Lecture-

59
Law of Contracts-II
(Introduction to Limited Liability Partnership)

Limited Liability Partnership

Date: 16/10/2013 Slide-01

 Lecture-
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
A business enterprise can be owned and organized in several forms. Each
form of organization has its own merits and demerits. The ultimate choice
of the form of business depends upon the balancing of the advantages
and disadvantages of the various forms of business. The right choice of
the form of the business is very crucial because it determines the power,
control, risk and responsibility of the entrepreneur as well as the division
of profits and losses. Being a long term commitment, the choice of the
form of business should be made after considerable thought and
deliberation.

The Need for Limited Liability Partnership in India was Felt Owing to
the Following Reasons:
• Limitations of a Firm under the Partnership Act 1932
• Rigidity in the Functioning of a Company under the Companies Act
1956
Date: 16/10/2013 Slide-02
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
Limitations of a Firm under the Partnership Act 1932
• Limitation on number of partners.
• Partnership firm does not have a separate legal entity. However,
it is treated as separate entity only for limited purposes, such as,
for the purposes of tax laws, filing of suits, etc.
• Although registration is not mandatory, yet there are some
restrictions which are clinched upon a firm if it is not registered.
• In view of the fact that partnership is not a juristic person, a
partner cannot enter into a contract with the firm.
• Partners owe unlimited personal liability.
• Easy dissolubility in many events.
• A partnership can continue only as long as there is mutual trust
and faith among partners.
Date: 16/10/2013 Slide-03
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Law of Contracts-II
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Rigidity in the Functioning of a Company under the

Companies Act
• Over the years, a lot of rigidity has entered the operation of the
Companies Act. There are restrictions on managerial remuneration,
loans, guarantees, selling agents, contracts where Directors are
related, etc. A number of procedural formalities are also there, for
instance, registration of charge, periodic meetings and filing of
numerous documents with ROC, etc. Several statutory registers and
records are to be maintained.
• This rigidity is understandable and, indeed, required when public
money is involved, i.e. in case of listed companies. Nevertheless, in
case of private companies and small public companies, these
restrictions trim down the flexibility in operations and increase
administration costs.
Date: 16/10/2013 Slide-04
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
Limited Liability Partnership is an Ideal Blend of Partnership and
Company
• By combining the good features of the Companies Act and the Indian
Partnership Act, and by removing all the defects of traditional partnership
firm and the procedural hassles and rigidity in companies, the Limited
Liability Partnership offers a wonderful option to the aspirants to earn
profits in a joint venture at a low compliance cost. Though the Limited
Liability Act 2008 seems to have stemmed from the Indian Partnership Act,
yet it is closer to the Companies Act and is markedly different from the
Indian Partnership Act.
• LLP is 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.
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59
Law of Contracts-II
(Introduction to Limited Liability Partnership)
The Salient Features of the LLP Act 2008
• A body corporate and a legal entity separate from its partners.
Any two or more persons, associated for carrying on a lawful
business with a view to make profit, may by subscribing their
names to an incorporation document and filing the same with
the Registrar, form a Limited Liability Partnership. The LLP has
perpetual succession.
• The mutual rights and duties of partners of an LLP inter se and
those of the LLP and its partners shall be governed by an
agreement between partners or between the LLP and the
partners subject to the provisions of the LLP Act 2008.  The Act
provides flexibility to devise the agreement as per their choice. 
In the absence of any such agreement, the mutual rights and
duties shall be governed by the provisions of the LLP Act.
Date: 16/10/2013 Slide-06
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
• The LLP is a separate legal entity, liable to the full extent of its
assets, with the liability of the partners being limited to their
agreed contribution in the LLP which may be 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.
• 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. The duties and obligations of
Designated Partners shall be as provided in the law.
Date: 16/10/2013 Slide-07
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
• The LLP can continue its existence irrespective of changes in partners.
It is capable of entering into contracts and holding property in its
own name.
• The LLP is 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 LLPs shall also be audited, subject to any class of
LLPs being exempted from this requirement by the Central
Government.
• The Central Government has powers to investigate the affairs of an
LLP, if required, by appointment of competent Inspector for the
purpose.
• The compromise or arrangement including merger and
amalgamation of LLPs shall be in accordance with the provisions of
the LLP Act 2008.
Date: 16/10/2013 Slide-08
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
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 certificate of
registration issued by the Registrar in this regard, the effects of
the 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 (movable or immovable) and intangible
property 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 the LLP without
further assurance, act or deed and the firm or the company, shall
be deemed to be dissolved and removed from the records of the
Registrar of Firms or Registrar of Companies, as the case may be.
Date: 16/10/2013 Slide-09
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Law of Contracts-II
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• The winding up of the LLP may be either voluntary or by the
Tribunal to be established under the Companies Act. Till the
Tribunal is established, the power in this regard has been given to
the High Court.
 
• The LLP Act 2008 confers powers on the Central Government to
apply provisions of the Companies Act 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.
 
• The Indian Partnership Act 1932 shall not be applicable to LLPs.
Date: 16/10/2013 Slide-10
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Law of Contracts-II
(Introduction to Limited Liability Partnership)

Advantages of LLP
• LLP form is a form of business model which:

o is organized and operated on the basis of an agreement.

o provides flexibility without imposing detailed legal and

procedural requirements.

o enables professional/technical expertise and initiative to

combine with financial risk taking capacity in an innovative
and efficient manner.
Date: 16/10/2013 Slide-11
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Law of Contracts-II
(Introduction to Limited Liability Partnership)

Other Countries where this form is Available

• The LLP structure is available in countries like the

United Kingdom, the United States of America, various
Gulf countries, Australia, Singapore, Japan, etc. 

• According to the experts who have studied LLP

legislations in various countries, the LLP Act is broadly
based on UK LLP Act 2000 and Singapore LLP Act 2005.

Date: 16/10/2013 Slide-12

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Law of Contracts-II
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• First LLP was registered on 02.04.2009.

• 6207 LLPs have been registered as on

12.09.2011.

Date: 16/10/2013 Slide-13

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Law of Contracts-II
(Introduction to Limited Liability Partnership)

Difference Between LLP & Traditional Partnership Firm

• Under ‘traditional partnership firm’, every partner is liable,
jointly with all the other partners and also severally for all acts of
the firm done while he is a partner.

• Under LLP structure, liability of the partner is limited to his

agreed contribution. Further, no partner is liable on account of
the independent or un-authorized acts of other partners, thus
allowing individual partners to be shielded from joint liability
created by another partner’s wrongful acts or misconduct.

Date: 16/10/2013 Slide-14

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Law of Contracts-II
(Introduction to Limited Liability Partnership)

Difference between LLP & a Company

• A basic difference between an LLP and a joint stock company lies

in that the internal governance structure of a company is
regulated by statute (i.e. Companies Act 2013) whereas for an
LLP it would be by a contractual agreement between partners.
• The management-ownership divide inherent in a company is not
there in a limited liability partnership.
• LLP has more flexibility as compared to a company.
• LLP has lesser compliance requirements as compared to a
company.

Date: 16/10/2013 Slide-15

 Lecture-
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
 Likely Users/Beneficiaries of the LLP Law?
• LLP framework could be used for many enterprises, such as:-
o Persons providing services of any kind;
o Enterprises in new knowledge and technology based fields where the
corporate form is not suited;
o For professionals such as Chartered Accountants (CAs), Cost and Works
Accountants (CWAs), Company Secretaries (CSs) and Advocates, etc;
o Venture capital funds where risk capital combines with knowledge and
expertise;
o Professionals and enterprises engaged in any scientific, technical or
artistic discipline, for any activity relating to research production, design
and provision of services; 
o Small Sector Enterprises (including Micro, Small and Medium
Enterprises);
o Producer Companies in Handloom, Handicrafts sector, etc.
Date: 16/10/2013 Slide-16
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Law of Contracts-II
(Introduction to Limited Liability Partnership)

What are the qualifications for becoming a partner?

• Any individual or body corporate may be a partner in a
LLP.
However, an individual shall not be capable of
becoming a partner of a LLP, if—
o (a) he has been found to be of unsound mind by a Court of
competent jurisdiction and the finding is in force;
o (b)  he is an undischarged insolvent; or
o (c) he has applied to be adjudicated as an insolvent and his
application is pending.

Date: 16/10/2013 Slide-17

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Law of Contracts-II
(Introduction to Limited Liability Partnership)
Registration Formalities Relating to LLPs
• LLPs shall be registered with the Registrar of Companies (ROC)
(appointed under the Companies Act (now) 2013) after following
the provisions specified in the LLP Act. Every LLP shall have
a registered office. An Incorporation Document subscribed by at
least two partners shall have to be filed with the Registrar in a
prescribed form. Contents of LLP Agreement, as may be
prescribed, shall also be required to be filed with Registrar,
online.

• Contents of LLP Agreement or any changes made therein, if any,

may be filed in Form 3 and details of partners/designated
partners may be filed in Form 4 in accordance with LLP Rules,
2009.
Date: 16/10/2013 Slide-18
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Law of Contracts-II
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How Can an Existing Partner Cease to be a Partner of an LLP?

• A person may cease to be a partner in accordance with
the agreement or in the absence of agreement, by giving 30 days
notice to the other partners.
• A person shall also cease to be a partner of a limited liability
partnership- 
o (a) on his death or dissolution of the limited liability partnership; or
o (b) if he is declared to be of unsound mind by a competent court; or
o (c) if he has applied to be adjudged as an insolvent or declared as an
insolvent.
• Notice is required to be given to ROC when a person becomes or
ceases to be partner or for any change in partners.

Date: 16/10/2013 Slide-19

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Law of Contracts-II
(Introduction to Limited Liability Partnership)

Nature & Extent of Liability of a Partner of an LLP

• Every partner of an LLP would be, for the purpose of the
business of the LLP, an agent of the LLP but not of the
other partners. Liability of partners shall be limited
except in case of unauthorized acts, fraud and
negligence. But, a partner shall not be personally liable
for the wrongful acts or omission of any other partner.
An obligation of the limited liability partnership whether
arising in contract or otherwise, is solely the obligation
of the limited liability partnership. The liabilities of LLP
shall be met out of the property of the LLP.
Date: 16/10/2013 Slide-20
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Law of Contracts-II
(Introduction to Limited Liability Partnership)

Liability of a Partner Upon Reduction of Minimum Number of

Members in an LLP?
• The Act provides for the minimum of two partners to carry on
LLP. 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 that six-month period 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.

Date: 16/10/2013 Slide-21

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Law of Contracts-II
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Whether a ‘Partner by Holding Out’ is liable under the Act?
• The Act provides that any person (not being a partner in any LLP), 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 (known as ‘partner
by Holding Out’) 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 representation
has reached the person so giving credit.
• It has further been provided that where any credit is received by the LLP as a
result of such representation, the LLP shall, without prejudice to the liability of
the person so representing himself or represented to be a partner, be liable to
the extent of credit received by it or any financial benefit derived thereon.
• The provisions have also been made in the Act to provide that where after a
partner’s death the business is continued in the same LLP name, the continued
use of that name or of the deceased partner’s name as a part thereof shall not
of itself make his legal representative or his estate liable for any act of the LLP
done after his death.
Date: 16/10/2013 Slide-22
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
Whether two LLPs would be allowed to merge?
o Provisions of sections 60 to 62 of the Act provide for the manner in which
compromises or arrangements including mergers and amalgamations
involving LLPs shall be allowed.

Which Documents will be available for public inspection in the

Office of Registrar?
The following documents/information will be available for inspection by any
person:-
o Incorporation document;
o Names of partners and changes, if any, made therein;
o Statement of Accounts and Solvency;
o Annual Return;
o The fees for such inspection of an LLP is Rs 50/- and fees for certified copy or
extract of any document u/s 36 shall Rs. 5/- per page.
Date: 16/10/2013 Slide-23
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Law of Contracts-II
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What are the measures, which can be taken

against an LLP, which has engaged in fraudulent
activities?

• Central Govt may appoint Inspectors to

investigate the affairs of an LLP. The manner and
procedure for conduct of investigation has been
specified in the Act.

Date: 16/10/2013 Slide-24

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Law of Contracts-II
(Introduction to Limited Liability Partnership)
What will be the role of Government in regulation of LLPs? How will the Act be
able to prevent ‘fly-by-night’ promoters or LLPs vanishing after incorporation?
• To protect interests of various stakeholders, following approach has been followed in the LLP Act:
o Mandatory incorporation of LLPs with Registrar with suitable due diligence to be followed by
promoters/professionals at the time of incorporation. Provisions for mandatory Designated Partners
Identification Number (DPIN) to be obtained by every designated partner (similar to DIN for directors
of companies) have been proposed in the Act. 
o MCA-21 e-Governance process will be used for incorporation purposes which will help track any
unscrupulous promoter/partner of an LLP.
o Details of partners and any changes made therein shall be required to be filed with the registrar;
o Filing of annual documents like (SAS and Annual Return) with the Registrars will be mandatory. Such
documents will also be open for public inspection;
o Audit of all LLPs (except small LLPs which may be exempted by way of notification by Central Govt)
shall be mandatory;
o Provisions have been proposed in the Act to empower Registrar to conduct scrutiny of documents
filed with him and for calling of any other relevant information from LLP or its partners/officials and
also for summoning of LLPs’ partners/officials in certain cases.
o The Act also contains provisions for investigation of affairs of LLPs by competent Inspectors to be
appointed by Central Government, wherever circumstances so require.
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
What are the provisions being proposed in the Act for striking off
defunct LLPs? Whether LLPs would be allowed a less stringent
framework for closing of business?
• The Act empowers Registrars to strike off names of LLPs which are
not carrying on any business or operation. They will be under
obligation to give an opportunity of being heard to LLP concerned.
Details for manner of striking off would be prescribed through rules. 
Since LLPs would be governed by LLP Agreement it would be
possible for LLPs to make suitable clauses in such Agreement
prescribing time limits or duration of LLPs. In such cases, provisions
for striking off names could be used.
• Besides, the Act empowers Central Government to make rules in
respect of winding up and dissolution of LLPs. The Rules have been
made also , i.e. The Limited Liability Partnership (Winding-up and
Dissolution) Rules 2010..
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Law of Contracts-II
(Introduction to Limited Liability Partnership)
Steps to Register LLP
• To register an Indian LLP, you need to first apply for a Designated
Partner Identification Number (DPIN), which can be done by filing e-
Form for acquiring the DIN or DPIN. You would then need to acquire
your Digital Signature Certificate and register the same on the
portal. Thereafter, you need to get the LLP name approved by the
Ministry. Once the LLP name is approved, you can register the LLP by
filing the incorporation form.

Step 1: Application for DIN or DPIN

• All designated partners of the proposed LLP shall obtain “Designated
Partner Identification Number (DPIN)”. You need to file eForm DIN-1
in order to obtain DIN or DPIN. In case you already have a DIN
(Director Identification Number), the same can be used as a DPIN.

Date: 16/10/2013 Slide-27

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Law of Contracts-II
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• Step 2: Acquire/ Register DSC
The Information Technology Act 2000 provides for use of Digital
Signatures on the documents submitted in electronic form in order to
ensure the security and authenticity of the documents filed
electronically. This is the only secured and authentic way that a
document can be submitted electronically. As such, all filings done by
the LLP(s) are required to be filed with the use of Digital Signatures by
the person authorised to sign the documents. 

Acquire DSC -A licensed Certifying Authority (CA) issues the digital

signature. Certifying Authority (CA) means a person who has been
granted a license to issue a digital signature certificate under Section 24
of the Indian IT-Act 2000.
• Register DSC - Role check can be performed only after the signatories
have registered their Digital signature certificates (DSC) with LLP
application.
Date: 16/10/2013 Slide-28
 Lecture-
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Law of Contracts-II
• (Introduction to Limited Liability Partnership)
Step 3: New User Registration
To file an eForm or to avail any paid service on LLP portal; you are first required
to register yourself as a user in the relevant user category, such as registered and
business user.
• Step 4: Incorporate an LLP
Apply for the name of the LLP to be registered by filing Form 1 (Application for
reservation or change of name) for the same. After that depending upon the
proposed LLP, file required incorporation Form 2 (Incorporation document and
Subscriber’s statement)
Once the form has been approved by the concerned official of the Ministry, you
will receive an email regarding the same and the status of the form will get
changed to Approved.
• Step 5: File LLP Agreement
After incorporation of LLP, an initial LLP agreement is to be filed within 30 days of
incorporation of LLP. The user has to file the information in Form 3 (Information
with regard to Limited Liability Partnership Agreement and changes, if any, made
therein).
Date: 16/10/2013 Slide-29