NLIU

NATIONAL LAW INSTITUTE UNIVERSITY

DIFFERENCE BETWEEN
Harshit Saxena III Year BA.LLB (Hons.)

INDIAN PARTNERSHIP ACT

&
LIMITED LIABILITY ACT

Submitted to :

FACULTY-IN-CHARGE
(Laws Relating To Business Association)
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

Index
 INTRODUCTION

 THE NEED FOR LLP

 THE SALIENT FEATURES OF THE LLP ACT, 2008

 INDIAN LEGISLATIVE HISTORY

 MAJOR DIFFERENCES

i. LIABILITY OF PARTNERS LIMITED TO CONTRIBUTION:

ii. PARTNERS NOT JOINTLY LIABLE FOR ACTS OF OTHER PARTNERS

iii. LLP IS A BODY CORPORATE HAVING PERPETUAL SUCCESSION

iv. LLP IS A SEPARATE LEGAL ENTITY

v. INCORPORATION OF LLP IS MANDATORY

vi. AN LLP IS A BODY CORPORATE:

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vii. TAXATION
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viii. TRANSFER OF ASSETS

ix. ASSIGNMENT AND TRANSFER OF PARTNERSHIP RIGHTS

 CONCLUSION
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

Declaration

The text reported in the project is the outcome of my own efforts and no part of
this report has been copied in any unauthorized manner and no part in it has
been incorporated without due acknowledgement.

Harshit Saxena
III Year
BA.LLB
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 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

DIFFERENCE BETWEEN
Limited Liability Partnership Act

And

Indian Partnership Act

INTRODUCTION

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 NEED FOR LLP:

Keeping in mind the changing corporate scenario and to provide entrepreneurs with an
effective alternate commercial vehicle, limited Liability Partnership Bill, 2006 was introduced in
the Rajya Sabha on 15th of December 2006, thereafter it was referred to standing Committee
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on Finance headed by Ananth Kumar which has presented its report on 27th November 2007.
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At present moment the Bill is awaiting the approval of the Parliament. The report intends to
provide for the reasons for introduction of such a Bill in India , various crucial aspects of the Bill,
enabling/disenabling provisions, shortcomings, the Bill suffers from, the kind of impact Bill
might have on the Indian corporate scenario once enacted etc. The Standing Committee’s
report has also been analyzed and the comparisons been drawn with existing LLP legislations
elsewhere in the world.
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

The government has woken up from it slumber has acknowledged the disadvantages posed the
general partnership and recognized the need for introducing LLP in India. To this end the
government set up a Committee headed by Mr. Naresh Chandra which has come up with a
framework for introducing LLP in India.

The broad areas of analysis made by the Committee relate to:

1. Application of the LLP Regime;
2. Incorporation, Registration and Number of Partners;
3. Limited Liability;
4. Financial Safeguards; and
5. Tax Treatment of LLPs.

The Limited Liability Partnership Act 2008 was published in the official Gazette of India on
January 9, 2009 and has been notified with effect from 31 March 2009. However, the Act, has
been notified with limited sections only. The rules have been notified in the official gazette on
April 1, 2009. The first LLP was incorporated in the first week of April 2009.

In India for all purposes of taxation, an LLP is treated like any other partnership firm.
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THE SALIENT FEATURES OF THE LLP ACT, 2008 ARE AS UNDER:-

 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

1. The LLP has an alternative corporate business vehicle that would give the benefits of limited
liability but allows its members the flexibility of organizing their internal structure as a
partnership based on an agreement.

2. The LLP Act does not restrict the benefit of LLP structure to certain classes of professionals
only and would be available for use by any enterprise which fulfills the requirements of the Act.

3. While the LLP has a separate legal entity, liable to the full extent of its assets, the liability of
the partners would be limited to their agreed contribution in the LLP. Further, no partner would
be liable on account of the independent or unauthorized actions of other partners, thus allowing
individual partners to be shielded from joint liability created by another partner’s wrongful
business decisions or misconduct.

4. LLP shall be a body corporate and a legal entity separate from its partners. It will have
perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there
shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm
where the maximum number of partners can not exceed 20, LLP Act makes a mandatory
statement where one of the partner to the LLP should be an Indian.

5. Provisions have been made for corporate actions like mergers, amalgamations etc.z

6. While enabling provisions in respect of winding up and dissolutions of LLPs have been made,
detailed provisions in this regard would be provided by way of rules under the Act.

7. The Act also provides for conversion of existing partnership firm, private limited company
and unlisted public company into a LLP by registering the same with the Registrar of Companies
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(ROC)

8. Nothing Contained in the Partnership Act 1932 shall effect an LLP.

9. The Registrar of Companies (RoC) shall register and control LLPs also.
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

INDIAN LEGISLATIVE HISTORY

1957: Suggestion to introduce LLP legislation rejected by 7th Law Commission on

Partnership Act, 1932. The suggestion was made by the iron, steel and hardware
merchants chamber at that time. The ground for seeking the creation of such business
organization was that the Companies Act had become cumbersome for private
companies, with directors and shareholder interests protection clauses, company
secretary being compulsory, etc. 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.

1997: Abid Hussain Committee on Small Scale Industries recommended introduction of

LLPs inIndia

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. 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. The recommendation was that LLPs should be permitted in phase 1 only for
professional firms, such as chartered accountants, architects, lawyers, doctors, cost
accountants, etc.

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
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should be a separate LLP Act. 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, 2006: 2006 LLP Bill approved by Union Cabinet

December 15, 2006: 2006 LLP Bill introduced in Parliament

 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

2007: 2006 LLP Bill referred to Parliamentary Standing Committee (PSC) headed by Mr.
Ananth
Kumar for examination

November 27, 2007: PSC submitted its report to the Parliament recommending changes
and
suggestions in relation to the 2006 LLP Bill
May 1, 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, 2008: LLP Bill 2008 passed by the Rajya Sabha

December 13 2008: LLP Bill 2008 passed by the Lok Sabha

January 7, 2009: President’s assent given to the LLP Bill 2008

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DIFFERENCE BETWEEN LIMITED LIABILITY PARTNERSHIP AND INDIAN

PARTNERSHIP ACT.
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

Limited Liability Partnership General Partnership

1 Liability of Partners limited to Liability of Partners unlimited

contribution

2 Partners not jointly liable for acts of Partners jointly and severally liable
other partners

3 LLP is a body corporate having Partnership firms are neither body

perpetual succession corporate nor do they have
perpetual succession

4 LLP is a separate legal entity A general partnership is not an entity

legally separate from its members

5 Incorporation of LLP is mandatory Registration of partnership is not

mandatory

6 LLP required to make financial General Partnership not required to

Disclosures make financial disclosures

7 An LLP can have more than 20 A general partnership cannot have

partners more than 20 partners

8 Filing of accounts, statement of Filing of accounts, statement of

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solvency and annual return are solvency and annual return are not
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mandatory required

9 The Act silent on the issue of Minor can be admitted to the benefits
admission of minor as partner of of partnership.
LLP. Interesting question on
consequence arises. Provisions of
Contract Act, 1872 should apply.
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

 Liability of Partners limited to contribution:

The first partners of an LLP are those who sign the incorporation document. After
incorporation, any person may become a partner of an LLP by agreement with the existing
partners. The provisions of any agreement between the partners govern the rights and duties
of the partners of an LLP to one another and to the LLP. In case, a matter has not been
specifically dealt with in the agreement, the provisions set out in the first scheduled will apply.
Certain particulars contained in the LLP agreement as may be prescribed and any changes made
therein will be filed with the registrar.
No member or partner is liable on account of the independent or unauthorized actions of one’s
partner, and whose liability is limited to the respective stake of each in the LLP. The members of
an LLP would have the option to have a general partner or more with unlimited liability, but it
would not shield the partners from legal liability arising out of their own personal acts which
are not done for and on behalf of the LLP, that is, any act done beyond the acts and powers of
the partners as laid down in the incorporation document. Further, a partner’s liability is not
limited when the misconduct is attributable to him or to an employee under the supervision or
control of that partner. An LLP only protects a partner, other than a general partner from the
liability arising from the misconduct or personal acts of other partners.

S. 3 of the LLP Act, inter alia, provides that an LLP is a body corporate separate from its
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partners, unlike a partnership firm constituted under the Partnership Act, which has no
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separate legal existence. S. 4 of the LLP Act, inter alia, provides that the provisions of the
Partnership Act would not apply to an LLP. Ss.(3) and (4) of S. 27 of the LLP Act, inter alia,
provide that an obligation of the LLP whether arising out of contract or otherwise is solely the
obligation of such LLP and the liabilities of such LLP are to be met out of the property of the LLP.
Ss.(1) of S. 28 of the LLP Act provides that a partner is not personally liable for any obligation of
an LLP solely by reason of being a partner thereof. Ss.(2) of the said S. 28, inter alia, provides
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

that such partner would be personally liable for wrongful acts or omissions committed by him,
but not those committed by any other partner of the LLP. Therefore, in terms of the aforesaid
provisions of the LLP Act, a partner of an LLP is not personally liable for the obligations of such
LLP, except those arising as a result of his own wrongful acts or omissions.

 Partners not jointly liable for acts of other partners

Each partner of the LLP is an agent of the LLP but not of other partners. Therefore, a partner
will be held personally liable for his own wrongful act or omission, but will not be liable for
wrongful act and omission of any other partner of the LLP. An LLP however is not bound by the
actions of a partner where that person has no authority to act for the LLP, and the person
dealing with the partner is aware of this or does not know or believe that the partners was in
fact a partner of the LLP. Further, where a partner of an LLP is liable to a person for a wrongful
act or omission in the course of business of the LLP or with its authority, the LLP will be liable to
the same extent as the partner. An LLP being a separate legal entity is liable for an obligation
arising in contract or otherwise and the liabilities of the LLP will be met out of its property. A
partner will not be held personally liable, directly or indirectly for an obligation of the LLP,
solely by reason of being a partner of the LLP. However, this liability shield will be withdrawn in
case of an act carried out by a LLP with the intent to defraud creditors or for any other
fraudulent purposes
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At present, being a member of a partnership firm is a very risky affair because under
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partnership law, the partners are liable jointly and severally and most importantly their liability
is unlimited which means that the personal property of the partners also be attached for the
satisfaction of the debts in addition to the capital contributed by the partners in the firm.
Hence, being a member of a partnership firm is a very risky affair as the liability is unlimited.
This is the principal reason why partnerships firms of professionals, such as accountants,
lawyers, companies secretaries, etc have not grown in size to meet the challenges posed today
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

by international competition. Not only were firm assets completely liquidated under standard
principles of partnership law, the partners were joint and severally liable for the entire liabilities
of the partnership.

 LLP is a body corporate having perpetual succession

An LLP will be a body corporate having perpetual succession and a legal personality of its own.
It will have at least two partners but there will be no limit on the maximum number of partners
that it have. If at any time the number of partners of an LLP falls below two and the business is
carried on for more than six months, a person who is a partner of an LLP during the time it
carries on business after those six months and is cognizant of this fact will be liable jointly and
severally with the LLP for the obligations of the LLP during that period. Any individual or body
corporate may be a partner in an LLP. An LLP being a body corporate, the law relating to
partnerships is not generally applicable to a limited liability partnership

 LLP is a separate legal entity

The LLP is a separate legal entity with unlimited capacity where no member or partner is liable
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on account of the independent or unauthorized actions of one’s partner, and whose liability is
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limited to the respective stake of each in the LLP. The members of an LLP would have the
option to have a general partner or more with unlimited liability, but it would not shield the
partners from legal liability arising out of their own personal acts which are not done for and on
behalf of the LLP, that is, any act done beyond the acts and powers of the partners as laid down
in the incorporation document. Further, a partner’s liability is not limited when the misconduct
is attributable to him or to an employee under the supervision or control of that partner. An LLP
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

only protects a partner, other than a general partner from the liability arising from the
misconduct or personal acts of other partners.

 Incorporation of LLP is mandatory :

To form an LLP, there must be at least two persons who are associated for carrying on a lawful
business with a view to profit and who subscribe their name to a document called an
incorporation document. The incorporation document must be delivered to the registrar in the
prescribed form and manner. A statement must also be delivered to the registrar there has
been compliance with all the requirement of the enactment. A subscriber must make the
statement to the incorporation document and by either an advocate, or a company secretary,
or a chartered accountant in whole time practice in India, who is engaged in the formation of
the LLP.

 An LLP is a body corporate:

Apart from individuals, even body corporate may be partners. Minimum two partners and two
Designated Partners who must be individuals, but no limit on the maximum number of
partners. Designated Partners are liable for compliance. If any compliance is not carried out,
they will be liable for all penalties. LLP may carry on any lawful business, trade, profession,
service or occupation. Unlike the Naresh Chandra Committee Report, the flexibility has been
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provided for LLPs to be incorporated in such manner as they deem fit. Inter se relationship,
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rights and duties between partners is governed by LLP Agreement (which would also require to
be registered). In the absence of agreement principles set out in schedule 1 apply (general
principles of equality, in terms of sharing of profits and losses, etc). The Name of the LLP must
end with either the words ‘Limited Liability Partnership’ or the acronym ‘LLP’.

 Taxation
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

The Bill doesn’t contain any provisions with respect to taxing of LLPs, which is
considered to be one of the major drawbacks of the present Bill.

Transfer of Assets

Upon conversion of an existing firm into LLP, the assets of such firm or partnership will have to
be transferred to LLP. But for such conversion, the law requires that stamp duty and capital
gains tax is to be paid. These dual impediments may discourage the conversion of existing firm
into LLP. Hence, to make practicable the conversion a more liberalized policy must be followed
as far as stamp duty and Capital Gains Tax are concerned. The limited liability partnerships Act,
2000, of the United Kingdom, contain provisions for relief from charges of stamp duty for
instruments transferred or conveyed to an LLP after fulfillment of some conditions. The
proposed bill incorporates similar provisions. Similarly, as far as capital gains tax is concerned,
appropriate exemption must be granted under section 47 of the Income Tax Act, 1961 whereby
on conversion of a firm into LLP the transfer of property must not be regarded as a taxable
transfer for the purpose of levy of Capital Gain Tax. In the absence of such provisions, the
partners of the firm have to pay huge sums as capital gain tax at the time of transfer and it may
act as a detrimental for those firms willing to convert itself into LLP.
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Assignment and Transfer of Partnership Rights

A partner’s economic rights, which include the rights of the partner to a share of the profits and
losses of the partnership and to receive distribution in accordance with the limited liability
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

partnership agreements, are freely transferable. However, a transfer in whole or in part of the
transferable interest does not imply the partner’s disassociations or dissolution and winding up
of the LLP’s activities. Further, they do not entitle the assignee to participate in the
management or conduct of the LLPs activities or access information concerning the LLPs
transactions. Moreover, the non-economic right will not be transferable unless specified by the
LLP agreement.

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CONCLUSION :

The LLP will act as an engine of growth for economic development of the country and would
lead to the growth of professional services in the country. With the liberalisation and
globalisation of Indian economy since 1990s, the LLP, as an alternate mode of carrying business,
 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

will encourage joint ventures and would make Indian service sectors globally competitive. The
issues raised by the writer during the analysis of the Bill needs to be addressed so that
proposed law become more comprehensive in tune with requirement of the modern business
environment.

Limited liability concept was introduced in order to adopt a corporate form, which combines
the organizational flexibility and tax status of partnership with the advantage of limited liability
for its partners. Limited liability partnership (LLP) is a body corporate formed and incorporated
under the Limited Liability Partnership Bill, 2006, which is a distinct legal entity separate from
its partners. It has perpetual succession. In India, businesses mainly operate as companies, sole
proprietorships and partnerships. Each of these is subject to different regulatory and tax
regimes

reflecting their organization and ownership. LLP, as a new business structure, would fill the gap
between business firms such as sole proprietorship and partnership, which are generally
unregulated and limited liability companies, which are governed by the Companies Act, 1956. In
addition to an alternative business structure, LLP would foster the growth of the services sector
and will provide a platform to small and medium enterprises and professional firms of company
secretaries, chartered accountants, advocate to conduct their business/profession efficiently
which would in turn increase their global competitiveness. In view of the increasing role of the
service sector in the Indian economy, a need has been recognised for a new corporate entity,
that is, LLP that will combine the characteristics of corporate and non-corporate.
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BIBLIOGRAPHY:

ONLINE TEXT REFERRED

 DIFFERENCE BETWEEN INDIAN PARTNERSHIP ACT & LIMITED LIABILTY ACT

 www.llp.gov.in/ -

 www.iibf.org.in/.../jaiib_ppb_limited_liability_partnership.doc

 www.indialaws.info/display.aspx?4762 –

 business.gov.in/starting_business/limited_liability.php

TEXT REFERRED

 An article on limited partnership act (some issues) by Ashish Ahuja (Wadia Ghandy &
Co.)

 Limited liability Companies by Thomas A. Humpreys

 Limited liability partnership: a new form of business association for professions, Vol-2
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