Limited Liability Partnership Act, 2008

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The Limited Liability Partnership Act, 2008 Notified by Ministry of Law and Justice on 9th January 2007. Parliament passed the Bill on 12th December 2008, President assented on 7th January 2009. Applicable to the whole of India. Enacted for formation and regulation of LLPs and related matters. Has 81 sections and 4 schedules. Amended by the Limited Liability Partnership (Amendment) Act, 2021 dated 13th August 2021. Indian Partnership Act, 1932 is not applicable to LLPs. Schedules of LLP Act, 2008 First Schedule: Mutual rights and duties of partners, and LLP's rights/duties where no formal agreement exists. Second Schedule: Conversion of a firm into LLP. Third Schedule: Conversion of a private company into LLP. Fourth Schedule: Conversion of an unlisted public company into LLP. Need for LLP Alternative corporate form providing limited liability, unlike traditional partnerships. Combines professional expertise and entrepreneurial initiative. Flexible, innovative, and efficient for operation. Suitable for small enterprises and venture capital investment. Meaning and Concept of LLP New form of legal business entity with limited liability. Offers benefits of limited liability at low compliance cost. Allows partners flexibility in organizing internal structure like a traditional partnership. Separate legal entity: LLP is liable to the full extent of its assets; partners' liability is limited. Hybrid: Contains elements of both a corporate structure and a partnership firm structure. Important Definitions Body Corporate [Sec 2(1)(d)]: Includes: LLP registered under this Act, LLP incorporated outside India, company incorporated outside India. Excludes: Corporation sole, co-operative society, and other bodies corporate specified by Central Government. Business [Sec 2(1)(e)]: Includes every trade, profession, service, and occupation, except those excluded by Central Government. Designated Partner [Sec 2(1)(j)]: Any partner designated as such per Section 7. Entity [Sec 2(1)(k)]: Any body corporate, including a firm setup under the Indian Partnership Act, 1932 for specific sections. Financial Year [Sec 2(1)(l)]: Period from April 1st to March 31st of following year. For LLP incorporated after Sep 30th, financial year ends March 31st of the year next following. Foreign LLP [Sec 2(1)(m)]: LLP formed/registered outside India with a place of business in India. Limited liability partnership [Sec 2(1)(n)]: Partnership formed and registered under this Act. Limited Liability partnership agreement [Sec 2(1)(o)]: Written agreement between partners or between LLP and partners, defining mutual rights and duties. Partner [Sec 2(1)(q)]: Any person who becomes a partner in the LLP according to the LLP agreement. Small Limited Liability Partnership [Sec 2(1)(ta)]: Contribution not exceeding ₹25 lakh (or higher, up to ₹5 crore). Turnover not exceeding ₹40 lakh (or higher, up to ₹50 crore) in preceding financial year. Meets other prescribed requirements and conditions. Non-applicability of Indian Partnership Act, 1932 (Section 4) Provisions of the Indian Partnership Act, 1932 generally do not apply to an LLP. Partners (Section 5) Any individual or body corporate can be a partner. An individual cannot be a partner if: Found to be of unsound mind by a competent court. Is an undischarged insolvent. Has applied to be adjudicated as an insolvent and the application is pending. Minimum Number of Partners (Section 6) Every LLP must have at least two partners. If the number of partners falls below two and the LLP carries on business for more than six months with only one partner, that partner becomes personally liable for obligations incurred during that period. Designated Partners (Section 7) Every LLP must have at least two designated partners who are individuals. At least one designated partner must be a resident in India. If all partners are bodies corporate, or a mix of individuals and bodies corporate, at least two individuals (partners or nominees of bodies corporate) must act as designated partners. Resident in India: A person who has stayed in India for a period of not less than 120 days during the financial year. Characteristics of LLP Body Corporate: Formed and incorporated under the LLP Act, 2008; separate legal entity with perpetual succession. Perpetual Succession: LLP continues irrespective of changes in partners (death, insanity, retirement, insolvency do not impact its existence). Separate Legal Entity: LLP is liable for its assets; partners' liability is limited to their agreed contribution. Creditors of LLP are creditors of LLP alone. Mutual Agency: No partner is liable for independent/unauthorized actions of other partners. All partners are agents of the LLP alone; no partner can bind another partner by their acts. LLP Agreement: Governs mutual rights and duties of partners. Provides flexibility in devising the agreement. In absence, provisions of LLP Act, 2008 apply. Artificial Legal Person: Created by legal process, has rights of an individual (can sue, own property) but cannot do natural person acts (e.g., go to jail, marry). Common Seal: Optional for LLP [Sec 14(c)]. If adopted, must be under custody of responsible official and affixed in presence of at least 2 designated partners. Limited Liability: Each partner is an agent of the LLP, not of other partners. Liability is limited to agreed contribution. Management of Business: Partners manage the business. Designated partners are responsible for legal compliances. Minimum & Maximum Number of Partners: Minimum two partners. No maximum limit. At least two individuals as designated partners, with one resident in India. Business for Profit Only: Must carry on lawful business with a view to earning profit. Cannot be formed for charitable or non-economic purposes. Investigation: Central Government can investigate LLP affairs. Compromise or Arrangement: Agreements including merger/amalgamation must comply with LLP Act, 2008. Conversion into LLP: Firm, private company, or unlisted public company can convert to LLP. E-Filing of Documents: All required forms/applications must be filed electronically on www.mca.gov.in , authenticated by partner/designated partner. Foreign LLPs: Defined as LLPs formed/registered outside India with a place of business in India. Can be a partner in an Indian LLP. Advantages of LLP Form Organized and operates on the basis of an agreement. Provides flexibility without detailed legal/procedural requirements. Easy to form. All partners enjoy limited liability. Flexible capital structure. Easy to dissolve. Incorporation of LLP (Section 11) Incorporation Document: Two or more persons for lawful business must subscribe names to an incorporation document. Document filed in prescribed manner with prescribed fees with Registrar of the State where registered office is situated. Statement to be filed: In prescribed form. Made by an advocate, Company Secretary, Chartered Accountant, or Cost Accountant engaged in LLP formation. Made by any subscriber to the incorporation document. Certifying compliance with all Act requirements. Contents of Incorporation Document: Prescribed form. Name of the LLP. Proposed business of the LLP. Address of registered office. Name and address of each partner. Name and address of each designated partner. Other prescribed information. False Statement Penalty: Imprisonment up to 2 years, fine not less than ₹10,000 (up to ₹5 Lakhs). Incorporation by Registration (Section 12) Registrar retains incorporation document if requirements are met. Within 14 days, Registrar registers the document and issues a certificate of incorporation by the specified name. Registrar may accept the compliance statement as sufficient evidence. Certificate is signed by Registrar and authenticated by official seal. Certificate is conclusive evidence of LLP incorporation. Registered Office of LLP and Change Therein (Section 13) Every LLP must have a registered office for communications and notices. Documents can be served by post or other prescribed means at the registered office or declared address. LLP may change registered office by filing notice with Registrar; change takes effect upon filing. Contravention of this section incurs a penalty of ₹500 per day (max ₹50,000) for LLP and every partner. Effect of Registration (Section 14) On registration, an LLP, by its name, can: Sue and be sued. Acquire, own, hold, develop, or dispose of property (movable, immovable, tangible, intangible). Have a common seal (if decided). Do and suffer other acts as bodies corporate lawfully can. Name (Section 15) Must include "limited liability partnership" or "LLP" as last words. Cannot be registered with a name that is: Undesirable. Identical or too nearly resembles another LLP, company, or registered trademark. Reservation of Name (Section 16) Application can be made to Registrar for reservation of a proposed LLP name or a name for change. Registrar may reserve the name for 3 months from intimation date if not objectionable. Change of Name of LLP (Section 17) If LLP is registered with an identical or too nearly resembling name (another LLP, company, or trademark) due to inadvertence, Central Government may direct change within 3 months of direction. Proprietor of registered trademark can also apply for such direction. Application by trademark proprietor maintainable within 3 years of LLP's incorporation/registration/name change. If LLP changes name, it must notify Registrar within 15 days, and Registrar makes necessary changes in certificate within 30 days. LLP must then change its name in the LLP agreement. If LLP defaults on direction, Central Government allots a new name, and Registrar enters it in register and issues a fresh certificate. Distinction between LLP and Partnership Firm Basis LLP Partnership Firm Regulating Act The Limited Liability Partnership Act, 2008 The Indian Partnership Act, 1932 Body corporate It is a body corporate It is not a body corporate Separate legal entity It is a legal entity separate from its members. It is a group of persons with no separate legal entity. Creation Created by legal process (registration under LLP Act, 2008). Created by an agreement between the partners. Registration Mandatory. Can sue and be sued. Voluntary. Only registered firms can sue third parties. Perpetual succession Existence unaffected by death, insanity, retirement or insolvency of partner(s). Existence may be affected by death, insanity, retirement or insolvency of partner(s). No perpetual succession. Name Name must contain "limited liability partnership" or "LLP" as suffix. No specific guidelines; partners can choose any name. Liability Each partner's liability limited to agreed contribution, except in willful fraud. Each partner's liability is unlimited, can extend to personal assets. Mutual agency Each partner can bind the LLP by own acts, but not other partners. Each partner can bind the firm and other partners by own acts. Designated partners At least two, one resident in India. No provision for such partners under Partnership Act, 1932. Common seal May have its common seal as official signature. No such concept. Legal compliances Only designated partners are responsible for compliances and penalties. All partners are responsible for compliances and penalties. Annual filing of documents Required to file: Annual statement of accounts, statement of solvency, annual return. Not required to file any annual document with registrar of firms. Foreign partnership Foreign nationals can be partners. Foreign nationals cannot be partners. Minor as partner Cannot be admitted to benefits. Can be admitted to benefits with prior consent of existing partners. Distinction between LLP and Limited Liability Company Basis LLP Limited Liability Company Regulating Act The LLP Act, 2008. The Companies Act, 2013. Members/Partners Persons contributing to LLP are partners. Persons investing in shares are members. Internal governance structure Governed by contract agreement between partners. Regulated by statute (Companies Act, 2013). Name Must contain "Limited Liability partnership" or "LLP" as suffix. Public company: "limited". Private company: "Private limited". No. members/partners Minimum 2 partners. No maximum limit. Partners can be individuals/body corporate through nominees. Private company: Min 2, Max 200 members. Public company: Min 7, no max limit. Members can be organizations, trusts, other business forms, or individuals. Liability members/partners Limited to agreed contribution, except in willful fraud. Limited to unpaid amount on shares held. Management Business managed by partners, including designated partners authorized in agreement. Affairs managed by board of directors elected by shareholders. Minimum number of directors/designated partners Minimum 2 designated partners. Pvt. Co.: 2 directors. Public Co.: 3 directors.