LIMITED LIABILITY PARTNERSHIP –A NEW LEGAL ENTITY

LIMITED LIABILITY PARTNERSHIP –A NEW LEGAL ENTITY

v INTRODUCTION:

Changing business dynasties and emergent need to tackle with globalize competition lead to enactment of Limited Liability Partnership Act, 2008. This act is an output of Naresh Chandra CommitteeReport on Regulation of Private Companies and Partnership and of Dr. J. J. Irani CommitteeReport on Company Law. Limited Liability Partnership (LLP) Act got assent of President on 7^th January, 2009. As per present Partnership Act, 1932 the partners are liable jointly and severally and most importantly their liability is unlimited which means that the personal property of the partners can also be attached for the satisfaction of the debts in addition to the capital contributed by the partners in the firm, so being a partner of partnership firm is a very dicey affair. The Partnership Act, 1932 is not suitable in the era of globalization and liberalization. At present, this LLP Act is in form of mini companies Act. A Limited Liability Partnership (abbreviated as LLP) has elements of partnerships and corporations. LLP structure is more suited for business where all investors wish to take an active role in management.

v LEGAL FRAMEWORK:

LLP is very easy to study as there are only 2 enactments at present.

Limited Liability Partnership Act, 2008
Limited Liability Partnership Rules, 2009 which got amended to Limited Liability Partnership (amendment) Rules, 2010 with effect from 15^th January, 2010.

v JURISDICTION:

It extends to the whole of India.

v PROVISIONS:

LIMITED LIABILITY OF PARTNERS:

The liability of each partner will be limited to the extent of the amount as specified in the partnership agreement.

A partner of LLP is not personally liable, directly or indirectly, for any debts or obligations of LLP.

Every partner of LLP is the agent of LLP but not of other partners.

A Body Corporate:

LLP is a body corporate and separate legal entity distinct from its partners in addition to that it has a perpetual succession.

Indian Partnership Act, 1932 shall not apply to LLP.

MEMBERS / PARTNERS:

Minimum: Two

Maximum: No Limit

Foreign Company, a LLP, a foreign LLP, or a non resident can be a partner of LLP; one of the partners of LLP must be resident in India.

Although there is not specifically mention in the Act, a minor can be admitted to the benefits of partnership.

Designated Partners:

Similar to Directors in Company there is provision for appointment of Designated Partners in LLP.

There must be two Designated Partners in LLP; one of them shall be resident in India.

Every individual or a nominee of a body corporate who intend to become Designated Partner shall get DPIN (Designated Partner Identification Number) by making an application to the central government through e-form7.

Every Designated Partner after being allotted DPIN (Designated Partner Identification Number) shall intimate it along with his consent to become Designated Partner to LLP in e-from 9.

ADMISSION & CESSATION OF PARTNERS:

Any person may join the LLP as a partner if all partners agree to admit him as a partner. And a partner will cease to be a partner on happening of any of the following events:

Death;

Retirement;

Winding up of the Company or LLP of which he is a partner;

Declared to be of unsound mind or insolvent.

Every partner shall inform the LLP of any change in his name or address within a period of 15 days of such change and the LLP is required to file a notice with the ROC in form 5 within 30 days of such change.

SHARE OF PROFIT:

Share of each partner in the profits/losses of LLP is provided in partnership agreement; in the absence of which all the partners of LLP will share equally.

REMUNERATION:

The partnership agreement may provide for payment of interest on capital of partners and remuneration payable to the partners. In the absence of any such specific provision, no partner shall be entitled to remuneration for acting in the business or management of LLP.

HOW TO START LLP:

Get DPIN (Designated Partner Identification Number)/Digital Signature Certificate.

Check name availability by online search i.e., by accessing www.llp.gov.in

Download LLP forms from www.llp.gov.in.

Fill up the details properly in related forms and afterwards upload it electronically.

For uploading the forms one has to log in on www.llp.gov.in

Track the status online i.e., by accessing www.llp.gov.in

Once LLP get certificate of incorporation, LLP will be ready to function.

VARIOUS FORMS AND ITS PURPOSES:

FORM NO.	PURPOSE OF FILING
Form 1	Application for reservation or change of name
Form 2	Incorporation Document and Statement
Form 3	Information with regard to Limited Liability Partnership Agreement and changes, if any, made therein
Form 4	Notice of appointment of partners/ designated partner and changes among them, intimation of DPIN by the LLP to Registrar and consent of partner to become a partner /designated partner
Form 5	Notice of change of name
Form 6	Intimation of particulars of name or address of a partner/ change in such particulars by a Partner to the Limited Liability Partnership
Form 7	Application for allotment of Designated Partner Identification Number
Form 8	Statement of Account & Solvency
Form 9	Consent to act as Designated Partner
Form 10	Intimation of changes in particulars by Designated Partners

MAINTENANCE OF ACCOUNTS & AUDIT:

The LLP has to prepare a ‘Statement of Accounts’ and a ‘Solvency Statement’ within a period of 6 months from the end of the financial year to which the statement of account and solvency relates.

The statement of accounts and the solvency statement have to be filed with ROC in Form 8 within the period of 30 days from the end of foresaid period of 6 months with the prescribed fee.

LLP has to file an annual return with ROC within 60 days of the end of the financial year in Form 11 with the prescribed fees.

A LLP shall be exempt from the audit of its accounts if its turnover does not exceed, in any financial year, 40 Lakh rupees; or its contribution does not exceed 25 Lakh rupees.

· Limited Liability Partnerships which mandatorily require auditing of their accounts shall appoint an auditor within 30 days before the end of each Financial Year i.e. before 1st March of each year. In case of First Financial year the auditor to be appointed before the end of the First Financial Year.

v STAMP DUTY:

LLP Agreement shall be liable for stamp duty as per the Stamp Duty laws prescribed the related State Government, where the said agreement will be executed.

· The Government may exempt partnership firms and limited companies from paying stamp duty while converting into limited liability partnerships (LLPs), a way of doing business that is favored globally for its flexibility.

v UNLIMITED LIABILITY IN CERTAIN CASES:

· the liability of LLP and partner is unlimited for all or any of the debts in the event of an act carried out by LLP, or any of its partner, with intent to deceive creditors or any other person of LLP, or for any fraudulent purpose, but if such act is carried out by a partner, LLP is liable to the same extent as partner if LLP is unable to prove that such act was without the knowledge or authority of LLP.

· Where LLP or any partner or designated partner or employee of such LLP has conducted the affairs of LLP in a fraudulent manner, then LLP or any partner or designated partner or employee of such LLP shall be liable to pay compensation to any person who has suffered any loss or damage by reason of such conduct; but such LLP shall not be liable if any such partner or designated partner or employee has acted fraudulently without Knowledge of LLP.

v WINDING UP OF LLP:

Winding up is process, where all the assets of the business are disposed off to meet the liabilities of the same and surplus any, is distributed among the owners. The LLP Act 2008 provides for following two modes for winding up the LLP i.e.:

· Voluntary winding up-

· Compulsory winding up

Voluntary Winding up: Under this, the partners may between themselves decide to stop and wound up the operations of the LLP.

Compulsory winding up- A limited liability partnership may be compulsorily wound up by the Tribunal,

· if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;

· if, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two;

· if the limited liability partnership is unable to pay its debts;

· if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;

· if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or

· if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.

v CONCLUSION:

LLP structure is adopted by well known economic entities such as USA, UK, Japan, France, Romania, Australia and Singapore. The LLP will act as an engine of growth which will fuel the economic development of the country. The introduction of LLP is a good start for long destination; the LLP will promote joint ventures and would make Indian service sectors internationally competitive. It is a sigh of relief for professionals like Advocates, Company Secretaries, Chartered Accountants and Cost Accountants that the liability of partner in LLP is limited to the extent of his contribution. The partner’s personal assets are not at risk. These professionals may also form multi-dimensional LLPs to meet the changing economic environment. The Government should develop a flexible environment for professionals to meet the international competition. The hybrid structure of LLP will cheer entrepreneurs, service providers and professionals to systematize and operate in a dynamic and flexible manner for effectively competing in the international market.

-Amit Prakash Yawalkar

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