CA Foundation Law Applicable for May & Nov 2024

5 The Limited Liability Partnership Act, 2008

The LLP Act, 2008 is applicable to the whole of India.
This Act have been enacted to make provisions for the formation and
Introduction
regulation of Limited Liability Partnerships and for matters connected
there with or incidental thereto.
The LLP Act, 2008 has 81 sections and 4 schedules.
Essential features The First Schedule deals with mutual rights and duties of partners, as well
limited liability partnership and its partners where there is absence of a
formal agreement with respect to them.
LLP

Characteristics of LLP The Second Schedule deals with conversion of a firm into LLP.

The Third Schedule deals with conversion of a private company into LLP.
Incorporation

The Fourth Schedule deals with conversion of unlisted public company into
LLP.
Difference with other forms
of organizations
The Ministry of Corporate Affairs and the Registrar of Companies
Introduction (ROC) are entrusted with the task of
The Ministry of Law and Justice on 9th January 2007 notified the administrating the LLP Act, 2008. The Central
Limited Liability Partnership Act, 2008. Government has the authority to frame the Rules
The Parliament passed the Limited Liability Partnership Bill on 12th with regard to the LLP Act, 2008, and can amend
December, 2008 and the President of India has assented the Bill on 7th them by notifications in the Official Gazette,
January, 2009 and called as the Limited Liability Partnership Act, from time to time.
2008.
222
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
It is also to be noted that the Indian Partnership Act, 1932 is not Limited Liability Partnership- Meaning and Concept
applicable to LLPs. Meaning: An LLP is a new form of legal business entity with limited
The Limited Liability Act, 2008 has been amended through the Limited liability. It is an alternative corporate business vehicle that not only
Liability Partnership (Amendment) Act, 2021 dated 13th August, gives the benefits of limited liability at low compliance cost but allows
2021. its partners the flexibility of organising their internal structure as a
traditional partnership. The LLP is a
Need of new form of Limited Liability Partnership separate legal entity and, while the
The lawmakers envisaged the need for bringing out a new legislation for LLP itself will be liable for the full
creation of the Limited Liability Partnership to meet with the extent of its assets, the liability of
contemporary growth of the Indian economy. the partners will be limited.
A need has been felt for a new corporate form that LLP as a separate legal entity and business organisation is an
would provide an alternative to the traditional partnership alternative corporate business form that gives the benefits of limited
with unlimited personal liability on the one hand and the liability of a company and the flexibility of a partnership.
statute-based governance structure of the limited liability Since LLP contains elements of both ‘a corporate structure’ as well as
company on the other hand. In order to enable professional ‘a partnership firm structure’ LLP is called a hybrid between a company
expertise and entrepreneurial initiative and combine, and a partnership.
organize and operate in flexible, innovative and efficient manner, the LLP
Act, 2008 was enacted.

Thus, LLP as a form of business organization is an alternative corporate

business vehicle. It 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 enables
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 is a suitable vehicle for
small enterprises and for investment by venture capital.

223
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
1.Body It means a company as defined in clause (20) of section 5. Financial "Financial year", in relation to an LLP, means the
Corporate 2 of the Companies Act, 2013 and includes Year [Section period from the 1st day of April of a year to the
[(Section (i) a limited liability partnership registered under this 2(1)(i)]: 31st day of March of the following year.
2(1)(d)] Act, However, in the case of an LLP
(ii) a limited liability partnership incorporated after the 30th day
incorporated outside India; and of September of a year, the
(iii) a company incorporated outside financial year may end on the
India, but does not include 31st day of March of the year next following that
(iv) a corporation sole; year.
(v) a co-operative society registered under any law for
Example: If an LLP has been incorporated on 15th
the time being in force; and any other body corporate
October, 2019, then its financial year may be from
(not being a company as defined in clause (20) of
15th October, 2019 to 31st March, 2021.
section 2 of the Companies Act, 2013 or a limited
The Income Tax department has prescribed
liability partnership as defined in this Act), which the
uniform financial year from 1st April to 31st March
Central Government may, by notification in the Official
of next year. In keeping with the Income tax law,
Gazette, specify in this behalf.
the financial year for LLP should always be from 1st
2. Business "Business" includes every trade, profession, service and
April to 31st March each year
[Section occupation except any activity which the Central
6. Foreign LLP It means an LLP formed, incorporated or registered
2(1)(e)]: Government may, by notification, exclude.
[section outside India which establishes a place of business
3. Designated "Designated partner" means any partner designated as
2(1)(m)]: within India.
Partner such pursuant to section 7.
7. Limited Limited Liability Partnership means
[Section 2(1)
liability a partnership formed and
(j)]:
partnership registered under this Act.
4. Entity "Entity" means anybody corporate and includes, for the
[Section
[Section purposes of sections 18, 46, 47, 48, 49, 50, 52 and
2(1)(n)]:
2(1)(k)]: 53, a firm setup under the Indian Partnership Act,
1932.

224
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
8. Limited It means any written agreement between the Partners (Section 5): Any individual or body corporate may be a
Liability partners of the LLP or between the LLP and its partner in an LLP.
partnership partners which determine the mutual rights and However, an individual shall not be capable of
agreement duties of the partners and their rights and duties in becoming a partner of a LLP, if-
[Section 2(1)(o)]: relation to that LLP. (a) he has been found to be of unsound
9. Partner Partner, in relation to an LLP, means any person who mind by a Court of competent jurisdiction and
[Section 2(1)(q)]: becomes a partner in the LLP in accordance with the the finding is in force;
LLP agreement. (b) he is an undischarged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his application
10. Small It means a limited liability partnership- is pending.
Limited Liability (i) the contribution of which, does not exceed
Partnership twenty-five lakh rupees or such higher amount, not Minimum number of partners (Section 6):
[Section 2(1) exceeding five crore rupees, as may be prescribed; (i) Every LLP shall have at least two partners.
(ta)]: and (ii) If at any time the number of partners of
(ii) the turnover of which, as per the Statement of an LLP is reduced below two and the LLP carries
Accounts and Solvency for the immediately on business for more than six months while the
preceding financial year, does not exceed forty lakh number is so reduced, the person, who is the
rupees or such higher amount, not exceeding fifty only partner of the LLP during the time that it
crore rupees, as may be prescribed; or so, carries on business after those six months
(iii) which meets such other requirements as may be and has the knowledge of the fact that it is carrying on business with
prescribed, and fulfils such terms and conditions as him alone, shall be liable personally for the obligations of the LLP
may be prescribed. incurred during that period.

Non-applicability of the Indian Partnership Act, 1932 (Section 4):

Save as otherwise provided, the provisions of the Indian Partnership Act,
1932 shall not apply to an LLP.

225
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
Designated partners (Section 7):
1. LLP is a Section 2(1)(d) of the LLP Act, 2008 provides that an
(i) Every LLP shall have at least two designated partners who are body LLP is a body corporate formed and incorporated under
individuals and at least one of them shall be a resident in India. corporate: this Act and is a legal entity separate from that of its
(ii) If in LLP, all the partners are bodies corporate or in which one or more partners and shall have perpetual succession. Therefore,
partners are individuals and bodies corporate, at least two individuals who any change in the partners of a LLP shall not affect the
are partners of such LLP or nominees of such bodies corporate shall act existence, rights or liabilities of the LLP.
as designated partners. Section 3 of LLP Act provides that an LLP is a body
(iii) Resident in India: For the purposes of this section, the term resident corporate formed and incorporated under this Act and
in India means a person who has stayed in India for a period of not less is a legal entity separate from that of its partners.
than 120 days during the financial year. 2. Perpetual The LLP can continue its existence irrespective of
Succession: changes in partners. Death, insanity, retirement or
Example: There is an LLP by the name Indian Helicopters LLP having 5 insolvency of partners has no impact on the existence of
partners namely Mr. A (Non-resident), Mr. B (Non-Resident) Ms. C LLP. It is capable of entering into contracts and holding
(resident), Ms. D (resident) and Ms. E (resident). In this case, at least 2 property in its own name.
should be named as Designated Partner out of which 1 should be resident. 3. Separate LLP as a separate legal entity, is
Hence, if Mr. A and Mr. B are designated then it will not serve the Legal Entity: liable to the full extent of its assets
purpose. One of the designated partners should be there out of Ms. C, but liability of the partners is
Ms. D and Ms. E. limited to their agreed contribution
in the LLP.
Characteristic Of LLP In other words, creditors of LLP
Body Perpetual Separate legal
shall be the creditors of LLP alone.
Mutual Agency LLP Agreement
Corporate Succession entity 4.Mutual No partner is liable on account of the independent or un-
Agency: authorized actions of other partners, thus individual
Minimum and partners are shielded from joint liability created by
Artificial Legal Limited Management of
Common Seal maximum number another partner's wrongful business decisions or
person liability business
of partners
misconduct. In other words, all partners will be the
agents of the LLP alone. No one partner can bind the
Business for Compromise or Conversion into E-filing of
Investigation other partner by his acts.
profit only Arrangement LLP documents

Foreign LLPs
226
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
5. LLP Mutual rights and duties of the partners within an LLP are
Example: The professionals like Engineering consultants,
Agreement: governed by an agreement between the partners. The LLP Act,
Legal Advisors and Accounting Professional are afraid of
2008 provides flexibility to partner to devise the agreement as
entering into business due to unlimited liability. Hence the
per their choice. In the absence of any such agreement, the
LLP partnership Act provides an avenue for these
mutual rights and duties shall be governed by the provisions of
professionals to Limited Liability Partnership firms which
the LLP Act, 2008.
restricts their liability to the agreed amount. This has
6. Artificial An LLP is an artificial legal person because it is created by a encouraged Professionals to form LLP.
Legal Person: legal process and is clothed with all rights of an individual. It
9. The partners in the LLP are entitled to manage the
can do everything which any natural person can do, except of
Management business of LLP. But only the designated partners are
course, that, it cannot be sent to jail, cannot take an oath,
of Business: responsible for legal compliances.
cannot marry or get divorce nor
10. Minimum Every LLP shall have least two partners and shall also have
can it practice a learned profession
and Maximum at least 2 individuals as designated partners, of whom at
like CA or Medicine.
number of least one shall be resident in India. There is no maximum
An LLP is invisible, intangible, immortal
Partners: limit on the partners in LLP.
(it can be dissolved by law alone) but
11. Business The essential requirement for forming LLP PROFIT is
not fictitious because it really exists.
for Profit carrying on a lawful business with a view to earn profit.
7.Common An LLP being an artificial person can act through its
Only: Thus, LLP cannot be formed for charitable or non-
Seal: partners and designated partners. LLP may have a
economic purpose.
common seal, if it decides to have one [Section
14(c)]. 12. The Central Government shall have
Investigation: powers to investigate the affairs of
Thus, it is not mandatory for an LLP to have
an LLP by appointment of competence
a common seal. It shall remain under the custody of some
authority for the purpose.
responsible official and it shall be affixed in the presence of
at least 2 designated partners of the LLP.
8. Limited Every partner of a LLP is, for the purpose of the business of
Liability: LLP, the agent of the LLP, but not of other partners. The
liability of the partners will be limited to their agreed 13. Any compromise or agreements including merger and
Compromise amalgamation of LLPs shall be in accordance with the
contribution in the LLP. Such contribution may be of tangible
or provisions of the LLP Act, 2008.
or intangible nature or both.
Arrangement:

227
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
14. A firm, private company or an unlisted public company would (b) the incorporation document shall be filed in such manner and with
Conversion be allowed to be converted into LLP in accordance with the such fees, as may be prescribed with the Registrar of the State in
into LLP: provisions of LLP Act, 2008.
which the registered office of the LLP is to be situated; and
15. E-Filling Every form or application of document required to be filed or
(c) Statement to be filed:
of delivered under the act and rules made thereunder, shall be
✓ there shall be filed along with the incorporation document, a
Documents: filed in computer readable electronic form on its website
statement in the prescribed form,
www.mca.gov.in and authenticated by a partner or designated
partner of LLP by the use of electronic or digital signature. ✓ made by either an advocate, or a Company Secretary or a
16. Foreign Section 2(1)(m) defines foreign limited liability partnership Chartered Accountant or a Cost Accountant, who is engaged in the
LLPs: "as a limited liability partnership formed, formation of the LLP and
incorporated, or registered outside India which established ✓ by anyone who subscribed his name to the incorporation document,
as place of business within India". Foreign LLP can become a ✓ that all the requirements of this Act and the rules made
partner in an Indian LLP. thereunder have been complied with,
✓ in respect of incorporation and matters precedent and incidental
Advantages of LLP form-LLP form is a form of business model which: thereto.
Advantages of LLP form- (2) The incorporation document shall-
•is organized and operates on the basis of an agreement (a) be in a form as may be prescribed;
•provides flexibility without imposing detailed legal and procedural (b) state the name of the LLP;
requirements. (c) state the proposed business of the LLP:
•Easy to form (d) state the address of the registered office of the LLP;
•Flexible capital structure (e) state the name and address of each of the persons who are to
•Easy to dissolve be partners of the LLP on incorporation:
Incorporation Of LLP (f) state the name and address of the persons who are to be
Incorporation document (Section 11):The most important document designated partners of the LLP on incorporation;
needed for registration is the incorporation document. (g) contain such other information concerning the proposed LLP as
(1) For an LLP to be incorporated: may be prescribed.
(a) two or more persons associated for carrying on a lawful business with
a view to profit shall subscribe their names to an incorporation document;

228
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
(3) If a person makes a statement as discussed above which he- (2) A document may be served on an LLP or a partner or designated
(a) knows to be false; or partner thereof by sending it by post under a certificate of posting or
(b) does not believe to be true, shall be punishable by registered post or by any other manner, as may be prescribed, at
• with imprisonment for a term which may extend to 2 years and the registered office and any other address specifically declared by
• with fine which shall not be less than 10,000 but which may extend the LLP for the purpose in such form and manner as may be prescribed.
to ₹5 Lakhs. (3) An LLP may change the place of its registered office and file the
notice of such change with the Registrar in such form and manner and
Incorporation by registration (Section 12): subject to such conditions as may be prescribed and any such change
(1) When the requirements imposed by clauses (b) and (c) of sub-section shall take effect only upon such filing.
(1) of section 11 have been complied with, the Registrar shall retain the (4) If the LLP contravenes any provisions of this section, the LLP and
incorporation document and, unless the requirement imposed by clause (a) its every partner shall be liable to a penalty of 500 for each day during
of that sub-section has not been complied with, he shall, within a period which the default continues, subject to a maximum of 50,000 for the
of 14 days- LLP and its every partner.
(a) register the incorporation document; and
(b) give a certificate that the LLP is incorporated by the name specified Effect of registration (Section 14):
therein.
Suing and being
(2) The Registrar may accept the statement delivered under clause (c) sued;
of sub-section (1) of section 11 as sufficient evidence that the
requirement imposed by clause (a) of that sub-section has been complied
with.
acquiring, owning, holding
(3) The certificate issued under clause (b) of sub-section (1) shall be doing and suffering such On rgisteration a and developing or disposing
other acts and things as LLP shall, by its
signed by the Registrar and authenticated by his official seal. bodies corporate may
of property, whether
name, be capable movable or immovable,
(4) The certificate shall be conclusive evidence that the LLP is lawfully do and suffer. of tangible or intangible;
incorporated by the name specified therein.

Registered office of LLP and change therein (Section 13):

having a common seal,
(1) Every LLP shall have a registered office to which all communications
if it decides to have
and notices may be addressed and where they shall be received. one; and

229
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
Name (Section 15): Change of name of LLP (Section 17):
(1) Every limited liability partnership shall have either (1) Notwithstanding anything contained in sections 15 and 16, if
the words "limited liability partnership" or the acronym through inadvertence or otherwise, a LLP, on its first registration
"LLP" as the last words of its name. or on its registration by a new body corporate, its registered name,
(2) No LLP shall be registered by a name which, is registered by a name which is identical with or too nearly
in the opinion of the Central Government is- resembles to -
(a) undesirable; or (a) that of any other LLP or a company, or
(b) identical or too nearly resembles to that of any other LLP or a (b) a registered trade mark of a proprietor under the Trade
company or a registered trade mark of any other person under the Marks Act, 1999, as is likely to be mistaken for it,
Trade Marks Act, 1999. then on an application of such LLP or proprietor referred to in clauses
(a) and (b) respectively or a company,
Reservation of name (Section 16): the Central Government may direct that such LLP to change its name
(1) A person may apply in such form and manner and accompanied by such or new name within a period of 3 months from the date of issue of such
fee as may be prescribed to the Registrar for the direction.
reservation of a name set out in the application as It is further provided that an application of the proprietor of the
(a) the name of a proposed LLP; or registered trademarks shall be maintainable within a period of 3 years
(b) the name to which an LLP proposes to from the date of incorporation or registration or change of name of
change its name. the LLP under this Act.
(2) Upon receipt of an application under sub-section (1) and on payment (2) Where an LLP changes its name or obtains a new name under sub-
of the prescribed fee, the Registrar may, if he is satisfied, subject to section (1), it shall within a period of 15 days from the date of such
the rules prescribed by the Central Government in the matter, that the change, give notice of the change to Registrar along with the order of
name to be reserved is not one which may be rejected on any ground the Central Government, who shall carry out necessary changes in the
referred to in sub-section (2) of section 15, reserve the name for a certificate of incorporation and within 30 days of such change in the
period of 3 months from the date of intimation by the Registrar. certificate of incorporation, such LLP shall change its name in the LLP
agreement.
(3) If the LLP is in default in complying with any direction given under
sub-section (1), the Central Government shall allot a new name to the
LLP in such manner as may be prescribed and the Registrar shall enter
230
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
the new name in the register of LLP in place of the old name and issue a Perpetual The death, insanity, The death, insanity,
fresh certificate of incorporation with new name, which the LLP shall use succession retirement or insolvency of retirement or insolvency
thereafter. the partner(s) does not of the partner(s) may
Nothing contained in this sub-section shall prevent an LLP from affect its existence of LLP. affect its existence. It
subsequently changing its name in accordance with the provisions of Partners may join or leave has no perpetual
section 16. but its existence continues succession.
forever.
Differences With Other Forms of Organisation Name Name of the LLP to contain No guidelines. The
Distinction between LLP and Partnership Firm: the word limited liability partners can have any
The points of distinction between a limited liability partnership and partnership (LLP) as suffix. name as per their choice.
partnership firm are tabulated as follows: Liability Liability of each partner is Liability of each partner
limited to the extent to is unlimited. It can be
Basis LLP Partnership firm
agreed contribution except extended up to the
Regulating The Limited Liability The Indian Partnership
in case of wilful fraud. personal assets of the
Act Partnership Act, 2008. Act, 1932.
partners.
Body It is a body corporate. It is not a body
Mutual Each partner can bind the Each partner can bind
corporate corporate
agency LLP by his own acts but not the firm as well as other
Separate It is a legal entity separate It is a group of persons the other partners. partners by his own acts.
legal entity from its members. with no separate legal Designated At least two designated There is no provision for
entity. partners partners and at least one of such partners under the
Creation It is created by a legal It is created by an them shall be resident in Partnership Act, 1932.
process called registration agreement between the India.
under the LLP Act, 2008. partners. Common It may have its common seal There is no such concept
Registration Registration is mandatory. Registration is voluntary. seal as its official signatures. in partnership.
LLP can sue and be sued in Only the registered Legal Only designated partners are All partners are
its own name. partnership firm can sue compliances responsible for all the responsible for all the
the third parties. compliances and penalties compliances and penalties
under this Act. under the Act.
231
CA Shantam Gupta
 CA Foundation Law Applicable for May & Nov 2024
Annual filing LLP is required to file: Partnership firm is not Name Name of the LLP to contain Name of the public company
of (i) Annual statement of required to file any annual the word "Limited Liability to contain the word "limited"
documents accounts document with the partnership" or "LLP" as and Pvt. Co. to contain the
(ii) Statement of solvency registrar of firms. suffix. word "Private limited" as
(iii) Annual return with the suffix.
registration of LLP every year. No. of Minimum - 2 partners Private company:
Foreign Foreign nationals can become a Foreign nationals cannot members Maximum - No such limit on Minimum - 2 members
partnership partner in an LLP. become a partner in a /Partners the partners in the Act. Maximum 200 members
partnership firm. The partners of the LLP can Public company:
Minor as Minor cannot be admitted to Minor can be admitted to be individuals/or body Minimum - 7 members
partner the benefits of LLP. the benefits of the corporate through the Maximum - No such limit on
partnership with the prior nominees the members.
consent of the existing Members can be
partners. organizations, trusts,
another business form or
individuals.
Distinction between LLP and Limited Liability Company
Liability of Liability of a partners is Liability of a member is
Basis LLP Limited Liability Company
members limited to the extent of limited to the amount unpaid
Regulating The LLP Act, 2008. The Companies Act, 2013. /partners agreed contribution except on the shares held by them.
Act in case of wilful fraud.
Members The persons who The persons who invest the Management The business of the company The affairs of the company
/Partners contribute to LLP are money in the shares are is managed by the partners are managed by board of
known as partners of the known as members of the including the designated directors elected by the
LLP. company. partners authorized in the shareholders.
agreement.
Internal The internal governance The internal governance
Minimum Minimum 2 designated Pvt. Co. - 2 directors public
governance structure of an LLP is structure of a company is
number of partners. co. - 3 directors
structure governed by contract regulated by statute (i.e.,
directors
agreement between the Companies Act, 2013).
/designated
partners. partners

232
CA Shantam Gupta