12 Limited Liability Partnership Act, 2008 Flashcards
Advantages of LLP Form
- A LLP is organised and operates on the basis of an agreement
- There is flexibility of operations due to reduced legal and procedural requirements
- Easy to form
- Partners enjoy limited liability
- Easy to dissolve
Difference between Partnership and LLP
Basis/Partnership/LLP
Regulatory Act - Indian Partnership Act, 1932 | LLP Act, 2008
Body Corporate? Separate Entity? Registration mandatory? Perpetual Succession? - No | Yes
Formation - Agreement between partners | Registration under the Act
Mutual agency [does Act of one partner bind other partners?] - Yes | No [binds the LLP, bt not other partners]
Can minor be admitted to enjoy benefits? - Yes | No
Maximum number of partners - 50 | no cap
About LLP Act -
How was it brought into existence?
Why was it introduced?
What constitutes the Act?
Who regulates the Act?
When was it ammended?
- Parliament passed the LLP Bill on 12-12-2008. It was assented by the President on 7-1-2009.
- It was enacted to make provisions for the formation and regulation of LLPs and for matters connected therewith or incidental thereto.
- LLP Act 2008 had 81 Sections, but after ammendment with effect from 1-4-2022, Section 81 has been omitted along with some other sections. It has 4 Schedules -
- 1 deals with mutual rights and duties of partners and LLP in the absence of an agreement.
- While 2, 3 and 4 deal with conversion into LLP, being firms, private companies and unlisted public companies respectively.
- The Central Government holds the right to ammend rules regarding the LLP Act by notifications in the Official Gazette. While MCA and RoC are entrusted with administering the Act.
- The latest ammendment of the LLP Act was on 13 August 2021, with effect from 1 April 2022
Meaning of LLP
LLP is a legal business entity with limited liability.
It is an alternative corporate business vehicle that gives benefit of limited liability at low compliance cost, while allowing its partners the flexibility of organising thier internal structure as a traditional partnership.
LLP is a seperate legal entity and will be liable to the full extent of its assets, however liability of partners shall be limited to the extent of their capital contribution.
In simple terms, LLP gives benefit of limited liability of company and the flexibility of a partnership. As it contains elements of both corporate and partnership firm structures, it is called a hybrid between the two.
Characteristics of LLP
- Body corporate - Section 2 defines LLP to be a body corporate i.e., a separately incorporated artificial body (person)
- Perpetual succession - LLP continues its existence irrespective of changes in partners
- Separate legal entity - as provided by Section 3, LLP is a distinct person, liable to the full extent of all assets purchased and liabilities incurred in its name
- Mutual agency - partners of LLP are agents of LLP alone. Actions of a partner binds the LLP but not the other partners
- LLP Agreement - the mutual rights and duties of LLP and partners shall be governed by an agreement which is devised by partners as per their choice and can be modified. In absence of such agreement, Schedule 1 is to be followed
- Artificial Legal Person - LLP is created by a legal process and has all rights of an individual. It is invisible, intangible and immortal but not fictitious.
- Common seal - LLP may act through its partners and designated partners with a common seal, if it decides to have one. Such seal will remain under custody of some responsible official and affixed in the presence of atleast 2 designated partners
- Limited liability - partners liability will be limited to their agreed contribution which may be tangible, intangible or both
- Management of business - partners are entitled to manage business of LLP and designated partners are responsible for legal compliances
- Number of Partners - LLP shall have at least 2 partners and atleast 2 designated partners [can be same 2 people] of which one is an Indian resident. There is no maximum limit for number of partners.
- Business for profit only - LLP must carry lawful business with a view to earn profit. It cannot be formed for charitable or non-economic purpose.
- Investigation - only Central Government can appoint competent authority to investigate affairs of LLP
- Compromise or Arrangement - all compromise or arrangements including merger and amalgamation shall be done in accordance with provisions of the Act
- Conversion into LLP - firms, private companies and unlisted public companies can be converted into LLP
- E-filing of documents - every form and application must be filed in computer readable electronic form on the MCA website and authenticated by a partner or DP by use of digital signature
- Foreign LLPs - Section 2(1)(m) defines foreign LLPs, such LLPs can be partners of Indian LLP
Section 3 of LLP Act
LLP Section 3 - LLP to be a Body Corporate
- LLP is a body corporate and a legal entity separate from its partners
- It shall have perpetual succession
- Any changes in partners shall not affect the existence, rights and liabilities of LLP
Section 4 of LLP Act
Save as otherwise provided, the provisions of Indian Partnership Act, 1932 shall not apply to a LLP
Section 5 of LLP Act
LLP Section 5 - Partner
Any individual or body corporate may be a partner in a LLP.
However, and individual shall not be capable of becoming a partner in a LLP if,
1. He has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force
2. He is an undischarged insolvent
3. He has applied to be abjudicated as an insolvent and his application is pending
Who can become partner in LLP?
- Individuals
- LLPs
- Foreign LLPs
- LLPs incorporated outside India
- Companies
- Foreign companies
If a person resident outside India [not being NRI or OCI] introduces capital or acquires stake in existing LLP, FDI compliances will have to be undertaken by the LLP in which the investment is made
Section 6 of LLP Act
LLP Section 6 - Minimum Number of Partners
Every LLP shall have at least 2 partners
If at anytime number of partners becomes less than 2, and LLP carries on business with one partner [who knows that he is the only partner] for more than 6 months, he will be liable personally to obligations of LLP incurred during that period.
Ex: A and B are partners. B dies on 31.3.23, A can appoint new partner by 30.9.23. If he fails to do so,
Liabilities before 31.3.23 - LLP is liable
Liabilities from 1-4-23 to 30-9-23 - A is liable
Section 7 of LLP Act
LLP Section 7 - Designated Partners
Every LLP shall have atleast 2 designated partners who are individuals, of whom atleast one shall be resident of India.
[“Resident of India” being a person who has stayed in India for not less than 120 days in that financial year]
Who can become DP?
- If in LLP, all partners or one or more partners are BCs, nominees of such BCs will be DPs
- If incorporation document specifies who shall be DP, they will be the DP
- If incorporation document states all partners will from time to time be DP, every partner shall be DP
An individual shall not become a DP unless he has given his prior consent to act as such to the LLP
How to become DP?
- Any partner can become or cease to be DP by and in accordance with LLP agreement
- LLP should file particulars of the individual(s) who has given consent to being DP within 30 days of his appointment
- An individual eligible to be a DP shall satisfy such conditions and requirements
- Every DP should obtain DPIN [designated partner identification number] from Central Government. The provisions of Section 153-159 of Companies Act, 2013 shall apply mutatis mutandis for said purpose.
Section 8 of LLP Act
LLP Section 8 - Liabilities of Designated Partners
Unless expressly provided otherwise in this Act, DP shall be -
- Responsible for doing all acts, matters and things as required to be done by the LLP in respect of compliance of provisions of this Act, including filing of any document, return, statement and the like, as specified in the LLP agreement
- Liable to all penalties imposed on LLP for contravention of those provisions
Section 9 of LLP Act
LLP Section 9 - Changes in Designated Partners
- LLP can appoint a DP within 30 days of a vacancy arising for any reason
- Clauses under Section 7 regarding filing of documents shall apply in respect of new partner
- If no DP is appointed, or if at any time there is only one DP, each partner shall be deemed to be a DP
Vacancy – 30 days – to fill vacancy – 30 days – to intimate RoC of new DP with his consent
Section 10 of LLP Act
LLP Section 10 - Punishment for contravention of Section 7 and 9
DPs are less than 2 or none of the DPs are Indian resident or DP does not satisfy prescribed conditions and requirements or LLP fails to fill vacancy of DP
LLP and every partner - penalty - Rs.10,000
If contravention continues - further penalty - Rs.100 per day subject to maximum
LLP - Rs.1,00,000
Partners - Rs.50,000
LLP fails to file DP’s consent of appointment within 30 days
LLP and every DP - penalty - Rs.5,000
If contravention continues - further penalty - Rs.100 per day subject to maximum
LLP - Rs.50,000
DPs - Rs.25,000
Section 11 of LLP Act
LLP Section 11 - Incorporation Document
Incorporation document is the most important document needed for registration of LLP.
1. To incorporate a LLP
(a.) 2 or more persons associated for carrying on lawful business with a view to earn profit subscribe their name to the Inc Doc
(b.) This Inc Doc should be filed to the Registrar of the State in which the registered office of LLP is to be situated [Inc Docs are now processed electronically by Registrar in Central Registration Centre]
(c.) Along with Inc Doc, there should be a statement in prescribed form, made by either an advocate/CS/CA/Cost Accountant, who is engaged in formation of LLP and by anyone who subscribes his name to the Inc Doc, stating that all requirements of LLP Ac and rules thereunder have been complied with [in respect of incorporation and matters precedent and incidental thereto]
2. The Inc Doc shall
1. Be in prescribed form
2. State name, proposed business, adress of registered office of the LLP
3. State name and address of each persons who are to be partners and designated partners of the LLP on incorporation
4. Contain such other information concerning the proposed LLP as may be prescribed
3. If a person makes above statement which he -
(a.) knows to be false or
(b.) does not believe to be true;
Such person will be punishable [penalty for false declaration] with imprisonment for upto 2 years and fine not less than Rs.10,000 extending upto Rs.5 Lakhs
Section 12 of LLP Act
LLP Section 12 - Incorporation by Registration
When requirements imposed by Section 11(1)(b) and(c) of LLP Act have been complied with, Registrar will retain the Inc Doc and within a period of 14 days -
1. Register the Inc Doc; and
2. give certificate that LLP is incorporated by the name specified in the Inc Doc
The Registrar may accept the Statement delivered under Section 11 as sufficient evidence that Section 11(1)(a) has been complied
The certificate issued under this Section shall be signed by Registrar and authenticated by his official seal
This certificate shall be conclusive evidence that LLP is incorporated by the name specified therein
Section 13 of LLP Act
LLP section 13 - Registered Office of LLP and Change Therein
- Every LLP shall have a registered office to which all communications and notices may be addressed and be received
- A document may be sent to LLP/partner/DP by any manner of post as prescribed to the registered office and any other address specifically declared by the LLP for this purpose
- LLP may change place of registered office and file notice of such change with Registrar and any suc change shall take effect only upon such filing
- If LLP contravenes - LLP and every partner - penalty - Rs.500 per day upto Rs.50,000
Section 14 of LLP Act
LLP Section 14 - Effect of Registration
On registration, LLP shall by its name be capable of -
- suing and being sued
- acquiring, owning, holding, developing or disposing of property; whether tangible, intangible, movable or immovable
- having a common seal, if it decides to have one; and
- doing and suffering other acts and things as bodies corporate may do and suffer
Section 15 of LLP Act
LLP Section 15 - Name
- Every LLP shall have the words “Limited Liability Partnership” or the acronym “LLP” as the last words of its name
- No LLP shall be registered by a name which in the Cen Gov’s opinion is
- undesirable; or
- identical or too nearly resembles any other LLP/company/registered trademark of any other person under Trade Marks Act, 1999
Section 16 of LLP Act
LLP Section 16 - Reservation of Name
- A person may apply to the Registrar for the reservation of a name set out in the application as
- name of a proposed LLP
- name to which a LLP proposes to change its name - Upon receipt of an application and payment of the prescribed fee, the Registrar may, reserve the name for a period of 3 months from the date of intimation. The Registra may also reject a name on any ground referred under Section 15(2)
Section 17 of LLP Act
LLP Section 17 - Rectification of Name
- If through inadvertence, or otherwise, the LLP on its new name or first registration, is registered by a name which is identical with or too nearly resembles to- any other LLP or company or a registered trademark of a proprietor;
then on application of such LLP/company/trademark, the Cen Gov may direct LLP to change its name/new name within a period of 3 months from date of issue of such direction - Application of the proprietor of registered trademarks shall be maintainable within a period of 3 years from date of incorporation/registration/change of name of LLP under this Act
- Where an LLP changes its name or obtains new name,
- it shall give notice of change along with Cen GOv order to Registrar within a period of 15 days from date of change
- Registrar shall carry out necessary changes in certificate of incorporation
- LLP should change its name in LLP Agreement within 30 days of such change in certificate of incorporation - If the LLP defaults in complying with direction given
- Cen Gov shall allot new name to LLP; and
- Registrar shall enter new name in the register of LLP in place of old name and issue a fresh certificate of incorporation with new name
Nothing contained in this sub-section shall prevent a LLP from subsequently changing its name
