THE CONCEPT OF LIMITED LIABILITY PARTNERSHIP

INTRODUCTION

In today’s Modern world, nobody prefers to entertain a hovering liability over their heads,
rather each and every individual prefers to organise a smooth ongoing business with no
liability and simultaneous profit extraction. The concept of Limited Liability Partnership
(LLP) is based on the same lines. The concept found its origin from US 1. As it is rightly
described by the Ministry of Corporate Affairs the concept of Limited Liability Partnership
(LLP) was brought into play in order to boost the economic growth of the country.

The Limited Liability Partnership is a business form, in which business can be carried on
even there is an alteration in the partners of the business. Limited Liability Partnership (LLP)
is a separate legal entity, where the Limited Liability Partnership is liable in full to its Assets,
but the partners are liable to the contribution made by themselves individually only.

Further the concept of Joint Liability is completely kept away in an LLP where the partners
cannot be held Jointly Liable2 for the wrongful acts, misconducts, business decisions, made
by other partners. However, the LLP can be held liable as an entity for its other obligations.
The Rights and Duties of the partners in a LLP are governed and regulated by an agreement
held between the partners or the partners and LLP.

STRUCTURE OF LLPs

The LLPs are governed by the Limited Liabilities Act 2008 3. It’s a corporate body and is to
be considered as a separate legal entity undergoing perpetual successions. There must be a
minimum of at least two members required, with a motive to start a lawful business, in order
to obtain profit in order to form a LLP, and there is no maximum no. of members prescribed.
However the provisions of the Partnerships Act 19324 is not applicable to LLPs.
1
Limited Liability Partnerships, available at
https://corporatefinanceinstitute.com/resources/knowledge/strategy/limited-liability-partnerships-llps/ (Last
visited on 25 April, 2021)
2
How do Liabilities work in an LLP, available at https://www.realbusinessrescue.co.uk/limited-liability-
partnerships-llps-uk/liabilities (Last visited on 28 April, 2021)
3
The Limited Liabilities Act 2008, available at https://legislative.gov.in/sites/default/files/The%20Limited
%20Liability%20Partnership%20Act,%202008.pdf (Last visited on 28 April, 2021)
4
The Partnerships Act, 1932, available at
https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf (Last Visited on 28 April, 2021)
A corporate body or an individual can be a partner to the LLP. There should be at least two
“Designated Partners5” who could also be held liable for legal compliances, beside there
liabilities as partners. If a Limited Liability Partnership has only one individual or all
corporate bodies as its members then the designated members, i.e. at least two individuals
shall be chosen from the corporate bodies, who are nominated by the bodies themselves.
However, every designated partner holds a specific identification number which is called
Designated Partner’s Identification Number.

REGISTRATION OF AN LLP

 PROCESS OF REGISTRATION-:

Certain documents are necessary as part of the registration process to form an LLP. These
documents are classified into two categories: partner documents and LLP documents. Section
11 of the LLP Act of 20086 mentions the following above-mentioned statement. 

1. PAN Card/ ID Proof, Residence Proof, Address Proof, Photograph of the partners,
Passport if the partners are foreign nationals or NRIs are all important documents for
partners.

2. The LLP requires proof of registered office address as well as a digital signature
certificate. From the time you acquire a DSC certificate to the time you file Form 3, it
takes about 15 days.

5
Definition of Designated Partners, available at https://www.lawinsider.com/dictionary/designated-partner
(Last visited on 28 April, 2021)
6
Limited Liability Partnership, available at https://taxguru.in/corporate-law/limited-liability-partnership.html
(Last visited on 29 April, 2021)
 STEPS REQUIRED FOR REGISTRATION OF LLPs

1. Obtaining a Certificate of Digital Signature

Every individual who wishes to be nominated as a partner of an LLP must first apply for a
Digital Signature Certificate7 before proceeding with the rest of the registration process. This
is necessary since all of the LLP's documentation must be filed online and signed
electronically. All forms filed online on the MCA portal require a DSC to be signed digitally.

2. Fill out an application for a Director Identification Number.

Once the DSC has been obtained, the designated partners must apply for the Designated
Partner Identification Number8 using Form DIR-3 (DPIN). The partner must also include
confirmation of identity and proof of domicile when filing Form DIR-3. All designated
partners or those wanting to be designated partners of such prospective LLP should submit an
application for a DIN.

3. Reservation for LLP Name9

For any conversion of a company/firm into an LLP or the incorporation of a new LLP, an
applicant must acquire a name reserved. An application must be submitted through the MCA
Portal to reserve a proposed name.

INCORPORATION OF THE LIMITED LIABILITY PARTNERSHIP

(LLP)

Following the reservation of a name, the member must file an LLP Integrated Incorporation
form through MCA Portal. This FiLLiP (Form for Incorporation of LLP) requires
information and documents such as the LLP's approved or proposed name, proof of address
of the office registered under the LLP, the LLP's planned activity, details of designated
partners with their DPIN, subscriber's sheet with consent, and the total contribution by the
LLP's partners with their monetary value, etc. The incorporation paperwork of an LLP is

7
How to Apply for Digital Signature Certificate for LLPs, available at https://onlinedigitalcertificate.in/how-to-
apply-digital-signature-certificate-for-limited-liability-partnership (Last Visited on 29 April,2021)
8
Designated Partner Identification Number, available at https://www.myadvo.in/blog/designated-partner-
identification-number/ ( Last Visited on 30 April, 2021)
9
Name Application/Reservation for Company, available at https://taxguru.in/company-law/name-application-
reservation-company-via-spicepart-a.html ( Last Visited on 1 April, 2021)
discussed in Section 11 of the LLP Act. The FiLLiP form must be submitted with the
appropriate fee, as well as the Stamp Duty, as specified on the MCA Portal:

 Fee of Rs. 500 for an LLP with a contribution of less than Rs. 1 lakh.
 A fee of Rs. 2,000 is charged for an LLP with a contribution of between Rs. 1 lakh and
Rs. 5 lakh.
 Fee of Rs. 4,000 for an LLP with a contribution of between Rs. 5 lakh and Rs. 10 lakh.
 A fee of Rs. 5,000 is charged to an LLP with a donation of more than Rs. 10 lakh.

INCORPORATION OF APPLICATION

The Registrar of Companies (RoC) issues a Certificate of Incorporation on Form 16 under the
Registrar's seal after the LLP is officially registered. This Registrar has jurisdiction over the
state in which the LLP's registered office is located. The LLP Identification Number appears
on the certificate (LLPIN)10.

Only two people are permitted to submit an application for an allotment. If the name that has
been submitted is accepted by the appropriate authorities, then only it becomes the LLP's
name. The guidelines for incorporation by registration under an LLP are found in Section 12
of the LLP Act11.

LIMITED LIABILITY PARTNERSHIP AGREEMENT

The mutual Rights and duties of the members of the LLPs are further decided by an
agreement which is either made between its members or between the LLP and its members.
However if there is no agreement, then the schedule 1 of the Limited Liability Partnership
Act12 is to be followed which states the following things-:

2. Both limited liability partnership members are entitled to a fair share of the limited liability
partnership's capital, gains, and losses.

10
Limited Liability Partnership, Registration in India, available at https://cleartax.in/s/limited-liability-
partnership-registration-procedure-india (Last visited on 28 April,2021)

11
Incorporation by Registration, available at https://lawgist.in/limited-liability-partnership-act/12 (Last visited
on 28 April,2021)
12
What are the Provisions of the First Schedule of the LLP Act, available at
https://llpwala.com/questionDetail/what-are-the-provisions-of-the-first-schedule-of-the-llp-act (Last visited on
29 April, 2021)
3. Every partner shall be indemnified by the limited liability partnership for payments
rendered and personal liabilities incurred by him—

A. in the usual and proper course of the limited liability partnership's business; or

B. in or around something that must be done to keep the limited liability partnership's
company or property running smoothly.

4. Any partner is liable to the limited liability partnership for any losses incurred as a result of
his misconduct in the conduct of the limited liability partnership's company.

5. Any partner can participate in the limited liability partnership's management.

6. No partner shall be entitled to remuneration for engaging in the limited liability

partnership's company or management.

7. No one can be added as a partner until all of the current partners agree.

8. Any matter or dispute concerning the limited liability partnership shall be determined by a
resolution approved by a majority of the partners, with each partner having one vote for this
reason. However, the limited liability partnership's form of operation cannot be changed
without the agreement of both partners.

9. Any limited liability partnership must ensure that its decisions are reported in minutes
within thirty days of making them, and that the minutes are stored and preserved at the
limited liability partnership's registered office.

10. For each partner or his legal representatives, each partner must have true accounts and
full information on all matters concerning the limited liability partnership.

11. If a partner operates a company that is similar to and competes with the limited liability
partnership without the limited liability partnership's permission, he must account for and
fork over all profits made in that business to the limited liability partnership.

12. Any partner must account to the limited liability partnership for any profit gained without
the limited liability partnership's consent from any transaction involving the limited liability
partnership, or from any use by him of the limited liability partnership's property, name, or
any business relation.

13. No partner can be expelled by a majority of the partners unless the right to do so has been
expressly granted by the partners.
14. Any conflicts between partners arising out of a joint liability partnership arrangement that
cannot be resolved in accordance with the terms of the agreement will be referred to
arbitration in accordance with the Arbitration Act.

LIMITED LIABILITY PARTNERSHIP IN INDIA

The draft bill for introducing LLP in India 13 was based on the recommendations of the J.J.
Irani Committee and the Naresh Chandra Committee-II14. On December 7, 2006, the Cabinet
approved the Bill, which was then tabled in the Rajya Sabha on December 15, 2006.
Following that, the Department Related Parliamentary Standing Committee which
further suggested some modifications to the draft Bill, 200615. The committee's final report
was sent to the Ministry of Corporate Affairs.

Finally, on May 1, 2008, the Cabinet approved the Limited Liability Partnership (LLP) Bill,
2008. The bill was passed by both Houses of Parliament with no amendments. On January 7,
2009, the President gave his assent to the bill. The Limited Liability Partnership Act, 2008,
was published in India's official gazette on January 9, 2009, and it went into effect on March
31, 2009. The LLP Act of 2008, as amended, governs the establishment and regulation of
limited liability partnerships, as well as matters related to them.

ADVANTAGES OF HAVING AN LLP

 SEPARATE LEGAL ENTITY

A limited liability partnership (LLP) is a separate legal entity 16. It can sue and be sued since it
possesses assets in its own name. Furthermore, one partner is not liable or responsible for the
misbehaviour or neglect of the other.

13
LLPs In India-All You Want To Know, available at https://www.mondaq.com/india/corporate-and-company-
law/552322/llps-in-india--all-you-want-to-know (Last visited on 29 April, 2021)
14
The Limited Liability Partnership Bill, 2006, available at
https://www.prsindia.org/sites/default/files/bill_files/scr1206341536_The_Limited_Liability_Partnership_Bill_
_2006.pdf (Last visited on 30 April,2021)
15
Proposed changes under the LLP Act, available at http://www.lawstreetindia.com/experts/column?sid=524
(Last Visited on 30 April, 2021)
16
Key Characteristics of LLPs, available at https://www.wrighthassall.co.uk/knowledge-base/key-
characteristics-of-limited-liability-partnerships (Last Visited on 1 May, 2021)
 NO OWNER/ MANAGER DISTINCTION

An LLP is made up of partners who own and operate the company. A private limited
company, on the other hand, may have directors who are not shareholders. As a result,
venture capitalists avoid the LLP form.

 FLEXIBLE AGREEMENT

In terms of their rights and responsibilities17, the partners are allowed to design the agreement
according to their own will.

 LIMITED LIABILITY

The partners' responsibility is restricted to the amount of money they put into the LLP.
Unless fraud is discovered, the partner's personal assets are protected from the LLP's
liabilities.

 FEWER COMPLIANCE REQUIREMENTS

Because there are only three compliances18 per year, an LLP is significantly easier and less
expensive to administer than a private limited company. A private limited business, on the
other hand, must comply with numerous regulations and have its books audited.

 EASY TO WIND UP

In comparison to a private limited company, an LLP is not only easier to create but also to
wind u19p. While this process still takes two to three months, closing a private limited
business can take up to a year.

 PROTECTING THE PARTNERSHIP NAME

By registering an LLP at Companies House another company can be prevented from

registering the same name.

17
Rights and duties of Partners in a Partnership Firm & LLPs, available at
https://www.lawyersclubindia.com/articles/rights-and-duties-of-partners-in-a-parnership-firm-llp--1426.asp
(Last visited on 2 May, 2021)
18
LLP Compliances Calendar, available at https://taxguru.in/corporate-law/llp-compliance-calendar.html
(Visited on 2 May, 2021)
19
Voluntary winding up of LLP, available at https://taxguru.in/corporate-law/voluntary-winding-up-llp.html
(Last Visited on 3 May, 2021)
DISADVANTAGES OF HAVING AN LLP

 INABILITY TO RAISE VC FUNDING

An LLP form would be unattractive to venture capitalists. This is because all LLP's
'shareholders' must be partners, and partners have certain responsibilities to the entity. No VC
wants to be responsible for any of these things, thus they'll only invest in a private limited
firm.

 RIGHTS OF PARTNERS20

A limited liability partnership (LLP) can be set up so that one partner has more rights than the
other. As a result, it is not a one-vote-per-share structure. As a result, if higher shareholders
opt to steer the business in a manner that adversely impacts their interests, some smaller
partners may feel betrayed.

 GREATER PENALTIES

The compliance requirements for an LLP are simple, but if you don't meet them, you could
face higher fines than you would with a private limited company. For a single year, the fines
might reach Rs. 5 lakhs.

 NOT RECOGNIZED IN EVERY STATE

Limited liability partnerships are not recognised as legal business arrangements in every
state21, unlike general partnerships. The formation of a limited liability partnership is
restricted in some states to professionals such as doctors and lawyers. Other states permit the
formation of an LLP but put strict tax restrictions on the entity, both during its establishment
and thereafter. Furthermore, many parties see LLPs as having less credibility as "real firms"
than corporations, regardless of the state in which they operate.

20
LLP Agreement: A Pact of Rights and Duties, available at https://vakilsearch.com/advice/llp-agreement-a-
pact-of-rights-and-duties/ (Last visited on 4 May, 2021)
21
LLPs still not recognised by all the Acts and States in India, available at https://taxguru.in/corporate-law/llp-
still-not-recognized-by-all-the-acts-and-states-in-india.html (Last Visited on 5 May, 2021)
LLP Names

As long as the name is accessible at Companies House, an LLP can be registered under
whatever name its members select. Although it is common to see the members' names
included in the LLP name, it is not required. Members must determine whether they want the
name "Limited Liability Partnership" in full or the "LLP" abbreviation recorded at
Companies House when registering the LLP. 

CONCLUSION

The Limited Liability Partnership Act of 2008 was enacted in response to the changing needs
of businesses in today's world. The establishment of the LLP, if effectively administered, will
give a useful new option for professional partnerships concerned about their liability risk.
Given the recent rise of the Indian service industry, LLPs are projected to contribute even
more to that expansion, and a substantial number of existing organisations, both public and
private, are likely to convert to LLPs with a view to have access to the benefits of LLP. The
Indian government has made an effort to create a conducive atmosphere for entrepreneurs,
service providers, and professionals to compete in the global market; nevertheless, it remains
to be seen how beneficial the transformation is.

REFERENCES

 Limited Liability Partnerships, available at

https://corporatefinanceinstitute.com/resources/knowledge/strategy/limited-liability-partnerships-llps/ (Last
visited on 25 April, 2021)
 How do Liabilities work in an LLP, available at https://www.realbusinessrescue.co.uk/limited-liability-
partnerships-llps-uk/liabilities (Last visited on 28 April, 2021)
 The Limited Liabilities Act 2008, available at https://legislative.gov.in/sites/default/files/The%20Limited
%20Liability%20Partnership%20Act,%202008.pdf (Last visited on 28 April, 2021)
 The Partnerships Act, 1932, available at
https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf (Last Visited on 28 April, 2021)
 Definition of Designated Partners, available at https://www.lawinsider.com/dictionary/designated-partner
(Last visited on 28 April, 2021)
 Limited Liability Partnership, available at https://taxguru.in/corporate-law/limited-liability-partnership.html
(Last visited on 29 April, 2021)
 How to Apply for Digital Signature Certificate for LLPs, available at https://onlinedigitalcertificate.in/how-
to-apply-digital-signature-certificate-for-limited-liability-partnership (Last Visited on 29 April,2021)
 Designated Partner Identification Number, available at https://www.myadvo.in/blog/designated-partner-
identification-number/ ( Last Visited on 30 April, 2021)
 Name Application/Reservation for Company, available at https://taxguru.in/company-law/name-
application-reservation-company-via-spicepart-a.html ( Last Visited on 1 April, 2021)

 Limited Liability Partnership, Registration in India, available at https://cleartax.in/s/limited-liability-

partnership-registration-procedure-india (Last visited on 28 April,2021)

 Incorporation by Registration, available at https://lawgist.in/limited-liability-partnership-act/12 (Last

visited on 28 April,2021)
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visited on 29 April, 2021)
 LLPs In India-All You Want To Know, available at https://www.mondaq.com/india/corporate-and-
company-law/552322/llps-in-india--all-you-want-to-know (Last visited on 29 April, 2021)
 The Limited Liability Partnership Bill, 2006, available at
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ill__2006.pdf (Last visited on 30 April,2021)
 Proposed changes under the LLP Act, available at http://www.lawstreetindia.com/experts/column?sid=524
(Last Visited on 30 April, 2021)
 Key Characteristics of LLPs, available at https://www.wrighthassall.co.uk/knowledge-base/key-
characteristics-of-limited-liability-partnerships (Last Visited on 1 May, 2021)
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https://www.lawyersclubindia.com/articles/rights-and-duties-of-partners-in-a-parnership-firm-llp--1426.asp
(Last visited on 2 May, 2021)
 LLP Compliances Calendar, available at https://taxguru.in/corporate-law/llp-compliance-calendar.html
(Visited on 2 May, 2021)
 Voluntary winding up of LLP, available at https://taxguru.in/corporate-law/voluntary-winding-up-llp.html
(Last Visited on 3 May, 2021)
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pact-of-rights-and-duties/ (Last visited on 4 May, 2021)
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Visited on 5 May, 2021)