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Limited Liability Partnership (LLP) – Part – 2 For Business Environment and Law

Limited Liability Partnership
Limited Liability Partnership

Limited Liability Partnership (LLP) – Part – 2 For Business Environment and Law

Limited Liability Partnership (LLP) – We have already discussed our previous article Limited Liability Partnership Act, 2008. In this article, we will discuss the topic designated partners, incorporation of LLP, Partners, and their relations and extent of liability, the contribution of a partner, Audit / financial disclosures, foreign LLP, from chapter Elements of Law relating to Partnership and LLP of CS Foundation Subject Business Environment and law.

 

DESIGNATED PARTNERS [SECTION 7]

 

LLP shall have at least two “designated partners” who are individuals and at least one of them shall be “resident in India”. In case one or more of the partners of an LLP are bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as “designated partners”

— “Resident in India” means a person who has stayed in India for a minimum of 182 days during the immediately preceding 1 year.

The designated partner is responsible for compliance with the provisions of the LLP Act.

Designated Partner is required to obtain Designated Partner Identification Number [DPIN] from the Central Government.

Application for allotment of DPIN needs to be submitted online on the LLP website along with the necessary proof duly attested and certified as prescribed.

 

INCORPORATION OF LLP [SECTIONS 11 TO 21]

 

The procedure for the incorporation of LLP is similar to the procedure for incorporation of a company under the Companies Act, 1956. Applicants are first required to file the application for reservation of name with the Registrar of Companies [ROC]. Once the name applied is approved by the ROC, the documents for incorporation of LLP need to be filed.

Name of every LLP shall end with the words “Limited Liability Partnership” or “LLP”.

A name that is undesirable or nearly resembles that of any other partnership firm or LLP or anybody corporate or trademark is not allowed.

Any entity (body corporate/registered partnership firm) which has a name similar to the name of LLP which has been incorporated subsequently may seek a change of name of such LLP through ROC within 24 months from date of registration of such LLP.

No person shall carry on business under any name/title which contains the words “Limited Liability Partnership” or “LLP” without duly incorporating it as LLP under the LLP Act.

LLP is required to file with the ROC, the LLP agreement ratified by all the partners within 30 days of incorporation of LLP.

 

PARTNERS AND THEIR RELATIONS AND EXTENT OF LIABILITY [SEC 22 TO 31]

 

Mutual rights and duties of partners of an LLP inter and those of the LLP and its partners shall be governed by an agreement between the partners, or agreement between the LLP and its partners. In absence of any such agreements, the mutual rights and duties shall be governed by the LLP Act.

Every partner of an LLP is, for the purpose of the business of LLP, the agent of LLP, but not of other partners.

LLP, being a separate legal entity, shall be liable to the full extent of its assets whereas the liability of the partners of LLP shall be limited to their agreed contribution in the LLP.

LLP is not bound by anything done by a partner in dealing with a person if –

i. the partner, in fact, has no authority to act for the LLP in doing a particular act, and

ii. the person knows that he has no authority or does not know or believe him to be a partner of the LLP

LLP is liable if the partner of an LLP is liable to any person for wrongful act/omission on his part in the course of the business of LLP/with its authority. The obligation of LLP whether arising in contract or otherwise shall solely be the obligation of LLP. Liabilities of LLP shall be met out of the properties of LLP.

Partner is not personally liable for the obligations of LLP solely by reason of being a partner of LLP.

No partner is liable for the wrongful act or omission of any other partner of LLP, but the partner will be personally liable for his own wrongful act or omission.

The liability 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. Cessation of a partner on grounds like resignation, death, dissolution of LLP, declaration that a person is of unsound mind, declared/applied to be adjudged as insolvent, etc. will not be effective unless —

i. The person has noticed that the partner has ceased to be so; or

ii. Notice of cessation has been delivered to

The notice of cessation may be filed by the outgoing partner if he has reasonable cause to believe that LLP has not filed the said notice.

 

CONTRIBUTION BY PARTNER [SECTIONS 32 AND 33]

 

A contribution of a partner to the capital of LLP may consist of any of the –

i. tangible, movable or immovable property

ii. intangible property

iii. Other benefits to the LLP including money, promissory notes, contracts for services performed or to be performed.

The obligation of a partner for the contribution shall be as per the LLP agreement.

Creditor, which extends credit or acts in reliance on an obligation described in the LLP agreement, without the notice of any compromise made between the partners, may enforce the original obligation against such a partner.

 

AUDIT/FINANCIAL DISCLOSURES [SECTIONS 34 AND 35]

 

LLP shall maintain the prescribed books of accounts relating to its affairs on a cash or accrual basis and according to the double-entry system of accounting.

The accounts of every LLP are required to be audited, except in the following situations:

i. When turnover does not exceed Rs. 40,00,000/- in any financial year; or

ii. Where contribution does not exceed Rs. 25,00,000/-

Central Government has powers to exempt certain classes of LLP from the requirement of a compulsory audit. LLP is required to file following documents with the ROC –

i. Statement of Account and Solvency, within 30 days from the end of 6 months of the financial year;

ii. Annual return within 60 days from the end of the financial

 

ASSIGNMENT & TRANSFER OF PARTNERSHIP RIGHTS [SEC.42]

 

The rights of a partner to a share of the profits and losses of the LLP and to receive a distribution in accordance with the LLP agreement are transferable, either wholly or in part. However, such transfer of rights does not cause either disassociation of the partner or a dissolution and winding up of the LLP. Such transfer of the right, shall not, by itself entitle, the assignee or the transferee to participate in the management or conduct of the activities of the LLP or access information concerning the transactions of the LLP.

 

FOREIGN LLP [SECTION 59 AND RULE 34]

 

On the establishment of a place of business in India, foreign LLP is required to file prescribed documents for registration with ROC within 30 days of the establishment in India.

Any alteration in the constitution documents, overseas principal office address and partner of foreign LLP are required to be filed with the ROC in the prescribed form within 60 days of the close of the financial year.

Any alteration in the certificate of registration of foreign LLP, an authorized representative in India and principal place of business in India is required to be filed with the ROC in the prescribed form within 30 days of alteration.

Foreign LLP ceasing to have a place of business in India, are required to give notice to ROC in the prescribed form within 30 days of its intention to close the place of business and from the date of such notice, the obligation of Foreign LLP to file any document with the ROC shall cease, provided it has no other place of business in India and it has filed all the documents due for filing as on the date of the notice.

 

Questions from the Blog:-

i. Who can be a “Designated Partner”?

ii. How can a person become a partner of an LLP?

iii. Nature & extent of liability of a partner of an LLP?

iv. What are the contributions of a Partner in LLP?

v. What Is Audit/Financial Disclosures?

vi.What Is Transfer Of Partnership Rights

vii. What Is Foreign LLP?

 

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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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Tag – Limited Liability Partnership / LLP / Designated partners section- 7 / Incorporation of LLP / Business Environment and Law /   Partners, and their relations and extent of liability / the contribution of a partner / Audit / financial disclosures, foreign LLP

December 27, 2019

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