BUSINESS LAW

UNIT 5: The Limited Liability Partnership Act, 2008

TOPIC- LLP(FEATURES AND NATURE)

Monika Arya, Associate Professor, Bharati College , Delhi

University
LIMITED LIABILITY PARTNERSHIP(LLP)
• Limited Liability Partnership (LLP) is a hybrid form of business structure that infuses the
operational flexibility and tax advantages of a traditional partnership firm with the
limited liability and perpetual existence features of a corporate entity. Therefore, it is
considered to be an attractive investment option by foreign investors, venture
capitalists, professionals and service providers etc. who can go in for this alternative
business vehicle.
• Major drawbacks of traditional partnership (such as existence of mutual agency among
partners, unlimited liability and uncertainty of life) as well as company form of
organisation ( such as excessive legal compliance) have been overcome by LLP form of
business organization.
• Section 2(1)(n) of the LLP Act,2008 defines Limited Liability Partnership as ‘a
partnership formed and registered under this Act’. But considering the nature of an LLP,
it can be defined as ‘a body corporate having a separate legal entity, with a perpetual
existence ,common seal and carrying limited liability’.
• A company registered in India, whether private or public, has to comply with host of
complex formalities and incur additional costs for managing affairs including mandatory
board meetings, maintaining of statutory records etc. But for LLP, such mandates are
not prescribed. Further, it enjoys certain benefits like non applicability of dividend
distribution tax, relaxation of many detailed legal and procedural requirements.
Monika Arya, Associate Professor, Bharati College , Delhi
University
LIMITED LIABILITY PARTNERSHIP ACT,2008
• Limited Liability Partnership Act came into force for most of the provisions on 31st
March 2009 and for remaining provisions on 31st May 2009 and applies to the
whole of India.
• It comprises of XIV chapters, containing 81 sections and 4 schedules. The first
schedule is a model set of terms of LLP agreement. The second schedule contains
provisions for conversion of a firm into LLP. The third schedule contains provisions
for conversion of a private limited company into LLP. The fourth schedule contains
provisions for conversion of an unlisted public limited company into LLP.
• Regulatory Framework of LLPs in India
ASPECTS REGULATED BY
LEGAL LLP ACT,2008; LLP RULES,2009; LLP(AMENDMENT) RULES ETC.
ADMINISTRATIVE MINISTRY OF CORPORATE AFFAIRS , REGISTRAR OF COMPANIES
TAXATION INCOME TAX ACT,1961; VARIOUS FINANCE ACTS
Monika Arya, Associate Professor, Bharati College , Delhi
WINDING UP INSOLVENCY AND BANKRUPTCY University
CODE,2016; NCLT
SALIENT FEATURES OF LLP
• LLP is a body corporate. It is incorporated under the LLP Act,2008. For this, ,two or more persons shall subscribe
their names to the Incorporation document; file it along with prescribed fees and other required documents with
the concerned Registrar of Companies. If these are found in order, the ROC issues Certificate of Incorporation
which grants it the status of the body corporate.
• LLP is an artificial legal person.
ArEficial → It comes into existence by a process other than natural birth and does not have the physical
attributes- like soul, limbs, eyes, ears etc.- that natural persons have.
Legal → It is created aHer complying with certain formaliEes. It is intangible, invisible and exists only in the
eyes of the law .
Person → Like other persons, it also enjoys certain rights and obligaEons, for example, it may sue or be sued,
it may acquire and/or dispose of properties, it has a name etc.
• LLP is a separate entity .This means it enjoys an independent identity distinct from its partners. All the assets and
liabilities of the LLP are in the name of LLP only and belong to LLP alone. Partners of LLP shall not have any
insurable interest in the property of the LLP. Similarly, the creditors and liabilities of LLP are obligaton of LLP only
and shall be paid/met out of the property of the LLP.
• It has perpetual existence. LLP enjoys a stable life. Events such as death, insolvency, retirement or resignation of
any or all partners do not affect its continuity. It is created through a legal process and can be brought to an end
by a legal process only.
• LLP may have a common seal and it is not a mandatory requirement. A common seal is a stamp like object with
name of the LLP and date of its incorporation engraved on it and used as a substitute for its signature.
• The partners of LLP have limited liability. This implies that the obligation of LLP can be settled out from the
properties of LLP and will not extend to its partners’ personal assets. The liability of the partners shall be limited
to the extent of their agreed contribution except
Monika in case
Arya, Associate of unauthorized
Professor, Bharati College , Delhiacts, fraud or negligence committed by
them. Creditors of LLP can claim authority over the LLP University and not over the partners or their assets.
only
SALIENT FEATURES OF LLP
• Minimum and maximum number of partners –To form an LLP, minimum 2 partners are required. Further, an
LLP shall also have 2 individuals as designated partners of whom, at least one shall be resident in India.
There is no limit on maximum number of partners in LLP.
• Contribution by partners – In order to garner funds to run the business of LLP, the partners shall contribute
to the capital of LLP in accordance with the LLP agreement. The LLP Act does not prescribe any minimum
capital contribution and it could be in the form of movable or immovable property, tangible or intangible
assets, cash or other benefits such as contracts for service. The monetary value of such contribution shall be
accounted for and disclosed in the accounts of the LLP.
• Mutual rights and duties of partners. For the smooth working of LLP and avoidance of future disputes, it is
desirable to have an LLP agreement containing mutual rights or duties of partners inter se and that of LLP vis-
a -vis its partners. If there is no LLP agreement then the LLP can adopt the First schedule of the Act which is a
model set of LLP agreement.
• No mutual agency amongst partners. This implies that every partner of the LLP is an agent of LLP and not of
other partners. Therefore, a partner shall not be personally responsible for any wrongful
act/omission/misconduct committed by other partners.
• Whistle blowing by partners or employees- –The LLP Act provides adequate safeguards and protection to a
whistle blower i.e. a person who informs the authorities or public about something wrong or illegal cooking up in
the organisation. Sec.31 of the LLP Act provides that if an employee or partner of the LLP has provided useful
information and cooperation during the investigation of an LLP for any alleged dishonesty, fraud ,unethical
practice or offence, then the Court or Tribunal may reduce or waive off penalty leviable against him. Further he
cannot be suspended, removed, demoted, threatened, harassed or discriminated against in any manner merely
because of his providing information to the authorities.
• E filing of documents by partners – Every form, application or document which is to be submitted under the Act
or the Rules shall be filed in prescribed Monika
electronic mode
Arya, Associate on the
Professor, website
Bharati www.mca.gov.in after being authenticated
College , Delhi
by designated partners by affixing digital or electronic signatures.
University
SALIENT FEATURES OF LLP
• Business of LLP- An LLP can be formed to carry any lawful business, trade, profession, service or
occupation with a view to earn profit. However, LLPs can’t be formed for charitable or philanthropic
purposes.
• Management of LLP- The business of LLP shall be managed by the partners of LLP. However, for legal
compliances, designated partners are responsible
• Accounts of LLP- Every LLP shall be required to maintain proper books of account reflecting true and
proper view of its state of affairs. Further, every year, it shall file with the Registrar, the Statement of
Accounts and Solvency as well as Annual Return within the prescribed time period.
• Audit of LLP –As per LLP Rules 2009, every LLP is required to get its accounts audited by a Chartered
Accountant if its annual turnover or the contribution exceeds the prescribed benchmark (i.e. annual
turnover ≥ Rs 40 lakhs or the contribution ≥ 25 lakhs).
• Taxation of LLP- The LLP Act, 2008 does not contain the tax provisions with regard to the LLPs. The
Income Tax Act, 1961, has been amended by the successive Finance Acts to provide for tax framework
of LLPs. Accordingly, LLP shall be treated at par with the general partnership. However, it shall be liable
to alternate minimum tax (AMT) @ 18.5% on adjusted total income. It shall not be liable for Dividend
Distribution Tax (DDT).
• Winding up of LLP – The LLP can be wound up either by the Tribunal or under Insolvency and
Bankruptcy Code, 2016. In order to ensure smooth dissolution, a liquidator is appointed who realizes
the assets, pays off the liabilities and distributes the surplus left(if any) amongst the partners .
Monika Arya, Associate Professor, Bharati College , Delhi
University
SALIENT FEATURES OF LLP
• Conversion into LLP – A partnership firm, a private limited co. or an unlisted public company can get
converted into an LLP in accordance with the provisions of the Act and the relevant schedules attached
thereto. In such cases, the earlier entity is deemed to be dissolved and the LLP comes into existence
with a new name. Further, all the existing agreements, contracts, pending legal cases, awards etc.of the
converting entity are deemed to continue in the hands of the LLP.
• Conversion of LLP into Joint Stock Company- Under the Companies Act, 2013 it is possible to for an LLP
to get itself registered as company and thereupon, LLP incorporated under LLP Act,2008, shall be
deemed to have been dissolved. However, LLP having less than 7 members shall be able to register as a
private company.
• Need based application of Companies Act. – The Central Government has been given the authority to
make applicable, by a notification, any provision of the Companies Act to LLPs with or without suitable
modification, adaptations or changes as deemed necessary
• Non-applicability of the Partnership Act, 1932 – The Indian Partnership Act, 1932, shall not applicable
to LLPs.
• Small LLP-( This new concept was recently introduced by LLP Amendment
Act,2021)- It is an LLP contribution of which does not exceed 25 lakhs/such
higher amount not exceeding 5 crores, as may be prescribed and whose turnover
does not exceed 40 lakhs/such higher amount not exceeding 50 crores as may be
prescribed and meets other prescribed requirements. These LLPs will enjoy certain
exemptions from some provisions meant for LLPs and will be subject to lesser
compliances, lesser fees andMonika lesser penalties compared to normal LLPs.
Arya, Associate Professor, Bharati College , Delhi
University
LLP vs Traditional Partnership vs Limited Company
BASIS PARTNERSHIP FIRM LIMITED LIABILITY LIMITED LIABILITY COMPANY
PARTNERSHIP
Regulatory Act The Indian Partnership Act, 1932 The Limited Liability Partnership Act, The Companies Act,2013
2008
Registration Voluntary. Mandatory. Mandatory.

Name Partners can choose any name for Name of LLP to contain the word Name of the public company and p
their firm Limited Liability Partnership or LLP company must end with words “Lim
as suffix. and “Pvt Ltd” respectively.
Body Corporate It is not a body corporate. It is a body corporate. It is a body corporate.

Creation Process It is created by an agreement It is created by a legal process called It is created by a legal process calle
between the partners registration/incorporation under the registration / incorporation involv
LLP Act, 2008. no. of formalities under Companies
Act,2013
Separate Legal Entity It has no legal identity distinct It has a legal identity distinct from It has a legal identity distinct fro
from its partners its partners members
Perpetual Existence It does not have perpetual It has perpetual existence and is not It has perpetual existence and
existence. The death, insanity, affected by the death, insanity, affected by the death, in
retirement or insolvency of the retirement or insolvency of its retirement or insolvency of its mem
partners may affect its continuity. partners.
Common seal Not required May have a common seal if LLP May have a common seal, if it deci
decides
Monika Arya, Associate forBharati
Professor, it. College , Delhi have one
Liability of partners or Unlimited and can extend up to Liability is limited up to the extent of
University Liability is limited up to the a
members the personal assets of the agreed contribution of the partners unpaid on the shares held by them.
LLP vs Traditional Partnership vs Limited Company
BASIS
Number of members
PARTNERSHIP FIRM
Minimum – 2
LIMITED LIABILITY PARTNERSHIP
Minimum – 2
LIMITED LIABILITY COMPANY
Public limited Company :
Maximum – 50 Maximum – no limit is prescribed Min – 7 ; Max – no limit
Private Limited Company :
Min – 2 ;Max – 200
Basis of mutual rights and Partnersheep Deed LLP Agreement Articles of Association and
duties Memorandum of association.
Agency relationship Every partner acts as There is no mutual agency among the No mutual agency . Directors can
agent of the firm as well partners inter se. Each partner acts as act as agent of the company but
as of other partners an agent of the LLP but not of the other not of the members of the
partners company.
Whistle Blowers No such provision exists. Protection is provided to the whistle Provision of vigil mechanism
blowers under section 31 of LLP Act provided in Companies Act,2013 is
similar to whistle blowing
provision under LLP.
Legal Compliances All partners are liable for Only designated partners are Board is responsible for all the
legal compliances and responsible for all the compliances and compliances/penalties under the
penalties under the Act penalties under the Act. Minimum 2 Act. Minimum 2 directors needed
designated partners needed in an LLP in a private company and
minimum 3 directors in a public
company.
Transfer of interest A partner can transfer A partner can transfer his interest A member of public limited can
his interest only with the subject to the provisions of LLP transfer his interest freely without
consent of all other agreement. any restriction. However, in a
partners. private limited company, there are
some restrictions.
Monika Arya, Associate Professor, Bharati College , Delhi
University
LLP vs Traditional Partnership vs Limited Company
BASISe PARTNERSHIP FIRM LIMITED LIABILITY PARTNERSHIP LIMITED LIABILITY
COMPANY
Nature of business Business of the partnership firm It can be formed for only economic/profit It can be created for profit or
must be for profit purposes . purposes and not for charitable purposes. charitable purposes.

Management of business The business of partnership is The business of LLP is managed by the The affairs of the company are
managed by all the partners or any partners including the designated partners managed by the Board of Directors
of them acting for all the partners. authorized by the agreement elected by the shareholders.
Mode of maintenance of The Indian Partnership Act 1932 is The LLP Act says that the books of account It is mandatory for a company to
books of accounts silent on the mode of maintenance of shall be maintained on cash or accrual basis. maintain its books of account on
accounts. accrual basis.
Annual filings No return/ statement is to be filed
LLP is required to file these with ROC- A company is required to file
with Registrar of Firms. -Annual Statement of Accounts & Solvency number of statements with ROC.
-Annual Return
Audit of Accounts Audit required only if annual Audit required only if annual turnover or Compulsory irrespective of turnover
turnover of the firm exceeds contribution exceeds prescribed limit. or capital.
prescribed limit.

Taxability It is taxed at prescribed rate + It is taxed at prescribed rate + surcharge+ It is taxed at prescribed rate+
surcharge+ cess. AMT and DDT is cess. AMT is applicable but DDT is not surcharge+ cess. AMT as well DDT
not applicable to a partnership firm. applicable to LLP. is applicable to a company
Winding up A Partnership firm can be dissolved The winding up of LLP may be either by the The winding up of companies may
without much legal formalities. It can NCLT or may be under Insolvency and be either by the NCLT or may be
be dissolved by will or gets dissolved Bankruptcy Code, 2016 under Insolvency and Bankruptcy
on death , insolvency of partners etc. Code, 2016

Monika Arya, Associate Professor, Bharati College , Delhi

University