Limited Liability Partnership Act, (LLP) 2008

Introduction
Ministry of Corporate Affairs defines LLP as “LLP: A corporate business vehicle that enables
professional expertise and entrepreneurial initiative to combine and operate in flexible,
innovative and efficient manner, providing benefits of limited liability while allowing its
members the flexibility for organizing their internal structure as a partnership.”

The Bill concerning Limited Liability Partnership (LLP) was tabled in the Rajya Sabha on
12.12.2006 by the Ministry of Company Affairs. The statement of objects and reasons of the bill
shows that that LLP has been conceived of “as an alternative corporate business vehicle that
provides the benefits of limited liability to its members but allows them the flexibility of
organizing their internal structure as a partnership based on mutually arrived agreement”. It has
been said that “the LLP form would enable entrepreneurs, professionals and enterprises
providing services of any kind or engaged in scientific and technical disciplines, to form
commercially efficient vehicles suited to their requirements. Owing to flexibility in its structure
and operation, the LLP would also be suitable vehicle for small enterprises and for investment
by venture capital.”

What is a Limited Liability Partnership?

An LLP is an alternative corporate business vehicle that gives the benefits of limited liability but
allows its members the flexibility of organizing their internal structure as a traditional
partnership. It is a separate legal entity and, while the LLP itself will be liable for the full extent
of its assets, the liability of the members will be limited. A glance at the provisions reveals the
following propositions:

 LLP is a body corporate, i.e. a separate legal entity distinct from its members. The LLP
can own and hold property, employ people and enter into contractual obligations. Debts
incurred are the debts of the LLP.
 An LLP has unlimited capacity which means that third parties need not be concerned
about any restrictions on its activities.
 An LLP has members but no directors or shareholders. And LLP has no share capital and
is not subject to the company rules governing the maintenance of capital.
 The members of the LLP have limited liability. The LLP is liable for all its debts to the full
extent of its assets.

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  An LLP has complete flexibility as to the internal structure which it wishes to adopt;
there are no requirements for board or general meetings or decision making by
resolution. An LLP does not have Memorandum of Association.
 As the members have limited liability, the protection of those dealing with an LLP
requires that the LLP maintains accounting records, prepares and delivers audited
annual accounts to the Registrar of Companies, and submits an annual return in a similar
manner as applicable.

Evolution
The arrival of the much desired and long awaited LLP on the Indian business and professional
scene marks yet another significant step in our decade old journey towards globalization of the
Indian Economy. It also marks the culmination of the efforts of several expert committees which
recommended its introduction starting with the Bhatt Committee of 1927 through Naik
Committee of 1992, Abid Hussain Committee of 1997, Gupta Committee of 2001, Naresh
Chandra Committee of 2003 and the JJ Irani Committee of 2005.

On the basis of the recommendations of the Naresh Chandra and JJ Irani Committees a Bill for
LLP was introduced in the Rajya Sabha which was then referred to the Parliamentary Standing
Committee on Finance. The Standing Committee submitted its report on 27.11.2007 taking into
consideration the suggestions of the august committee, the revised Bill, namely the Limited
Liability Partnership Bill, 2008 was introduced in the Rajya Sabha on 21.10.2008. The various
expert committees felt that the Companies Act need not enforce limitations on the other forms
of the organization. Section 11 of the Companies Act bars the formation of any partnership
consisting of more than 20 persons for carrying on any other business that has for its object the
acquisition of gain by the partnership. If the number exceeds 20, the association will have to be
registered as a company. Now all that has changed with the enactment of the Limited Liability
Partnership Act 2009. The President of India gave assent on 7.01.2009.

While the Naresh Chandra Committee of 2003 looked at LLP mainly for professionals to prepare
them for global competition, the JJ Irani Committee of 2005 suggested that the concept may
also be considered for small enterprises not seeking access to capital markets through listing on
then stock exchange. The idea is to enable them access technology and face increasing global
competition, and bring in business synergies.

The preamble to the Act states that it is “an act to make provisions for the formation and
regulation of limited liability partnerships and for matters connected therewith or incidental
thereto”.

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It applies to the whole of India and its provisions have been brought into force w.e.f
31.03.2009.The government has notified the Limited Liability Partnership Rules, 2009 w.e.f
01.04.2009.

About the Act

 The Act is administered by the Ministry of Corporate Affairs
 The Act comprises of 81 sections in 14 Chapters and 4 Schedules
 The Rules comprise of 41 rules in 18 chapters, with 31 forms and 4 annexure (A to D)

Features of the Act

The salient features of the LLP form of business may be listed as follows:

 The LLP shall be a body corporate and separate legal entity separate from its partners.
[Sec 3(1)].
 The LLP will have perpetual succession. [Section 3(2)].
 Any change in the partners of a LLP shall not affect the existence, rights or liabilities of
LLP.[ Sec 3(3)]
 Save and otherwise provided in the Act, the provisions of the Indian Partnership Act
shall not be applicable to a LLP. [Sec 3(4)]
 Any two or more persons, associated for carrying on a lawful business with a view to
profit, may by subscribing their names to an incorporation document and filing the same
with the Registrar, form a Limited Liability Partnership. Every registered LLP shall be
assigned a LLP identification number (LLPIN) in one consecutive series.
 Any individual or body corporate may be a partner in a LLP. An individual shall not be
capable of becoming a partner of a LLP if-
(a) He has been found to be of unsound mind by a court of competent
jurisdiction and finding is in force;
(b) He is an un discharged insolvent; or
(c) He has applied to be adjudicated as an insolvent and his application is
pending. [Sec 5]
 Prior consent of an individual is required for his appointment as Designated Partner.[ Sec
7(3)]
 Every LLP shall have at least two partners. If at any time, the number of partners of a
limited liability partnership is reduced below two and the limited liability partners
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 business with him along, shall be liable
personally for the obligations of the limited liability partnership incurred during that
period. [Sec 6].

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 Every LLP shall have at least two partners and shall also have at least two individuals as
designated partners, of whom at least one shall be resident in India, provided, in case of
a limited liability partnership in which all the partners are bodies corporate or in which
one or more partners are individuals and bodies corporate, at least two individuals who
are partners of such LLP or nominees of such bodies corporate shall act as designated
partners [Section 7(1)]
 Every designated partner of a LLP will obtain a Designated Partner Identification Number
(DPIN) from the Central Government. [Section 7(6)].
 LLP will be required to appoint a designated partner within thirty days of a vacancy, if
any. However, 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 [Section
8(9)].
 A designated partner shall be responsible for the doing of all acts, matters and things as
are required to be done by the limited liability partnership in respect of compliance of
the provisions of this Act including filing of any document, return, statement and shall
be liable to all penalties imposed on the limited liability partnership for any
contravention of those provisions. [ sec 7(8)]
 The mutual rights and duties of partners of an LLP inter se and those of the LLP and its
partner shall be governed by an agreement between the LLP and the partners subject to
the provisions of the LLP Act 2008. The Act provides the flexibility to devise the
agreement as per their choice. However in the absence of any such agreement, the
mutual rights and duties shall be governed by the provisions of the LLP Act 2008.
 The LLP will be a separate legal entity, liable to the full extent of its assets, with the
liability of the partner being limited to their agreed contribution in LLP, which maybe of
tangible or intangible nature or both tangible and intangible in nature.
 No partner would be liable on account of the independent or un-authorized actions of
other partners or their misconduct.
 The liabilities of the LLP and partners who are found to have acted with intent to
defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the
debts or other liabilities of the LLP.
 The duties and obligations of designated partners shall be as provided in the law.
 No restriction as to the maximum number of partners in a LLP.
 The LLP shall be under an obligation to maintain annual accounts reflecting true and fair
view of its state of affairs. A statement of accounts and solvency shall be filed by every
LLP with the Registrar every year.
 The accounts of LLP’s shall also be audited, subject to any class of LLP’s being exempted
from this requirement by the Central Government.
 The Central Government shall have powers to investigate the affairs of an LLP, if required
by appointment of competent Inspector for the purpose.

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  The compromise or arrangement including merger and amalgamation of LLP’s shall be in
accordance with provisions o LLP Act 2008.
 A firm, private company or an unlisted public company is allowed to be converted into
LLP in accordance with the provisions of the Act. Upon such conversion, on and from the
date of certification of registration issued by the Registrar in this regard, the effects of
conversion shall be such as are specified in the LLP Act.
 On and from the date of registration specified in the certificate of registration, all
tangible property( movable or immovable) vested in the firm or the company, all assets,
interests, rights, privileges, liabilities, obligations relating to the firm or the company,
and the whole of the undertaking of the firm or the company, shall be transferred to and
shall vest in LLP without further assurance, act or deed and the firm or the company,
shall be dissolved and removed from the records of the Registrar of Firms or Registrar of
Companies, as the case may be.
 The winding up of the LLP may be either voluntary or by the tribunal to be established
under the Companies Act, 1956. Till the Tribunal is established, the power in this regard
has been given to the High Court.
 The LLP Act confers powers on the Central Government to apply provisions of the
Companies Act, 1956 as appropriate, by notification with such changes or modifications
as deemed necessary. However, such notifications shall be laid in draft before each
House of Parliament for a total period of 30 days and shall be subject to any
modification as may be approved by both Houses.
 Tax issues of LLP shall be addressed under Income Tax Act 1961 separately. The Budget
2009-10 has laid tax provisions for LLP.

Comparative Analysis- Partnership vs New LLP

Point of Comparison Limited Liability Partnership Partnership

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1. Governance The Limited Liability Partnership
Act, 2008.
2. Registration Registration with Registrar of
Companies mandatory.
3. Composition Minimum: at least 2 Partners
Maximum: No limit as to
maximum no. of partners.
4. Body Corporate It is a Body Corporate having a
Separate Legal Entity capable of
sueing and being sued in its own
name.
5. Formalities of Name; Incorporation Document;
Incorporation LLP Agreement; Declaration by
CA/CS/ Advocate/ Plus 1
subscriber to the Incorporation
Document.
6. Name Name to end with LLP or Limited
Liability Partnership
7. Common Seal Yes
8. Minimum number of Designated Partners: At least 2
Directors/ Designated One must be Indian. DP’s must
Partner have DPIN.
9. Limitation on Liability Liability of Partner is limited to
the extent of his capital
contribution or as agreed as per
the LLP Agreement. But no
partner is liable on account of an
independent action on part of any
other partner.
10. Annual Return to be Yes
filed with Registrar
11. Conversion The LLP Act and LLP Rules has
provisions for conversions of any
other form of business into LLP.
12. Management By Partners/ Designated Partners
13. Regulation Would be Regulated by Registrar
of Companies.
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The Indian Partnership Act, 1932.
Registration is optional.
Minimum: at least 2 Partners
Maximum: Number of partners
should not exceed 10 in case of
banking business and 20 in case of
other business.
A partnership firm does not have a
Separate Legal Entity and it is not a
Body Corporate.
Application to the Registrar of Firms
for Registration of Partnership Firm.
The firm, which is registered, shall
use the brackets and word
(Registered) immediately after its
name.
None
Designated Partners: There is no
concept of DP’s/ Directors.
Every partner is liable jointly with all
the other partners and severally, for
all acts of the Firm done while he is
a Partner.
No
The Indian Partnership Act does not
have any specific provisions for
conversion of Partnership into any
other form of business.
By Partners
Regulated by Registrar appointed by
the respective State Government
under the Partnership Act.
Comparative Analysis- Limited Liability Company vs New LLP
Point of Comparison Limited Liability Partnership Limited Liability Company

1. Governance The LLP Bill, 2006 The Companies Act 1956

2. Incorporation Procedure Similar to LLC, MOA equivalent Name availability, MOA, AOA,
Incorporation Document, AOA declaration by an Advocate/CA/CS
equivalent LLP Agreement` or the person named as the First
Director
3. Name To end with Limited Liability To end with Limited/Private
Partnership or LLP. Limited.
4. Letter Head/ Invoice Letters, invoices and Letters, invoices and
correspondences to carry name of correspondences to carry name of
LLP, registered office address LLC and the registered office
registration no. and a statement address.
that is registered as an LLP.
5. Minimum members/ Minimum: 2 Partners Minimum: 2 Members
Partners Maximum: No limit Maximum: 50 as per Sec 3 of the
Companies Act, 1956.
6. Minimum No. of Designated Partners: At least 2 Two. Citizenship need not
Directors/ Designated One must be Indian. DP’s must necessarily be Indian. Directors
Partners have DPIN. must have DIN.
7. Separate Legal Identity Yes Yes
i.e. can sue and be sued
in its own name
8. Limitation of Liability Liability of a partner limited to the Liability of shareholders is limited
extent of his capital contributed to the extent of his capital
or agreed to be contributes as per contributed or agreed to be
LLP Agreement. contributes as per LLP
Agreement.
9. Common Seal Yes Yes

10. Transferability of share/ Yes with limitations Yes

Interest
11. Conversion The Bill does not have any specific To an LLP is possible.
provisions for converting an LLP
to any other form of business.
12. Change of registered Permissible Permissible
office/ Name
13. Management By Board of Directors By Partners/ Designated Partners.

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 14. Change Of Partners/ Designated Partners Of Directors, Secretaries to be
to be notified to the Registrar. notified to the Registrar.
15. Annual Account/ Return Yes Yes
to be filed with the
Registrar
16. E-filing with Registrar Yes Yes

Forming a Limited Liability Partnership

There are precise provisions for registration of a limited liability partnership. However, one
cannot buy an “off the shelf” limited liability partnership as you can a limited liability company.
The original documents have to be prepared with the names of the first set of “real” partners.

Process to Start LLP

A Limited Liability Partnership may be incorporated as per the procedure explained below:

a) User Registration
 Register yourself on the website of Ministry of Corporate Affairs, developed for
LLP services, i.e. www.llp.gov.in. This website may also be accessed through the
website of the Ministry www.mca.gov.in. On the home page of the URL
www.llp.gov.in click. On the home page of the URL www.llp.gov.in click
“Register” tab on top right hand corner of the page.
 Fill in the registration form. Fields marked * in the form are to be mandatorily
filled. Select your user name and password.

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  Upload digital signature certificate.
 On successful registration, system will give a message that you have been
registration successfully.
b) Obtain Designated Partners Identification Number (DPIN)
 All designated partners of the proposed LLP shall obtain “Designated Partners
Identification Number (DPIN)” by filing an application individually online in Form-
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 For obtaining DPIN log in by clicking on the “Login” tab on top right corner of the
home page, enter your user name and password. After login, click on the E-forms
link. List of e-forms link. List of e-forms will open. Click and open Form 7.
 Fill up “Form 7” for allotment of DPIN
 Pay filing fee of Rs. 100 online through credit card (master/visa)
 Submit the application form online. The system will generate a provisional DPIN.
 Take the print out of the application form, affix a latest passport size photograph
and get it attested/certified for submission physically along with documentary
evidences for proof of identity and proof of residence with the Registrar LLP.
 Deliver the printed and signed application form, along with the prescribed
documents by hand/courier/registered post to the office of Registrar, Ministry of
Corporate Affairs, 3rd floor, ‘Paryavaran Bhawan’ CGO Complex , Lodhi Road, New
Delhi-110003.

c) Digital Signature Certificate

 Digital Signature Certificates (DSC) are the digital equivalent (that is electronic
format) of physical or paper certificates. Like physical documents are signed
manually, electronic documents, for ex e-forms are required to be signed digitally
using a Digital Signature Certificate.
 Partner/ Designated partner of LLP/ proposed LLP, whose signatures are to be
affixed on the e-forms has to obtain class 2 or class 3 Digital Signature Certificate
from any authorized certifying agency. There are a total of seven Certification
Agencies authorized by the CCA to issue the DSC viz:
1. Tata Consultancy Services
2. National Informatics Center
3. IDRBT Certifying Authority
4. SafeScrypt CA Services, Sify Communications Ltd.
5. Code Solutions CA
6. MTNL Trust Line
7. Customs & Central Excise
8. E-MUDHRA

d) Reservation of Name

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  Log on to the LLP portal by clicking the “log in” tab on the top right corner of the
home page and enter your user name and password. After login, click “ E- Forms”
link.
 Open Form-1 for reservation of name and fill in the details. Select name of the
proposed LLP [ up to 6 choices can be indicated]
 Any partner or designated partner in the proposed LLP may submit Form-1.
 Append digital signatures and submit the e-form.
 Pay the necessary fee by credit card.
 Free name search facility is available on MCA portal. The system will provide the
list of similar/closely resembling names of existing companies/LLP’s based on the
search criteria filled up.
 Details of minimum two designated partners of the proposed LLP is required to
be filled in the application for reservation of name. Only individuals or nominees
on behalf of the bodies corporate as partners can act as designated partners.
 Check status of your application by logging on the portal.

e) Incorporation of LLP
 Once the name is reserved by the Registrar, log on to the portal and fill up Form-
2 “Incorporation Document and Statement”
 Pay the prescribed registration fee as per the slab given in Annexure A of the LLP
Rules 2009, based on the total monetary value of contribution of partners in the
proposed LLP.
 Statement in the e-form is to be digitally signed by a person named in the
incorporation document as a designated partner having permanent DPIN and
also to be digitally signed by an advocate/ CS/ CA/ Cost Accountant in practice
and engaged in the formation of LLP.
 On submission of complete documents the Registrar after satisfying himself
about compliance with relevant provisions of the LLP Act will register the LLP,
maximum within 14 days of filing of Form-2 and will issue a certificate of
incorporation in Form-16.
 Check status of your application by logging on to the portal.

f) Filing of LLP Agreement (Form-3) and Partners’ details “(Form-4)

 Form 3 (Information with regard to LLP agreement and changes, if any made
therein) and Form-4 (notice of appointment of Partner/ Designated Partner, his
consent etc) may be filed with the prescribed fee simultaneously at the time of
filing Form-2 or within 30 days of the date of incorporation or within 30 days of
such subsequent changes.

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Advantages
LLPs have been successfully used for rendering professional services in countries like US, UK,
Germany, Australia and Singapore for following advantages:

 As a hybrid structure for running business, LLP offers the twin benefits of internal
governance flexibility of partnership firms and limited liability of companies. As a
separate legal entity LLP has the liability to the full extent of its assets, but the liability of
its partners is limited to their agreed contributions in the LLP.
 LLP will give a boost to professionals by bridging the gap between partnership and
company. For example in a rapidly globalizing world, multidisciplinary professional firms
cannot restrict themselves to the 20 members. LLP enables Indian professionals to meet
the challenges of global market and seize emerging opportunities.
 LLP’s will facilitate pooling of resources for multidisciplinary professionals. Partners can
trust each another and start business without being accountable for the other partner’s
conduct.
 LLP will enable existing un incorporated business entities to convert themselves to LLP’s
or become partners in LLP’s. Moreover, persons with innovative and creative ideas, but
who are capital-scarce, can form LLP by typing up with companies or venture capitalists.
The intellectual contribution of partners can be quantified at the stage of signing of the
LLP agreement.
 Legal compliance requirements in respect of LLP are much simpler and easier than that
of companies.

Suggestions
 Aligning LLP legislation with other economic legislations like the Foreign
Exchange Management Act and Foreign Direct Investments Guidelines by
appropriate amendments/clarifications.
 Making the role of government that of a facilitator rather than controller. For ex,
the requirement that the Central Government can direct that any provisions of
the Companies Act, 1956, shall apply to any LLP with such exception,
modification and adaptation, should not render LLP akin to a private limited
company under the Companies Act.

 At present, the Income Tax Act does not recognize LLP firms. Proposals to amend
the laws have been made by both the ministry and Parliament’s Standing
Committee on Finance. However, there has been no action on this.

 Yet another demand, for a “one-person” company, will not be possible under the
LLP route as the minimum requirement is two persons.

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  Clarity is required on carry-forward of losses of existing entity on such
conversions to avoid disputes. This will be a huge incentive for capital intensive
companies when it comes to shifting to LLP model.

Bibliography

1. Chartered Secretary- Pages 1382-1486

2. www.mca.gov.in
3.

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