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Published : June 03, 2010 | Author : akshatgupta
Category : Company Law | Total Views : 24391 | Rating :

Akshat Gupta, final year law student, Amity Law schhol.

Limited Liability Partnership

The Limited Liability Partnership Act 2008 was published in the official Gazette of India on January 9, 2009 and has been notified with effect from 31 March 2009. The rules have been notified in the official gazette on April 1, 2009. The first LLP was incorporated in the first week of April 2009.

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of a limited partnership. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. Any individual (who is of sound mind and is solvent) and anybody corporate can be partner of LLP. There should be minimum two partners.

LLP must have two 'designated partners' who must be individuals. If a body corporate is partner of LLP, it can nominate a person as 'designated partner'. He has to give consent to act as designated partner. He has to obtain DPIN [Designated Partner Identification Number] from Central Government. The designated partner is liable for all compliances as required under the Act and is liable to penalty for contravention of those provisions. Personal liability shall arise if the number of partner’s falls below two, However there exists no upper limit on the same. In India for all purposes of taxation, an LLP is treated like any other partnership firm.

For statutory compliances provisions at least one resident designated partner (DP) in every LLP is available in India for at least six months for regulatory compliance requirements. The LLPs would have freedom to appoint more than one resident as DP. LLP as an entity would always remain liable for regulatory or other compliances.

Ministry of Corporate Affairs, Government of India is the administrating ministry. Registrar of Companies (RoC) of respective State is the administrative authority where all documents are to be filed, the Central Government can make applicable any provision of Companies Act to LLP with suitable modifications by issuing a notification. However, provisions of Indian Partnership Act will not apply to LLP.

Limited Liability Partnership and Traditional partnership
The Limited Liability Partnership is different than a traditional Partnership in many aspects also, at the same point of time it does reflect certain characteristics which resembles a traditional partnership structure. The same is broadly classified as under:

Traditional Partnership

Limited Liability Partnership

Unlimited personal liability of each partner for dues of the partnership firm. Personal property of each partner also liable. No personal liability of partner, except in case of fraud.
Written agreement not essential. Incorporation document essential.
Partnership can be registered under Partnership Act. Registration is not mandatory. LLP is incorporated under LLP Act. Incorporation is mandatory.
Not a legal entity separate from its partners It is a legal entity separate from its partners, having perpetual succession
Property cannot be held in name of partnership firm. Property can be held in name of LLP.
Partnership deed/agreement is executed. Even verbal agreement is valid. 'Incorporation Document' is required to be executed. In addition, LLP Agreement is required in almost all cases, though such LLP agreement is not mandatory.
Documents are required to be filed with Registrar of Firms (of respective State) Registrar of Companies (ROC) is the administrating authority.
Death of partner dissolves a firm, in absence of agreement Death of partner does not dissolve LLP.
Minimum two and maximum twenty partners Minimum two partners. No limit on maximum number of partners
Each partner can take part in business of firm. Each partner can take part in business of firm, but LLP Agreement can provide to the contrary.
All partners are liable for statutory compliances under Partnership Act Only designated partners are liable for statutory compliances as are required under LLP Act (not necessarily in respect of other Acts).
Partner cannot enter into business with firm, though he can give loan to firm. Partner of LLP can enter into business with LLP. He can also give loans to LLP.
Every partner of firm is agent of firm and also of other partners. He can bind partnership firm as well as other partners by his acts. Every partner of LLP is agent of LLP but not of other partners. Thus, he can bind LLP by his acts but not other partners. However, LLP agreement can restrict powers of individual partner.
Partnership can be 'at will' i.e. any partner can resign or dissolve firm Individual partner can resign but cannot dissolve the LLP.
Public notice is required for retirement of a partner. Filing of return of retirement of partner with ROC is required, but no provision for public notice of retirement of partner.
Partnership firm can be dissolved. LLP can be would up.
No specific provision to enter into compromise, arrangement, amalgamation, reconstruction etc. This can be done only under civil laws LLP can enter into compromise, arrangement, amalgamation, reconstruction etc.

Minor can be admitted to benefit of partnership.
There is no specific provision to admit minor to benefit of partnership. It is doubtful if this can be done.
Partner is not employee of firm Partner is not employee of LLP.
Liability of a person for 'holding out', i.e. representing himself as partner, though he is not Liability of a person for 'holding out' i.e. representing himself as partner, though he is not [clause 29 of LLP Bill, 2008]
Partner of firm entitled to remuneration only if partnership agreement so provides Partner of LLP entitled to remuneration only if LLP agreement so provides
New partner can be introduced only with consent of all existing partners New partner can be introduced only with consent of all existing partners, unless LLP Agreement provides otherwise.
Insolvent person cannot continue as partner of firm. Insolvent person cannot continue as partner of LLP.
Rights of partnership can be assigned Rights of partnership can be assigned.
Partner liable to firm for any personal profits made by him by use of property, name or business connection of firm. Partner liable to LLP for any personal profits made by him by use of property, name or business connection of LLP
Partner cannot undertake competing business without consent of other partners Partner cannot undertake competing business without consent of LLP. Otherwise, liable to account for and pay profits to LLP
Partner liable to firm if he commits fraud. Partner liable to LLP if he commits fraud.

Comparison between Company and LLP

Company under Companies Act Limited Liability Partnership
Memorandum is to be filed with ROC Incorporation Document is required to be filed.
Memorandum should contain State in which incorporated. Incorporation Document is not required to contain State in which incorporated. Thus, registered office can be changed to any place in India just by informing ROC subject to prescribed conditions.
Name to contain 'Limited' or 'Private Limited' as suffix Name to contain 'Limited Liability Partnership' or 'LLP' as suffix
Articles are to be filed at the time of incorporation. Private company must have Articles. In case of public company, provisions of Table A apply if there are no Articles. LLP Agreement is required to be filed later. In absence of LLP Agreement, mutual rights and duties will be as specified in first schedule to LLP Act. Thus, practically, each LLP must have LLP Agreement, though not mandatory.
Managing Director and Whole time Director to look after day to day administration.. Designated Partner to look after statutory compliances. Otherwise, all partners can look into affairs of the LLP. However, LLP can delegate powers to some partners who may be designated as 'Managing Partner', or 'Executive Partner' or any other name.
Individual director or member does not have authority in conduct of business of company. Every partner has authority to conduct business of LLP, unless the LLP Agreement provides to contrary.
Restrictions on remuneration to director as per Companies Act No restriction on remuneration to partner. Remuneration should be provided in LLP agreement.
Notice of change of director is to be given by company. A partner who has resigned from LLP can himself file notice of his resignation to ROC.
Share, share certificate, register of members, transfer and transmission of shares etc. required. No requirement of share and share certificate. Hence, no question of its issue, allotment, transfer, rectification of register etc
Board meetings, general meetings are required. No provision for regular meeting of Board and members. Partners can decide when and how to meet, delegation of powers etc. Provision is made that LLP should maintain minute book
Charges are required to be registered No provision for registration of charges.
Elaborate records and registers are required to be maintained No records and registers have been prescribed.
Restrictions on Board regarding some specified contracts, contracts in which directors interested, investments, loans and guarantees to other companies Partners are free to enter into any contract.
Disclosures required of contracts where directors are interested No requirement of disclosures required of contracts where partners are interested, unless specified in LLP Agreement.
Elaborate provision relating to redressal in case of oppression and mismanagement No provision relating to redressal in case of oppression and mismanagement
Specific provisions relating to nidhis, NBFC No specific provisions relating to nidhis, NBFC
Limited liability and perpetual succession Limited liability and perpetual succession
Must have common seal Common seal is optional
Provision of approval of name, change of name are similar. Provision of approval of name, change of name are similar.
ROC is the administrative authority ROC is the administrative authority
Provisions of name, its approval and change are similar. Provisions of name, its approval and change are similar.
No personal liability of individual director or member [except of director of private company in some cases like income tax and sales tax dues]. No personal liability of partner, except in case of fraud.
Complicated procedure for change of registered office, particularly when change is to other State Simple procedure to change registered office of LLP anywhere in India just by informing ROC and following prescribed conditions.
Registrar of Companies (ROC) is the administrating authority. Registrar of Companies (ROC) is the administrating authority.
Memorandum and Articles, details of directors, accounts, annual return, special resolutions etc. filed by LLP with ROC will be available for public inspection Incorporation document, details of partners, accounts, statement of solvency and annual return filed by LLP with ROC will be available for public inspection [clause 36 of LLP Bill, 2008]
Powers to Central Government to inspect records of company and to order investigation Powers to Central Government to inspect records of company and to order investigation
Provisions of compromise, arrangement or reconstruction of companies are similar Provisions of compromise, arrangement or reconstruction of LLP [clauses 60 to 62 of LLP Bill, 2008]
Company can be would up voluntarily or by order of Court LLP can be would up voluntarily or by order of Court
ROC can strike off name of defunct company. ROC can strike off name of defunct LLP

LLP around the Globe
In some countries, an LLP must also have at least one "general partner" with unlimited liability. Unlike corporate shareholders, the partners have the right to manage the business directly. As opposed to that, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest.

The Indian LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.

United Kingdom
In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000. A UK Limited Liability Partnership is a Corporate body - that is to say, it has a continuing legal existence independent of its Members, as compared to a Partnership which may have a legal existence dependent upon its Membership.

A UK LLP's members have a collective ("Joint") responsibility, to the extent that they may agree in an "LLP agreement", but no individual ("several") responsibility for each other's actions. As with a limited company or a corporation Members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.

In relation to tax, however, a UK LLP is similar to a partnership: it is tax transparent or pass-through, that is to say it pays no UK tax but its Members do in relation to the income or gains they receive through the LLP. It is a unique entity in its synthesis of collective and individual rights and responsibilities and its infinite flexibility - there is in fact no requirement for the LLP agreement even to be in writing because simple partnership-based regulations apply by way of default provisions.

United States of America
In the United States, each individual state has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act in 1996.

Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly lawyers, accountants, and architects. In some U.S. states, namely California, New York, Oregon, and Nevada, LLPs can only be formed for such professional uses. Formation of an LLP typically requires filing certificates with the county and state offices. Although specific rules vary from state to state, all states have passed variations of the Revised Uniform Partnership Act.

Limited liability partnerships were introduced to Japan in 2006 during a large-scale revamp of the country's laws governing business organizations. Japanese LLPs may be formed for any purpose (although the purpose must be clearly stated in the partnership agreement and cannot be general), have full limited liability and are treated as pass-through entities for tax purposes. However, each partner in an LLP must take an active role in the business, so the model is more suitable for joint ventures and small businesses than for companies in which investors plan to take passive roles. Japanese LLPs may not be used by lawyers or accountants, as these professions are required to do business through an unlimited liability entity.[7]

A Japanese LLP is not a corporation, but rather exists as a contractual relationship between the partners, similarly to an American LLP. Japan also has a type of corporation with a partnership-styled internal structure, called a godo kaisha, which is closer in form to a British LLP or American limited liability company.

Modes of Winding Up
The winding up of a Limited Liability Partnership (LLP) may be either by the Tribunal, or voluntary.

Voluntary Winding Up

A LLP may be wound up voluntarily if the LLP passes a resolution with approval of at least three fourth (in number) of total number of partners, requiring the LLP to be wound up voluntarily. A copy of resolution shall be filed with the Registrar within 30 days of passing up such resolution in Form as prescribed in Appendix II. If the LLP has creditors, whether secured or unsecured, then such winding up shall not take place unless approval of such creditors takes place in pursuance of rule 4.

In case the LLP has creditors, secured or otherwise, the LLP shall, before taking any action for winding up of the LLP, also seek approval of such creditors and shall forward them, by registered post and any other electronic mean like email or website a copy of declaration under rule 3, the estimated amount of the claims due to each of the creditor and an offer for creditors to accept such claims.

The creditors would be given a month time to give LLP their opinion in respect of voluntary winding up proposed by the LLP or acceptance of offer made under sub-rule(1).

Publication of resolution
Where a LLP has resolved for voluntary winding up and consent of the creditors is received, it shall within fourteen days of the receipt of creditors consent give notice of the resolution by advertisement in some newspaper circulating in the district where the registered office or the principal office of the LLP is situated.

Authors contact info - articles The  author can be reached at: akshatgupta@legalserviceindia.com

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