MOHIT AGARWAL
9830741471
LIMITED LIABILITY PARTNERSHIP ACT, 2008
CONCEPT OF LLP
The concept of LLP is explained as below:
•It is an alternative corporate business from that gives the benefit of limited liability of a company and the flexibility of the partnership;
•It can continue its existence irrespective of changes in partners;
•It is capable of entering into contracts and holding property in its own name;
Limited Liability Partnership Act, 2008
•It is a separate Legal entity and is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP;
•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;
•Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be.
It is a hybrid between a company and partnership.
Limited liability partnership
Section 2(1)(n) defines the expression ‘limited liability partnership’ as a partnership formed and registered under LLP Act.
Who may be a partner in LLP?
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 limited liability partnership registered under the Act;
•a limited liability partnership incorporated outside India; and
•a company incorporated outside India; but does not include-
•a corporation sole;
•a co-operative society registered under any law for the time being in force; and
•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-
•he has been found to be of unsound mind by a Court of competent jurisdiction and the findings is in force;
•he is undischarged insolvent; or
•he has applied to be adjudicated as an insolvent and his application is pending.
Minimum number of members
Section 6(1) prescribes that every LLP shall have at least two partners.
Reduction in minimum number of members [Section 6(2)]
If at any time the number of partners of a limited liability partnership is reduced below two and the limited liability partnership carries on business for more than six months while the number is so reduced, the person, who is the only partner of the limited liability partnership during the time that it so carries on business after those six months and has the knowledge of the fact that it is carrying on business with him alone, shall be liable personally for the obligations of the limited liability partnership incurred during that period.
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.
Disqualification to become designated partner
Rule 9 prescribes that a person shall not be capable of being appointed as a designated partner of a
LLP, if he-
Limited Liability Partnership Act, 2008
•has at any time within the preceding five years been adjudged insolvent; or
•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
•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
•has been convicted by a Court for an offence involving section 30 of the Act.
Liabilities of designated partners
Section 8 provides the liabilities of designated partners. It provides that unless expressly provided otherwise in this Act, a designated partner shall be –
•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 provisions of the Act including filing of any document, return, statement, report under this Act and as specified in the agreement;
•liable to all penalties imposed on the LLP for any contravention of those provisions.
Vacancy
Section 9 provides that a LLP may appoint a designated partner within 30 days of the vacancy arising for any reason. If no designated partner is appointed, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner.
Incorporation of LLP
The incorporation of an LLP involves the following steps:
•Reservation of name;
•Submission of incorporation documents with Registrar;
•Registration of LLP.
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 `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. Rule 18(1) provides that the name of the LLP shall not be one prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950. Rule 18(2) gives the list of names that are not generally reserved.
Submission of incorporation document
•State the proposed business of the LLP;
•State the address of the registered office of the LLP;
•State the name and address of each of the persons who are to be partners of the LLP on incorporation;
•State the name and address of the persons who are to be designated partners of the LLP on incorporation;
•Contain such other information as may be prescribed.
Limited Liability Partnership Act, 2008
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-
•Register the incorporation document; and
•Give a certificate that the LLP is incorporated by the name specified therein.
Registered Office
Section 13(1) provides that every LLP shall have a registered office to which all communications and notices may be addressed and where they shall be received.
Change of registered office
Section 13(3) provides that a LLP may change the place of its registered office and file the notice of such change with the Registrar by following the procedure as laid down in the LLP agreement. If there is no such agreement, consent of all partners shall be required for changing the place of registered office of a LLP to another place. If the change in place is from one State to another State, the LLP having secured creditors shall also obtain the consent of such secured creditors.
The notice for change of registered office shall be given to Registrar in Form No. 15, within 30 days of complying with the requirements in case of change of registered office is within the same State and within 30 days of complying in the case of registered office from one State to another State, along with the fee.
If the change in place of registered office is from one State to another State, the LLP shall publish a general notice, not less than 21 days before filing any notice with Registrar, in a daily newspaper published in English and in the principal language of the District in which the registered office of the LLP is situated and circulating in that district giving notice of change of registered office.
If the change is within the State from the jurisdiction of one Registrar to the jurisdiction of another Registrar or from one State to another State the LLP shall file the notice in Form 15 with the Registrar from where the LLP proposes to shift its registered office with a copy thereof for the information to the Registrar under whose jurisdiction the registered office is proposed to be shifted.
Change of name
Rule 20 provides that any LLP may change its name by following the procedure as laid down in the LLP agreement. Where the LLP agreement does not provide such procedure, the consent of all partners shall be required for changing the name of LLP. Notice of change of name shall be given to the Registrar in Form No. 5 within 30 days of complying with the requirement along with the required fee. The Registrar, on being satisfied that the changed name is the one as reserved by him shall issue a fresh certificate of incorporation in the new name and the change name shall be effective from the date of such certificate.
Partners and their relations
•All the partners of a LLP are entitled to share equally in the capital, profits and losses of the LLP;
•The LLP shall indemnify each partner in respect of payments made and personal liabilities incurred by him-
•in the ordinary and proper conduct of the business of the LLP; or
•in or about anything necessarily done for the preservation of the business or property of the LLP;
•Every partner shall indemnify the LLP for any loss caused to it by his fraud in the conduct of the business of the LLP;
•Every partner may take in the management of the LLP;
•No partner shall be entitled to remuneration for acting in the business or management of the LLP;
•No person may be introduced as a partner without the consent of all existing partners;
•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;
•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;
•Each partner shall render true accounts and full information of all things affecting the LLP to any partner or his legal representatives;
•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;
•Every partner shall account to the LLP for any benefit derived by him without the consent of the
Liability of LLP
Section 27, in Chapter V, provides the liabilities of the LLP. The LLP is liable if a partner of a LLP is liable to any person as a result of a wrongful act or omission on his part in the course of the business of LLP or with its authority. An obligation of the LLP whether arising in contract or otherwise, shall be solely the obligation of the LLP.
A LLP is not bound by anything done by a partner in dealing with a person if-
•the partner has no authority to act for the LLP in doing a particular act; and
•the person knows that he has no authority or does not know or believe him to be a partner of the
LLP.
Section 29(2) provides that where any credit is received by the LLP as a result of the representation of a person to be a partner of LLP, shall also be liable to the extent of credit received by it or any financial benefit derived thereon.
The liabilities of the LLP shall be met out of the property of the LLP.
Partner as agent
Section 26 provides that every partner of a LLP is the agent of the LLP. He is not the agent of other partners.
Liability of partner
The liabilities of the partner are discussed in detail as below:
•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;
•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.
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.
Punishment
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.