LIMITED LIABILITY PARTNERSHIP ACT - 2008
Need for the New Corporate Entity – LLP
Concept, Condensed form of the Act
1. With the growth of the Indian economy, the role played by its entrepreneurs as well as
its technical and professional manpower has been acknowledged internationally. It is
felt opportune that entrepreneurship, knowledge and risk capital combine to provide a
further impetus to India’s economic growth. In this background, a need has been felt
for a new corporate form that would provide an alternative to the traditional partnership,
with unlimited personal liability on the one hand, and, the statute-based governance
structure of the limited liability company on the other, in order to enable professional
expertise and entrepreneurial initiative to combine, organize and operate in flexible,
innovative and efficient manner.
2. The Limited Liability Partnership (LLP) is viewed as an alternative corporate business
vehicle that provides the benefits of limited liability but allows its members the flexibility
of organizing their internal structure as a partnership based on a mutually arrived
agreement. The LLP form would enable entrepreneurs, professionals and enterprises
providing services of any kind or engaged in scientific and technical disciplines, to form
commercially efficient vehicles suited to their requirements. Owing to flexibility in its
structure and operation, the LLP would also be a suitable vehicle for small enterprises
and for investment by venture capital.
3. Keeping in mind the need of the day, the Parliament enacted the Limited Liability
Partnership Act, 2008 which received the assent of the President on 7th January, 2009.
The salient features of the LLP Act 2008 inter alia are as follows:
(i) The LLP shall be 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 profit, may
by subscribing their names to an incorporation document and filing the same with the
Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession.
(ii) 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.
(iii) The LLP will be 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.
(iv) 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.
(v) The LLP shall be 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.
(vi) The Central Government have powers to investigate the affairs of an LLP, if required, by
appointment of competent Inspector for the purpose.
(vii) The compromise or arrangement including merger and amalgamation of LLPs shall be in
accordance with the provisions of the LLP Act 2008.
(viii) 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.
(ix) The winding up of the LLP may be either voluntary or by the Tribunal to be established
under the Companies Act, 1956. Till the Tribunal is established, the power in this regard
has been given to the High Court.
(x) The LLP Act 2008 confers powers on the Central Government to apply provisions of the
Companies Act, 1956 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.
(xi) The Indian Partnership Act, 1932 shall not be applicable to LLPs.
A brief overview
ü An LLP is a body corporate.
ü Apart from individuals, even body corporates may be partners.
ü 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.
ü LLP may carry on any lawful business, trade, profession, service or occupation. Unlike
the Naresh Chandra Committee Report, the flexibility has been provided for LLPs to be
incorporated in such manner as they deem fit.
ü Inter se relationship, 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).
ü The Name of the LLP must end with either the words ‘Limited Liability’
‘Partnership’ or the acronym ‘LLP’
· Agency: Every partner is an agent of the LLP and not of the other partners
· Unauthorised Acts: An LLP is not bound by unauthorized acts of any partner in dealing
with a third person provided such third person
(a) is aware that the acts are unauthorised; or
(b) does not know or believe that the partner is a partner of the LLP
v Wrongful Acts or Omissions: An LLP is liable for wrongful acts or omissions
of partners in the course of business of the LLP or with its authority–The
partner(s) committing such act or omission will be personally liable – Other
partners not to be liable for such wrongful act or omission.
v An obligation of the limited liability partnership is solely the obligation of the
limited liability partnership.
v The liabilities of the limited liability partnership shall be met out of the property
of the limited liability partnership. Accordingly, unlike the Texas first law, even
liability for debt is limited.
Right to share profits transferable
v Right of a partner to share profits is transferable (either wholly or in part)
v Transfer does not imply that the transferor/assignor has ceased to be a Partner
v Transferee/ assignee not entitled to participate in the management of the LLP
v Transferee/assignee not entitled to any information relating to transactions of LLP
v Statements of Accounts and Solvency: An LLP must prepare a ‘Statement of Accounts’
v Why is there a need for a statutory provision of this nature?
v Would this prohibit subordinate debt, where partners agree not to recover their debts
until external debt is paid off?
v Section 71 – The provisions of this Act would be in addition to, and not in derogation of,
the provisions of any other law for the time being in force.
v Therefore one would need to analyse provisions of various statutes governing professionals
to decide whether they can take advantage of this LLP.
v For instance, the Chartered Accountants Act, 1949, provides uses in a number of places
the term “firm”, which would usually refer to a firm under the Indian Partnership Act,
1932. The said Act also prohibits companies from practicing as chartered accountants.
Are amendments necessary?
v For instance, for lawyers, under the Advocates Act, only Advocates can appear before
courts. As a firm is not a person in the eyes of law, a partnership firm is permitted. In
light of the LLP Act, where a firm would be treated as a person in the eyes of law with
perpetual succession, it is difficult to see how an LLP can be a firm under the provisions
of the Advocates Act, which could be recognised as having a right to practice. For instance,
even today, a lawyer cannot be part of a company and a company cannot be the lawyer
appointed for a client.
v Filing of accounts–Accounts of a firm is a private affair, except for disclosures which have
to be made to the income tax authorities Now accounts would have to be filed with the
Registrar.
v Would this be acceptable to the Indian legal firms, chartered accountants and other
professionals?
v One issue that arose in proposing a bill for limited liability partnerships was that paper
thin LLPs should not be permitted as they could completely undermine the credibility of
LLPs.
v At that point of time the Naresh Chandra committee had suggested that there should be
provisions for Compulsory Insurance under the LLP Act.
v The proposal has disappeared in the winds of changes.
v The entire proposal of LLPs is based on a one way street.
v While you can convert from a firm or a company to an LLP, there are no provisions for
erring and deciding to reconvert back into a partnership or a company.
v In such a case, the decision has to be well weighed realising that there is no “U turn”
available down the road.
v Section 27(4) of the Act states that the liabilities of a limited liability partnership shall be
met out of the property of the limited liability partnership.
v One issue that arises is whether this would preclude in any manner, lenders and contracting
parties from obtaining personal and corporate guarantees from the partners as a
precondition to providing any loans.
v The arguments against this is that the principles of a guarantee arise from contract law
and this would not preclude the application of such principles.
v The argument in favour of treating such guarantees as void is that this is a special law
that mandates that the liability is to be met out of the property of a limited liability
partnership.
v Perhaps the absence of the words “exclusively” or “only” would be a determinant in the
event any litigation happens around this point.
v Questions arise, whether like a traditional partnership, there could be paid partners,
Need for the New Corporate Entity – LLP
Concept, Condensed form of the Act
1. With the growth of the Indian economy, the role played by its entrepreneurs as well as
its technical and professional manpower has been acknowledged internationally. It is
felt opportune that entrepreneurship, knowledge and risk capital combine to provide a
further impetus to India’s economic growth. In this background, a need has been felt
for a new corporate form that would provide an alternative to the traditional partnership,
with unlimited personal liability on the one hand, and, the statute-based governance
structure of the limited liability company on the other, in order to enable professional
expertise and entrepreneurial initiative to combine, organize and operate in flexible,
innovative and efficient manner.
2. The Limited Liability Partnership (LLP) is viewed as an alternative corporate business
vehicle that provides the benefits of limited liability but allows its members the flexibility
of organizing their internal structure as a partnership based on a mutually arrived
agreement. The LLP form would enable entrepreneurs, professionals and enterprises
providing services of any kind or engaged in scientific and technical disciplines, to form
commercially efficient vehicles suited to their requirements. Owing to flexibility in its
structure and operation, the LLP would also be a suitable vehicle for small enterprises
and for investment by venture capital.
3. Keeping in mind the need of the day, the Parliament enacted the Limited Liability
Partnership Act, 2008 which received the assent of the President on 7th January, 2009.
The salient features of the LLP Act 2008 inter alia are as follows:
(i) The LLP shall be 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 profit, may
by subscribing their names to an incorporation document and filing the same with the
Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession.
(ii) 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.
(iii) The LLP will be 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.
(iv) 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.
(v) The LLP shall be 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.
(vi) The Central Government have powers to investigate the affairs of an LLP, if required, by
appointment of competent Inspector for the purpose.
(vii) The compromise or arrangement including merger and amalgamation of LLPs shall be in
accordance with the provisions of the LLP Act 2008.
(viii) 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.
(ix) The winding up of the LLP may be either voluntary or by the Tribunal to be established
under the Companies Act, 1956. Till the Tribunal is established, the power in this regard
has been given to the High Court.
(x) The LLP Act 2008 confers powers on the Central Government to apply provisions of the
Companies Act, 1956 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.
(xi) The Indian Partnership Act, 1932 shall not be applicable to LLPs.
A brief overview
ü An LLP is a body corporate.
ü Apart from individuals, even body corporates may be partners.
ü 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.
ü LLP may carry on any lawful business, trade, profession, service or occupation. Unlike
the Naresh Chandra Committee Report, the flexibility has been provided for LLPs to be
incorporated in such manner as they deem fit.
ü Inter se relationship, 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).
ü The Name of the LLP must end with either the words ‘Limited Liability’
‘Partnership’ or the acronym ‘LLP’
· Agency: Every partner is an agent of the LLP and not of the other partners
· Unauthorised Acts: An LLP is not bound by unauthorized acts of any partner in dealing
with a third person provided such third person
(a) is aware that the acts are unauthorised; or
(b) does not know or believe that the partner is a partner of the LLP
v Wrongful Acts or Omissions: An LLP is liable for wrongful acts or omissions
of partners in the course of business of the LLP or with its authority–The
partner(s) committing such act or omission will be personally liable – Other
partners not to be liable for such wrongful act or omission.
v An obligation of the limited liability partnership is solely the obligation of the
limited liability partnership.
v The liabilities of the limited liability partnership shall be met out of the property
of the limited liability partnership. Accordingly, unlike the Texas first law, even
liability for debt is limited.
Right to share profits transferable
v Right of a partner to share profits is transferable (either wholly or in part)
v Transfer does not imply that the transferor/assignor has ceased to be a Partner
v Transferee/ assignee not entitled to participate in the management of the LLP
v Transferee/assignee not entitled to any information relating to transactions of LLP
v Statements of Accounts and Solvency: An LLP must prepare a ‘Statement of Accounts’
v Why is there a need for a statutory provision of this nature?
v Would this prohibit subordinate debt, where partners agree not to recover their debts
until external debt is paid off?
v Section 71 – The provisions of this Act would be in addition to, and not in derogation of,
the provisions of any other law for the time being in force.
v Therefore one would need to analyse provisions of various statutes governing professionals
to decide whether they can take advantage of this LLP.
v For instance, the Chartered Accountants Act, 1949, provides uses in a number of places
the term “firm”, which would usually refer to a firm under the Indian Partnership Act,
1932. The said Act also prohibits companies from practicing as chartered accountants.
Are amendments necessary?
v For instance, for lawyers, under the Advocates Act, only Advocates can appear before
courts. As a firm is not a person in the eyes of law, a partnership firm is permitted. In
light of the LLP Act, where a firm would be treated as a person in the eyes of law with
perpetual succession, it is difficult to see how an LLP can be a firm under the provisions
of the Advocates Act, which could be recognised as having a right to practice. For instance,
even today, a lawyer cannot be part of a company and a company cannot be the lawyer
appointed for a client.
v Filing of accounts–Accounts of a firm is a private affair, except for disclosures which have
to be made to the income tax authorities Now accounts would have to be filed with the
Registrar.
v Would this be acceptable to the Indian legal firms, chartered accountants and other
professionals?
v One issue that arose in proposing a bill for limited liability partnerships was that paper
thin LLPs should not be permitted as they could completely undermine the credibility of
LLPs.
v At that point of time the Naresh Chandra committee had suggested that there should be
provisions for Compulsory Insurance under the LLP Act.
v The proposal has disappeared in the winds of changes.
v The entire proposal of LLPs is based on a one way street.
v While you can convert from a firm or a company to an LLP, there are no provisions for
erring and deciding to reconvert back into a partnership or a company.
v In such a case, the decision has to be well weighed realising that there is no “U turn”
available down the road.
v Section 27(4) of the Act states that the liabilities of a limited liability partnership shall be
met out of the property of the limited liability partnership.
v One issue that arises is whether this would preclude in any manner, lenders and contracting
parties from obtaining personal and corporate guarantees from the partners as a
precondition to providing any loans.
v The arguments against this is that the principles of a guarantee arise from contract law
and this would not preclude the application of such principles.
v The argument in favour of treating such guarantees as void is that this is a special law
that mandates that the liability is to be met out of the property of a limited liability
partnership.
v Perhaps the absence of the words “exclusively” or “only” would be a determinant in the
event any litigation happens around this point.
v Questions arise, whether like a traditional partnership, there could be paid partners,
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