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Limited Liability Partnership Act in India

Professionals/small entrepreneurs can incorporate a ‘Limited Liability Partnership’ (LLP) firm to avail the facilities of limited company and limited liability status. It can be a boon to the small entrepreneurs and professionals. As far as India is concerned, this Limited Liability Partnership (LLP) is a new corporate form that enables professional knowledge and entrepreneurial skill to combine, organize and operate in an innovative and proficient manner. It provides an alternative to the traditional partnership firm with unlimited liability. By incorporating a LLP, its member can avail the benefit of limited liability and the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.

This format would be quite useful for small and medium enterprises in general and for the enterprises in services sector in particular, including professionals and knowledge based enterprises.

A revised LLP Bill was introduced in the Rajya Sabha on 21st Oct. 2008. The Bill was passed in the Rajya Sabha on 12th December, 2008. The Bill received assent of Hon’ble President on 7th January, 2009.

The LLP Rules 2009 covering the registration and other operational aspects of the Act have been notified in the official gazette on Ist April 2009

The silent features of Limited Liability Partnership Act 2008 are as under:

1) LLP is governed by the Limited Liability Partnership Act 2008, which has come into force with effect from April 1, 2009.

2) A LLP is a body corporate and a legal entity separate from its partners having perpetual succession. While the LLP is 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;

3) LLP combines the advantages of running a Partnership firm, and separate legal entity status & limited liability aspect of a Company;

4) A LLP is a separate legal entity and separate from its partners. It can own it’s assets, sue and be sued;

5) The members of LLP have the right to manage their business directly, which facility is not available to corporate shareholders;

6) To constitute an LLP minimum of 2 partners is required. The Act has not prescribed ant maximum no. of members;

7) 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 proposed the LLP Act;

The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its affairs.  A statement of accounts and solvency shall be filed by every LLP with the Registrar of Companies (ROC) every year;

9) The Indian Partnership Act, 1932 is not being applicable to LLP.

10) 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.

A LLP is advantageous because of it’s comparatively lower cost of formation and running, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public.

LLP should maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs.

Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud.

The Registrar of Companies (ROC) is the authority having jurisdiction over the incorporation. The steps required to incorporate a LLP are as follows::

1. Decide the Partners and the Designated Partners;
2. Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate;
3. Decide on the name of the LLP and check it’s availability with the ROC;
4. Draft the LLP agreement;
5. File the LLP Agreement, incorporation documents and obtain the Certificate of Incorporation;

Note:1) Here, LLP means ‘Limited Liability Partnership’ firm.