Limited Liability Partnership Act 2008 (LLP) For Business Environment and Law
LIMITED LIABILITY PARTNERSHIP
Limited Liability Partnership is an important part of CS Foundation Subject Business Environment and law. The topic is covered in all levels of CS (Company Secretary). LLP is included in Elements of Law relating to Partnership and LLP.
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. In this background, a need was felt for a new corporate form that would provide an alternative to the traditional partnership which exposes its partners to unlimited personal liability and a statute based governance structure of limited liability companies.
NEED –
At present, under partnership law, the maximum numbers of partners a partnership firm can have is twenty also 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.
This is the principal reason why partnerships firms of professionals have not grown in size to meet the challenges posed today. Not only are the firm’s assets completely liquidated under the standard principles of the partnership law, but the partners are also jointly and severally liable for the entire liabilities of the partnership. Thus, the present system acts as a deterrent for the growth and expansion of service-based organizations.
OBJECTIVE OF LIMITED LIABILITY PARTNERSHIP ACT, 2008 [LLP] –
Limited Liability Partnership [LLP] is viewed as an alternative corporate business vehicle that provides the benefits of the limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. LLP form is expected to 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.
With this background, the Limited Liability Partnership Act, 2008 [LLP Act] was enacted on January 7, 2009. Subsequently, the Government of India [GOI] notified various provisions of the LLP Act on 31st March 2009. GOI has, on April 1, 2009, also notified the Limited Liability Partnership Rules, 2009 [LLP Rules] in respect of registration and operational aspects under the LLP Act.
THE SALIENT FEATURES OF THE LIMITED LIABILITY PARTNERSHIP ACT, 2008, ARE AS FOLLOWS:-
i. Body corporate- The LLP shall be a body corporate and a legal entity separate from its
ii. Mutual rights and duties of partners- The mutual rights and duties of the partners of the LLP inter se and those of the LLP and its partners shall be governed by an agreement between the partners inter se or between the LLP and the partners subject to the provisions of the Act. 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 the
iii. Separate legal existence- 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. No partner would be liable on account of the independent or unauthorized actions of other partners or their misconduct. The liabilities of the LLP and its 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
iv. Minimum partners- 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
v. Accounts- The LLP shall be under an obligation to maintain annual accounts reflecting the 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
vi. Limited Liability- The liability of a partner of an LLP is limited up to his agreed contribution to the LLP.
vii. Perpetual succession- A LLP is a legal entity with perpetual
viii. Conversion- A firm, private company or an unlisted public company would be allowed to be converted into an LLP in accordance with the provisions of the
ix. Winding up- 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
x. Non-applicability of the Indian Partnership Act, 1932– The Indian Partnership Act, 1932 shall not be applicable to
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KEY DEFINITIONS:-
i. “Body Corporate” is defined to mean a company as defined under the Companies Act, 1956 and includes LLP, LLP incorporated outside India, a foreign company but does not include a corporation sole, a registered co-operative society and any other body corporate notified by the Central Government (not being a company defined under the Companies Act, 1956 or LLP defined under LLP Act). [Section 2(1)(d)]
ii. “Business” includes every trade, profession, service, and occupation. [Section 2(1)(e)]
iii. “Financial Year“, in relation to LLP, means the period from 1st April of a year to the 31st March of the following year. However, in the case of LLP incorporated after 30th September, the financial year may end on 31st March of the year next following that year. [Section 2(1)(l)]
iv. “Foreign Limited Liability Partnership” means an LLP formed, incorporated or registered outside India which establishes a place of business within India. [Section 2(1)(m)]
v. “Limited Liability Partnership” means a partnership formed and registered under the LLP Act. [Section 2(1)(n)].
vi. “Limited liability partnership” agreement” means any written agreement between the partners of LLP or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP. [Section 2(1)(o)]
vii. “Partner” in relation to LLP means a person who becomes a partner in an LLP in accordance with the LLP agreement. [Section 2(1)(q)]
Questions from the Blog:-
1. What is LLP?
2. Why we need LLP?
3. What are the features of LLP?
3. Explain Limited Liability Partnership Act, 2008?
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The topic Limited Liability Partnership is an important topic of CA Foundation Business Laws & Business Correspondence and Reporting Video Lectures (Paper – 2) and is also included in other subjects of CS Like CS Executive Setting Up of Business Entities and Closure & CS Professional Advance Tax Laws and Practice.
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