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and professional manpower has been acknowledged internationally. It is felt opportune that entrepreneurship, knowledge and risk capital combine to provide a further impetus to India’s economic growth. In this background, a need has been felt for a new corporate form that would provide an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other, in order to enable professional expertise and entrepreneurial initiative to combine, organize and operate in flexible, innovative and efficient manner. 1 The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. 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 a suitable vehicle for small enterprises and for investment by venture capital. keeping in mind the need of the day, the Parliament enacted the Limited Liability Partnership Act, 2008 which received the assent of the President on 7th January,2009.
Origin and development United Kingdom • Since the middle of the 19th century, there has been a continuing pressure to relax the provisions surrounding the limited company form and to introduce a new corporate structure for small and medium sized business organizations. • 1980-1990: Major accountancy firms organized in the form of partnerships with unlimited liability, wanting to limit the liability of an individual partner to acts specifically related to that partner, launched a campaign for the creation of the LLP vehicle in the UK. • 1989: The UK Companies Act, 1989 was amended to allow accountancy firms to work as limited liability companies. The joint and several liabilities of general partners, however, remained. Accordingly, in such an event if a wrong was done by a partner, the general partner
http://www.llp.gov.in/aboutllp.htm?R3Vlc3Q=, as visited on 30th oct,2010
aspx. 1932.uk/s-5-uk-limited-liability-partnership-formation. 2010 3 http://www.S jurisdictions by 2001 US state laws did initially vary on the kinds of protections that they provide to partners in an LLP. the accountancy firms in the UK again campaigned to secure proportional liability in Partnership firms. This finally led to the passing of the Limited LiabilityPartnership Act. in the year 2000. Over a period of time more recent laws protect partners in LLPs from personal liability for all partnership debts. in competency. 2 United States of America Texas (1991): The Texas LLP statute was enacted in response to the liability that had been imposed on partners of firms by government agencies in relation to massive savings and loan failures in the 1980’s. 2001: The concept of LLPs spread rapidly from 2 states in 1992 to all 51 U.omission. errors or malfeasance. 2010 See supra note 1 4 .• 1990-2000: In the 1990s. 1997: The success of LLPs in various states triggered the adoption of comprehensive LLP provisions into the RUPA. with directors and shareholder interests protection clauses. A number of states permitted formation of LLPs. company secretary being compulsory. as visited on 29th oct.kpmg.ukincorp. as visited on 29th oct.co.html. steel and hardware merchants chamber at that time. The suggestion was made by the iron.com/us/en/pages/default.4 2 http://www. It was rejected inter alia on the basis that the whole purpose of the recent Companies Act amendment would fail if this proposal was accepted. etc. Although the first Texas law protected partners from personal liability only for partnership obligations arising from the misconduct of other partners. The statute protected partners from personal liability for claims related to a co-partner’s negligence. 1994: The Revised Uniform Partnership Act (RUPA) was promulgated in 1994 to reinforce the changes occurring in Partnership law generally. The ground for seeking the creation of such business organisation was that the Companies Act had become cumbersome for private companies. Another reason for the introduction of LLPs was the increasing number of malpractice suits that were being filed against larger general partnerships.3 Indian legislative history 1957: Suggestion to introduce LLP legislation rejected by 7th Law Commission on Partnership Act.
2006: 2006 LLP Bill introduced in Parliament. lawyers. organize and operate in an innovative and efficient manner. 2009: LLP Act 2008 published in the official gazette The requirement of LLP to business community 1. 2007: PSC submitted its report to the Parliament recommending changes and suggestions in relation to the 2006 LLP Bill May 1.1997: Abid Hussain Committee on Small Scale Industries recommended introduction of LLPs in India 2003: Naresh Chandra Committee Report (Regulation of Private Companies and Partnerships) highlighted the grave need to introduce LLPs in India – suggested application of LLPs to service industry. such as chartered accountants. doctors. They viewed that this could provide flexibility to small enterprises to form joint ventures and enter into agreements that enable them to access technology December 7. cost accountants. architects. 2009: President’s assent given to the LLP Bill 2008 January 9. 2006: 2006 LLP Bill approved by Union Cabinet December 15. 2005: JJ Irani Expert Committee on Company Law recommended introduction of LLPs suggested that small enterprises should be included in the scope of LLPs and there should be a separate LLP Act. Ananth Kumar for examination November 27. The recommendation was that LLPs should be permitted in phase 1 only for professional firms. etc. 2008: LLP Bill 2008 passed by the Rajya Sabha December 13 2008: LLP Bill 2008 passed by the Lok Sabha January 7. It is pertinent to note that the intent was not to extend to all forms of trade as the form of the private company existed for all forms of trade. 2007: 2006 LLP Bill referred to Parliamentary Standing Committee (PSC) headed by Mr. 2008: Union Cabinet gave its approval to introduction of a new bill (2008 LLP Bill) replacing the 2006 LLP Bill October 21. . 2008: LLP Bill 2008 introduced in Parliament October 24. It is a new corporate form that enable professional expertise and entrepreneurial initiative to combine.
Agency: Every partner is an agent of the LLP and not of the other partners Unauthorised Acts: An LLP is not bound by unauthorized acts of any partner in dealing with a third person provided such third person . Unlike the Naresh Chandra Committee Report. 4. but no limit on the maximum number of partners. amalgamations etc. Provision have been made in the Act for corporate actions like merger. rights and duties between partners is governed by LLP Agreement (which would also require to be registered). 5. 6. service or occupation. etc). An LLP is a body corporate. If any compliance is not carried out. Minimum two partners and two Designated Partners who must be individuals. they will be liable for all penalties.2. 6. Allowing individual partner to be shielded from joint liability created by another partner’s wrongful business decision or misconduct. knowledge and technology based enterprises. Inter se relationship. profession. The Name of the LLP must end with either the words ‘Limited Liability Partnership’ or the acronym ‘LLP’ 7. 4. Apart from individuals. Designated Partners are liable for compliance. LLP may carry on any lawful business. In the absence of agreement principles set out in schedule 1 apply (general principles of equality. It provides flexibility suited to the requirements of service. 3. the flexibility has been provided for LLPs to be incorporated in such manner as they deem fit. trade. 7. 3. The structure of LLP does not restrict the benefits of LLP structure for a certain class of professional only and would be available for use by any enterprises which fulfill the requirement of LLP Act. in terms of sharing of profits and losses. even body corporates may be partners. LLP Act and their rules also made for winding up and dissolutions of LLP (unlike partnership firm) A brief overview 1. 5. It will not impose detailed legal and procedural requirement as needed in case of companies. 2.
Designated partner shall also be accountable for all regulatory and legal compliances.doc. as may be. shall also be required to be filed with ROLLP at the filing of LLP incorporation document. 3.gov. even liability for debt is limited Procedure to create a LLP 1. 5 http://www. per-se. An Incorporation Document which is subscribed by those two partners shall have delivered to the Registrar of Limited Liability Partnership (ROLLP). as visited on 30th oct 2010 . A minimum of 2 partners will be required for making a LLP. A copy of address proof of the premises proposed to be the Registered Office of LLP alongwith NOC from the owner of the premises shall be required. or (b) does not know or believe that the partner is a partner of the LLP 8. 10. An obligation of the limited liability partnership is solely the obligation of the limited liability partnership. This Agreement would be known as “LLP Agreement”. The liabilities of the limited liability partnership shall be met out of the property of the limited liability partnership. Wrongful Acts or Omissions: An LLP is liable for wrongful acts or omissions of partners in the course of business of the LLP or with its authority – The partner(s) committing such act or omission will be personally liable – Other partners not to be liable for such wrongful act or omission 9.in/tolink/howtoregisterllp. besides their liability as partner. Every LLP shall have a registered office and Contents of LLP agreement. 2. Every LLP shall be suffix the word “Limited Liability Partnership” or the acronym LLP Agreement The mutual rights and duties of partners inter se and those of the LLP and its partner shall be governed by the agreement between partners or between the LLP and the partners. Appointment of at least two “Designated Partner”. unlike the Texas first law.(a) is aware that the acts are unauthorised.5 5. “LLP” as the last word of its name. 4.llp. Accordingly.
Transferee/ assignee not entitled to participate in the management of the LLP 4. as visited on 1st nov.7 Annual Return: Every LLP must file in Form 11 an annual return with the Registrar within 60 days of the end of the financial year – the annual return should be accompanied by a certificate from a company secretary confirming the veracity of the particulars/statements contained in such annual return. in absence of any LLP agreement . Every designated partner of a LLP will obtain a Designated Partner Identification Number (DPIN) from Central Government. Transfer does not imply that the transferor/assignor has ceased to be a partner 3. if any. Right of a partner to share profits is transferable (either wholly or in part) 2. Every LLP have at least two Designated partners who are individual and at least one of them shall be a resident in India. in case any LLP propose to exclude provisions/requirement of Schedule I to the Act. 4.the mutual rights and duties shall be as provided for under Schedule I of the Act. specifically excluding applicability of any or all paragraph of Schedule I.asp?id=210. 2010 7 . 2.com/display.-7 of LLP act 2008. LLP will be required to appoint a designated partner within 30 days of a vacancy. 6 Right to share profits transferable 1. DESIGNATED PARTNER 1.The statements must be filed with the Registrar.llpinindia.An LLP must prepare a ‘Statement of Accounts’ and ‘Solvency Statement’ within a period of 6 months from the end of the financial year to which the statement or solvency relates . 3. In form no.As per the provisions of the LLP Act. Therefore. Prior consent of designated partner is required for his appointment as designated partner. Transferee/assignee not entitled to any information relating to transactions of LLP Statements of Accounts and Solvency. it would have to enter into an LLP Agreement. 6 See supra note 1 http://www.
Partnership Firm: An existing partnership firm may be converted into an LLP. The Relevant provisions are contained in Chapter XII of the Act (Sections 60 – 65)9 Defunct LLP The Registrar has the power to strike off the name of an LLP from the register if the LLP is not carrying any business or operation in accordance with the Act and the Rules. Company cannot convert into an LLP Foreign LLPs The Act states that the Central Government may make Rules for establishment of place of business for foreign LLPs in India and conduct of business by such foreign LLPs.8 Compromise. enabling provisions would be 8 See supra note 8 ibid ibid 9 10 . must comprise all the partners of the original partnership firm and no one else. on conversion. A listed Public Ltd. can convert itself into an LLP.LLP would not be allowed to convert itself into company under LLP Act. The partners of the LLP. arrangement and reconstruction The Act provides for compromise and arrangement between the LLP and its creditors/partners. The Act also provides for reconstruction of LLPs. 1956 can convert itself into an LLP.Private company or unlisted public company would be able to convert themselves into LLPs. An application can also be made in this regard in Form 24 to the Registrar. (Section 75 and Rule 37 of the Rules)10 Conversion of other Entities into LLPs And vice versa The LLP Act contain enabling provision pursuant to which a Firm. However. A company may apply for conversion provided all the shareholders of the Company and no one else shall be partners of the LLP. Unlisted Public Company: An unlisted Public Company registered under the Companies Act. Provisions relating to setting up foreign LLP establishments in India are contained in the Rules framed in this regard. Private Company: A private limited company registered under the Companies Act. Provision of clause 58 and Schedule II to Schedule IV to the Act provide procedure in this regard. A company may apply for conversion provided all the shareholders of the Company and no one else shall be partners of the LLP.
A general partnership is not an entity legally separate from its members 5. If the opinion of Tribunal is that its JUST & EQUITQBLE that LLP should be wound up.Incorporation of LLP is mandatory 6. 2010 . 2.taxmann.com/TaxmannFlashes/flashst16-7-10_1. If the number of PARTNERS IS REDUCED below than 2 and LLP carries its business more than 6 months.htm. as visited on 1st nov. Comparitive analysis significant difference between LLP and general partnership act LLP 1. Liability of contribution Partners limited to General partnership 1. If LLP is UNABLE TO PAY ITS DEBTS.General Partnership not required to make financial disclosures 7. In the following circumstances. Liability of Partners unlimited 2. LLP may be wound up by Tribunal:1. Registration of partnership is not mandatory 6. If LLP has acted AGAINST THE INTEREST of sovereignty and integrity of India. 4. If LLP SO DECIDES that it should be wound up by Tribunal. 3.required to be made in the Companies Act for such conversion.LLP required to make financial disclosures 7. Partners not jointly liable for acts of other partners 3. LLP is a body corporate having perpetual succession 4. 5. Partners jointly and severally liable 3 Partnership firms are neither body corporates nor do they have perpetual succession 2.An LLP can have more than 20 partners 11 4. LLP is a separate legal entity 5. 6.11 Winding Up And Dissolution Winding up of LLP may be either voluntary or by the order the National Company Law Tribunal(NCLT) and LLP so wind up may be dissolved. A general partnership cannot have more http://www. If LLP has made default in filing Statement of Account and Solvency Or Annual Return for any continuous FIVE financial years. Necessary action in this regard would be taken when Companies Act would be revised.
Incorporation procedure more complex than LLP 2. Interesting partnership. question on consequence arises. 1872 should apply.than 20 partners 8. statement of solvency and solvency and annual return are annual return are not required mandatory 9. Filing of accounts. The Act silent on the issue of admission 9. No provision relating to redressal in case of oppression and mismanagement 4. Elaborate provision relating to redressal in case of oppression and mismanagement 2. No provision relating to redressal in case of oppression and mismanagement 5. Provisions of Contract Act. Complex statutory compliance requirement .Filing of accounts. Comparative analysis: Significant differences between LLP and Company LLP 1. Management structure usually complex –Shareholders do not ordinarily participate in day to day management 3. Incorporation procedure simple and expeditious relatively Incorporated Company 1. Capital structure less flexible than LLP 4. statement of 8. Limited statutory compliance compared to Companies as 5. Flexible management structure – Partners are entitled to participate in management 3.Minor can be admitted to the benefits of of minor as partner of LLP.
which combines the organisational flexibility of general partnership and the limited liability benefits of an incorporated company is innovative. appealing and is likely to attract small and medium size entrepreneurs.CONCLUSION The hybrid structure of an LLP. a step in the positive direction. Even the issues that arise are not irresolvable. service providers and professionals into setting up LLPs in India. The structure is also likely to improve the efficiency of Indian enterprises and facilitate an increased participation of the Indian service industry in the global market. The LLP Act is. no doubt. .
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