference between LLP, Partnership & Company

Difference between LLP, Partnership and Company

Basis	LLP	Partnership	Company
1. Law	It is created under LLP Act, 2008.	It is created under Indian Partnership Act, 1932.	It is created under Companies Act, 2013.
2. Name	The term “LLP” is added with the name of an LLP.	There is no guideline about the name of the partnership.	The word “Ltd.” is added with the name of a public company and the word “Pvt Ltd.” is added with the name of a private company.
3. Separate legal entity	It has a separate legal entity distinct from its members.	Partnership does not have separate legal entity distinct from its members.	Company has a separate legal entity distinct from its members.
4. Liability	Liability of partners is limited.	Liability of partners is unlimited.	Liability of members is limited.
5. Charter document	LLP agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners.	Partnership deed is a charter of a partnership firm which denotes it scope of operation and rights and duties of the partners.	Memorandum and articles of association is the charter of the company that defines it scope and area of operations.
6. Number of members	Minimum number of partners is 2 but in case of limited liability partnership there is no maximum limit.	Minimum number of partners is 2 and maximum 100 for a partnership firm.	Minimum numbers of members are 7 in case of a public company and there is no limit for maximum.  In a private limited company minimum number of members is 2 and 200 are maximum.
7. Registration	Registration of an LLP with ROC is necessary.	Registration of a partnership firm is not compulsory under the Indian Partnership Act, 1932.	Registration of a company is compulsory under the Indian Companies Act, 2013.
8. Foreign participation	Foreign nationals can be a partner in LLPs.	Foreign nationals cannot for a partnership business in India.	Foreign nationals can be a member of a company.
9. Admission of a partner	A person can be admitted as a partner as per the LLP agreement.	A person can be admitted as a partner with the consent of all partners.	A person can be member of a company by buying shares.
10. Conversion	A partnership can be converted into LLP.	An LLP can be converted into company.	A company cannot be converted into partnership but can be converted into LLP.
11. Entity	No separate legal entity exists in partnership.	An LLP has a separate legal entity distinct from its partners.	A company has a separate legal entity distinct from its members and can sue and be sued.
12. Dissolution	A firm can be dissolved by mutual consent, insolvency of partners, by the order of court etc.	An LLP can be dissolved voluntarily or by the order of National company law tribunal.	A company can be dissolved voluntarily or by the order of National company law tribunal.

Rights & Liabilities of Partners in LLP

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, save as otherwise provided by the Act. Every LLP shall file information with regard to the LLP agreement in Form 3 with the Registrar within 30 days of the date of incorporation along with the required fee. Any change is made in the LLP agreement the same shall be informed in Form 3 within 30 days of such change along with the fee. In the absence of agreement as to any matter:

a)       the mutual rights and duties of the partners; and

b)      the mutual rights and duties of the LLP and the partners

shall be determined by the provisions relating to the matter as set out in the First Schedule which is as follows:

1. All the partners of a LLP are entitled to share equally in the capital, profits and losses of the LLP;

2. The LLP shall indemnify each partner in respect of payments made and personal liabilities incurred by him

a)       in the ordinary and proper conduct of the business of the LLP; or

b)      in or about anything necessarily done for the preservation of the business or property of the LLP;

3. Every partner shall indemnify the LLP for any loss caused to it by his fraud in the conduct of the business of the LLP;

4. Every partner may take in the management of the LLP;

5. No partner shall be entitled to remuneration for acting in the business or management of the LLP;

6. No person may be introduced as a partner without the consent of all existing partners;

7. Any matter or issue relating to the LLP shall be decided by a resolution passed by a majority in number of the partners. Each partner shall have one vote. However, no change may be made in the nature of the business of the LLP without consent of all the partners;

8. Every LLP shall ensure that decisions taken by it are recorded in the minutes within 30 days of taking such decisions and are kept and maintained at the registered office of the LLP;

9. Each partner shall render true accounts and full information of all things affecting the LLP to any partner or his legal representatives;

10. If a partner carries on any business of the same nature as and competing with the LLP without the consent of the LLP, he must account for and pay over to the LLP all profits made by him in that business;

11. Every partner shall account to the LLP for any benefit derived by him without the consent of the LLP from any transaction concerning the LLP or from any use by him of the property, name or any business connection of the LLP;

12. No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners;

13. All disputes between the partners arising out of the LLP agreement which cannot be resolved in terms of such agreement shall be referred for arbitration as per the provisions of Arbitration and Conciliation Act, 1996.

The extent of liability of partner is dealt with in section 28-31 as under:

1. Section 28 provides that a partner is not personally liable solely by reason of being a partner of LLP. But he will be personally liable for his own wrongful act or omission. But he shall not be personally liable for the wrongful act or omission of any other partner of the LLP.

2. Section 29 provides that 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 representatives has reached the person so giving credit.

3. Unlimited liability: Section 30 provides that any act with intent to defraud creditors of the LLP or any other person, the liability of LLP and partners shall be unlimited for all or any of the debts or other liabilities of the LLP. If 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.

Section 30(2) provides that where any business is carried on with such intent to defraud the creditors of LLP, every person who was knowingly a party to the carrying on the business shall be punishable with imprisonment for a term which may extend to 2 years and with fine which shall not be less than 50000/- but which may extend to `5 lakhs.

In such cases the LLP or any 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. Section 31 provides for reduction of penalty awarded under Section 30(2). According to Section 31 the Court or Tribunal may reduce or waive any penalty imposed on any partner or employee of a LLP, if it satisfied that:

a) such partner or employee of a LLP has provided useful information during investigation of such LLP; or

b) when any information given by any partner or employee leads to LLP or any partner or employee of such LLP being convicted under this Act or any other Act.

No partner or employee of any LLP may 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 by him.

Incorporation of LLP

The incorporation of an LLP involves the following steps: a) Reservation of name; b) Submission of incorporation documents with Registrar; and c) Registration of LLP.

a) Reservation of name: Section 16 of the Act provides that a person may apply in LLP Form No. 1 along with the payment of fee of Rs. 200/- to the Registrar having jurisdiction where the registered office of the LLP is to be situate. The application shall indicate the name of the proposed LLP. Upon receipt of an application along with the fee the Registrar may, if he is satisfied, subject to the rules, that the name to be reserved is not one which may be rejected on any ground, reserve the name. The Registrar shall inform to the applicant for reservation or non-reservation of the changed name or the name with which the proposed LLP is to be registered within seven days of the receipt of the application. The said name shall be available for reservation for a period of three months from the date of intimation by the Registrar.

b) Submission of incorporation document: Section 11(1) provides that two or more person associated for carrying on a lawful business with a view to profit shall subscribe their names to an incorporation document. The incorporation document shall be in LLP Form No. 2. According to Section 11(2) the incorporation document shall:

1. State the name of the LLP;

2. State the proposed business of the LLP;

3. State the address of the registered office of the LLP;

4. State the name and address of each of the persons who are to be partners of the LLP on incorporation;

5. State the name and address of the persons who are to be designated partners of the LLP on incorporation;

6. Contain such other information as may be prescribed.

The fee payable for registration of LLP is as detailed below:

1. LLP whose contribution does not exceed Rs. 1 lakh – Rs. 500/-

2. LLP whose contribution exceeds `1 lakhs but does not exceed Rs. 5 lakhs – Rs. 2000/-;

3. LLP whose contribution exceeds Rs. 5 lakhs but does not exceed Rs. 10 lakhs – `4000/-

4. LLP whose contribution exceeds Rs. 10 lakhs – Rs. 5000/-

Incorporation by registration: Section 12(1) provides that when the requirements have been complied, the Registrar shall retain the incorporation document. If the requirements have 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.

The Registrar may accept the statement furnished by a Professional engaged in the formation of the LLP, as sufficient evidence that the requirement imposed has been complied with. The Certificate shall be signed by the Registrar and authenticated by his office. This certificate is the conclusive evidence that the LLP is incorporated by the name specified therein. 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 partnership firm or LLP or body corporate or a registered trade mark or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999.

The Registrar shall maintain a Register of LLP in which the names of LLPs shall be entered in the order in which they are registered. Every LLP so registered shall be assigned a LLP identification Number (LLPIN) in one consecutive series.