Limited Liability Partnership (LLP)

What is a Limited Liability Partnership (LLP)?

Limited Liability Partnership (LLP), is a form of business entity that came into existence with effect from 9.1.2009 on enactment of Limited Liability Partnership  Act, 2008. This form of entity provides the benefit of limited liability while members get the flexibility of carrying on business as a partnership based on mutually agreed terms. 

Is there any restriction on the number of members in an LLP?

An LLP should have minimum two partners. No ceiling is prescribed on the maximum number of partners in LLP. Any individual or body corporate can become partner in LLP. But, HUF or its Kata cannot become a partner in a LLP.

What are Designated Partners and their duties?

As per the LLP Act, a ‘designated partner’ is one who is designated as such.

A designated partner is responsible for doing any acts, matters and things as is required to be done by LLP in respect of compliance of the provisions of the Act including filing of documents, returns, statements etc. as per the Act and as  specified in the LLP Agreement. He is liable for all penalties imposed on LLP for any contravention of these provisions.

LLP act stipulates that 
1.    an LLP should have at least two designated partners 
a.    who must be individuals and 
b.    at least one of them shall be resident in India
2.    designated partner of LLP shall obtain a Designated Partner Identification Number (DPIN) from the Central Government. 
3.    If all the partners in LLP are body corporates, they must nominate their respective individuals who are to act as ‘Designated Partners’ (DP) and one of the nominees  shall be a resident of India. 

What is the legal status of Limited Liability Partnership (LLP)?

1.    LLP has the features of an incorporated company and of a partnership firm.
2.    LLP has a perpetual status. Change in the partners will have no impact on its existence, rights or liabilities. 
3.    LLP is a body corporate, entirely different from its partners. It can do all acts and deeds a body corporate lawfully do.
4.    LLP is a judicial person capable of suing and being sued in its own name.  Also has the right to acquire, own, maintain, develop or dispose of  movable or immovable property. 
5.    Indian Partnership Act, 1932 shall not be applicable to LLPs.
6.    It may have a common seal.

 How is an LLP incorporated? 

1.    Any two or more persons agreeing to associate for carrying on a lawful business to earn profit motive can form an LLP. 
2.    Registrar of Companies under the Companies Act, 2013 is the registering authority for an LLP. 
3.    The name of the LLP must end with the words “Limited Liability Partnership” or its acronym “LLP”. 
4.    For registration of an LLP, ‘Incorporation Document’ and other documents should be filed with ROC.
5.    After completion of formalities, Registrar will issue a certificate of incorporation that will act as  conclusive evidence of incorporation of LLP. 

What is an incorporation document of an LLP?

LLP Act, stipulates that an LLP should have an ‘Incorporation Document’. This document is similar to Memorandum of Association of a limited company.  The ‘Incorporation Document’ shall be in the prescribed form. The document shall contain details such as name of LLP, the address of the Registered Office of LLP, name and address of all persons who are to be partners of LLP on incorporation, name and address of designated partners, the proposed business of LLP and such other information as may be prescribed from time to time.

What is the relationship between Partners and LLP?

The LLP Agreement defines rights and obligations of partners with LLP. It is to be filed with the Registrar.

Those who have subscribed to the incorporation documents shall be its partners. 
Other persons may become partners in accordance with LLP agreement. A person may cease to be a partner of LLP in accordance with agreement with other partners or by giving a notice to other partners of his intention to resign as partner in writing , with a minimum notice period  of 30 days. A partner automatically shall cease to be a partner on his death or dissolution of LLP or on becoming insolvent.

However, the LLP agreement is not mandatory. If no LLP Agreement is executed, the relationship, rights and duties will be governed by the provisions contained in the First Schedule to the LLP Act, 2008. 

How can an existing partnership firm/ private/ unlisted company be converted into LLP?

An existing partnership firm, private limited company or unlisted public limited company has to comply with the provisions of LLP Act, its Schedule and Rules for conversion. From the date of registration/conversion, all assets and liabilities of the firm/ company shall be transferred to and vested with LLP without further assurance,
act or deed.

What is the liability of LLP and Partners?

Every partner of the LLP becomes an agent of the LLP but not of other partners. A partner is not personally liable for the obligations of LLP. The liability of partners is limited to their agreed contribution towards tangible or intangible assets.  No partner shall be liable on account of the independent or unauthorised actions of other partners or their mistake. 

However, the liability of the LLP and its partners who acts with an intention  to defraud creditors of the LLP or any other person or if they indulge in any fraudulent acts, is unlimited.

 What are the norms governing winding up and dissolution of LLP?

The winding up of the LLP can either be
a.    voluntary  OR
b.    by the High Court/ Tribunal established under the Companies Act, 2013.

 In case an LLP 
a.    fails to pay its debts, 
b.    default in fling the statement of account or solvency or annual return with ROC for five consecutive financial years or 
c.    any other ground which is just and equitable in the opinion of the High Court/ Tribunal, the LLP can be ordered to be wound up.