St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr.

Dimple Buche

LIMITED LIABILITY PARTNERSHIP (LLP)

Definition: A corporate business vehicle that enables professional expertise and entrepreneurial initiative
to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability
while allowing its members the flexibility for organizing their internal structure as a partnership.

1. Concept of “Limited liability Partnership”

LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the
flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable
of entering into contracts and holding property in its own name. The LLP is a separate legal entity, is liable to
the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus
individual partners are shielded from joint liability created by another partner’s wrongful business decisions or
misconduct. Mutual rights and duties of the partners within a LLP are governed by an agreement between the
partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the
liability for its other obligations as a separate entity.

Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is
called a hybrid between a company and a partnership.

APPLICABILITY OF THE LLP Act and Beneficiaries of the LLP Law

Any two or more persons associating for carrying on a lawful business with a view to profit may set up an
LLP.

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

India has witnessed considerable growth in services sector and the quality of our professionals is acknowledged
internationally. It is necessary that entrepreneurship knowledge and risk capital combine to provide a furt her
impetus to our impressive economic growth. Equally the services sector promises an economic opportunity
similar to that provided by information technology over the past few years. It is likely that in the years to come
Indian professionals would be providing accountancy, legal and various other professional/technical services to
a large number of entities across the globe. Such services would require multidisciplinary combinations that
would offer a menu of solutions to international clients. In view of all this, the LLP framework could be used
for many enterprises, such as:-

• Persons providing services of any kind

• Enterprises in new knowledge and technology based fields where the corporate form is not suited.
• For professionals such as Chartered Accountants (CAs), Cost and Works Accountants (CWAs),
Company Secretaries (CSs) and Advocates, etc.
• Venture capital funds where risk capital combines with knowledge and expertise
• Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity
relating to research production, design and provision of services.
• Small Sector Enterprises (including Micro, Small and Medium Enterprises)
• Producer Companies in Handloom, Handicrafts sector

A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company
and Partnership into a single form of organization. Limited Liability Partnership (LLP) is a new corporate
form that enables professional knowledge and entrepreneurial skill to combine, organize and operate in an
innovative and proficient manner.

It provides an alternative to the traditional partnership firm with unlimited liability. By incorporating an
LLP, its members can avail the benefit of limited liability and the flexibility of organizing their internal
management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.

Characteristics of an LLP:
1. LLP is governed by the Limited Liability Partnership Act 2008, which has come into force with effect
from April 1, 2009. The Indian Partnership Act, 1932 is not applicable to LLP.

2. LLP is a body incorporate and a legal entity separate from its partners having perpetual succession, can
own assets in its name, sue and be sued.

3. The partners have the right to manage the business directly, unlike corporate shareholders.

4. One partner is not responsible or liable for another partner’s, misconduct or negligence.

5. Minimum of 2 partners and no maximum limit.

6. Should be ‘for profit’ business.

7. The rights and duties of partners in an LLP, will be governed by the agreement between partners and the
partners have the flexibility to devise the agreement as per their choice. The duties and obligations of
Designated Partners shall be as provided in the law.

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

8. Limited liability of the partners to the extent of their contributions in the LLP. No exposure of personal
assets of the partner, except in cases of fraud.

9. LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution
exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh. A statement of accounts and solvency shall be
filed by every LLP with the Registrar of Companies (ROC) every year.

Advantages of LLP
• Renowned and accepted form of business worldwide in comparison to Company.
• Low cost of Formation.
• Easy to establish.
• Easy to manage & run.
• No requirement of any minimum capital contribution.
• No restrictions as to maximum number of partners.
• LLP & its partners are distinct from each other.
• Partners are not liable for Act of partners.
• Less Compliance level.
• No exposure to personal assets of the partners except in case of fraud.
• Less requirement as to maintenance of statutory records.
• Less Government Intervention.
• Easy to dissolve or wind-up.
• Professionals can form Multi-disciplinary Professional LLP, which was not allowed earlier.
• Audit requirement only in case of contributions exceeding Rs. 25 lakh or turnover exceeding Rs. 40
lakh.

KEY INCORPORATION REQUIREMENTS

• PARTNERS
• CONTRIBUTION
• DESIGNATED PARTNERS
• DIRECTOR IDENTIFICATON NUMBER
• DIGITAL SIGNATURE CERTIFICATE
• LLP NAME
• LLP AGREEMENT
• REGISTERED OFFICE

PARTNER
Atleast 2 persons (natural or artificial) are required to form a LLP. In case any Body Corporate is a partner,
than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP.
Following can become a partner in the LLP
a. Company incorporated in and outside India
b. LLP incorporated in & outside India
c. Individuals resident in & outside India

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

CONTRIBUTION
In case of LLP, there is no concept of any share capital but every partner is required to contribute towards
the LLP in some manner. The said contribution can be tangible, movable or immovable or intangible
property or other benefit to the limited liability partnership, including money, promissory notes, and other
agreements to contribute cash or property, and contracts for services performed or to be performed.
In case the contribution is in intangible form , the value of the same shall be certified by a practicing
Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained
by the Central [Link] monetary value of contribution of each partner shall be accounted for and
disclosed in the accounts of the limited liability partnership in the manner as may be prescribed.
The LLP Agreement must specify the contribution intended to be paid by all the members and the form in
which it will be paid.

Designated Partners
‘Designated Partner’ means a partner who is designated as such in the incorporation documents or who
become a designated partner by and in accordance with the Limited Liability Partnership Agreement.

Every limited liability partnership shall have at least two designated partners who are individuals and at
least one of them shall be a resident in India

Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in
which one or more partners are individuals and bodies corporate, at least two individuals who are partners of
such limited liability partnership or nominees of such bodies corporate shall act as designated partners.

Designated Partner shall be:

a. Responsible for the doing of all acts, matters and things as are required to be done by the limited liability
partnership in respect of compliance of the provisions of this Act including filing of any document,
return, statement and the like report pursuant to the provisions of this Act and as may be specified in the
limited liability partnership agreement; and
b. Liable to all penalties imposed on the limited liability partnership for any contravention of those
provisions.
—for the purposes of this section, the term “resident in India” means a person who has stayed in India for a
period of not less than one hundred and eighty-two days during the immediately preceding one year.

Director Identificaton Number

Every Designated Partner is required to obtain a DIN from the Central Government. If a person already has
a DIN, the same can be used for forming LLP.
The Direction Identification Number would be used as Unique Identification for the Designated Partner
[Link] DIN can be applied online at ([Link]

Digital Signature Certificate

All the forms like eForm 1, eForm 2, eForm 3 etc which are required for the purpose of incorporating the
LLP are filed electronically. Since all these forms are required to be signed by the partner of the proposed
LLP and as all these forms are to be filed electronically, it is not possible to sign them manually. Therefore,
for the purpose of signing these forms, all the Designated Partner of the proposed LLP needs to have a
Digital Signature Certificate (DSC).
The Digital Signature Certificate once obtained will be useful in filing various forms which are required to
be filed during the course of existence of the LLP with the Registrar of LLP.

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

LLP Name
Selection of the name for the proposed LLP to be incorporated is one of the important process of the entire
incorporation process, ideally the name of the LLP should be such which represents the business or activity
intended to be carried on by the LLP. Before selecting the name of the LLP, it is necessary to evaluate the
proposed name as it should not be a prohibited/similar/ name.

LLP Agreement
For the purpose of forming a LLP, there should be agreement between the partners interested in forming the
LLP to be known as LLP Agreement. The said Agreement forms the basis of the formation of LLP and lays
down its founding structure. The LLP agreement is an agreement between the Partners and between the LLP
& its partners.
The basic contents of Agreement are:
• Name of LLP
• Name of Partners & Designated Partners
• Form of contribution
• Profit Sharing ratio
• Rights & Duties of Partners
In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall
be applicable. It is possible to amend the LLP Agreement but every change made in the said agreement must
be intimated to the Registrar of LLP.

Registered Office
The Registered office of the LLP is the place where all correspondence related with the LLP would take
place, though the LLP can also prescribe any other for the same. A registered office is required for
maintaining the statutory records and books of Account of LLP.
At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its
registered office with the Registrar of LLP.

Incorporation Flowcharts

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

SOME FACTS:

In FY 2016-17, 29,403 companies registered as LLP on all India basis

The Limited Liability Partnership Rules, 2009 have been in force since 01.04.2009. The Limited Liability
Partnership Rules provide for effectuating/implementing the provisions of Limited Liability Partnership Act,
2008. The Rules, inter-alia include procedures on incorporation of an LLP, its governance framework, relations
interse partners, role, functions and liabilities of designated partners, penalties for false statements, investigation
of affairs of LLP, regulations for internal working/maintenance of books of accounts/audit thereof as well as
for filing forms with Registrar of Companies for notifying the financial position and solvency of Limited
Liability Partnership (LLP) and for conversion from firms/companies to LLPs.

The State/UT-wise number of companies converted into LLPs and the LLPs registered during last three years is
given below:

State/UT-wise number of companies converted into LLP and LLPs registered during last three years

2014-15 2015-16 2016-17

[Link] State/UT Converted Registered Converted Registered Converted Registered
Total Total Total
to LLP as LLP to LLP as LLP to LLP as LLP
Andaman &
1 0 1 1 0 1 1 0 1 1
Nicobar
2 Andhra Pradesh 4 151 155 2 231 233 2 295 297
Arunachal
3 0 1 1 0 2 2 0 3 3
Pradesh
4 Assam 0 28 28 1 64 65 1 125 126
5 Bihar 0 96 96 1 158 159 3 251 254

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

6 Chandigarh 1 69 70 0 106 106 2 139 141

7 Chattisgarh 0 47 47 1 65 66 0 91 91
8 Daman and Diu 0 2 2 0 6 6 0 5 5
9 Delhi 18 1819 1837 40 3506 3546 53 4074 4127
Dadra & Nagar
10 0 5 5 1 13 14 1 6 7
Haveli
11 Goa 0 37 37 0 75 75 3 113 116
12 Gujarat 15 959 974 17 1706 1723 29 2414 2443
Himachal
13 1 12 13 3 21 24 4 48 52
Pradesh
14 Haryana 3 342 345 7 620 627 11 874 885
15 Jharkhand 1 46 47 2 107 109 6 149 155
Jammu &
16 0 18 18 0 17 17 0 17 17
Kashmir
17 Karnataka 13 1217 1230 15 1740 1755 16 2177 2193
18 Kerala 0 403 403 3 630 633 4 761 765
19 Maharashtra 65 5256 5321 103 7446 7549 92 9769 9861
20 Meghalaya 0 2 2 0 7 7 0 6 6
21 Manipur 0 3 3 0 8 8 0 8 8
22 Madhya Pradesh 5 199 204 3 411 414 3 522 525
23 Mizoram 0 0 0 0 1 1 0 0 0
24 Nagaland 0 0 0 0 1 1 0 1 1
25 Orissa 0 45 45 0 98 98 1 111 112
26 Punjab 0 105 105 3 200 203 5 287 292
27 Pondicherry 0 5 5 0 12 12 0 15 15
28 Rajasthan 4 719 723 2 957 959 9 997 1006
29 Sikkim 0 2 2 0 2 2 0 4 4
30 Telangana 9 349 358 13 767 780 21 1172 1193
31 Tamil Nadu 11 651 662 11 833 844 13 1103 1116
32 Tripura 0 2 2 0 0 0 0 3 3
33 Uttar Pradesh 5 700 705 14 1041 1055 21 1411 1432
34 Uttarakhand 0 44 44 1 61 62 4 135 139
35 West Bengal 12 1347 1359 17 1761 1778 16 2316 2332
Grand Total 167 14682 14849 260 22674 22934 320 29403 29723

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

Distinguish between:

Category Partnership Company LLP

Prevailing Law Partnership is prevailed Companies are prevailed Limited Liability Partnership
by ‘The Indian by ‘Companies Act, 1956’ are prevailed by ‘The
Partnership Act, 1932’ Limited Liability Partnership
and various Rules made Act, 2008’ and various Rules
there under made there under
Registration Registration is optional Registration with Registrar Registration with Registrar
of ROC required. of LLP required.

Creation Created by Contract Created by Law Created by Law

Distinct entity Not a separate legal Is a separate legal entity Is a separate legal entity
entity under the Companies Act, under the Limited Liability
1956. Partnership Act, 2008.

Name of Entity Any name as per choice Name to contain 'Limited' Name to contain 'Limited
in case of Public Company Liability Partnership' or
or 'Private Limited' in case 'LLP' as suffix.
of Private Company as
suffix.
Cost of Formation The Cost of Formation Minimum Statutory fee for The cost of Formation is
is negligible incorporation of Private statutory filling fees,
Company is Rs.6,000/- and comparatively lesser than the
minimum Statutory fee for cost of formation of
incorporation of Public Company.
Company is Rs. 19,000/-
Perpetual It does not have It has perpetual succession It has perpetual succession
Succession perpetual succession as and members may come and partners may come and
this depends upon the and go. go
will of partners
Charter Partnership Deed is a Memorandum and LLP Agreement is a charter
Document charter of the firm Article of Association is of the LLP which denotes its
which denotes its scope the charter of the company scope of operation and rights
of operation and rights that defines its scope of and duties of the partners
and duties of the operation. vis-à-vis LLP.
partners

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

Common Seal There is no concept of It denotes the signature of It denotes the signature and
common seal in the company and every LLP may have its own
partnership company shall have its common seal, dependant
own common seal upon the terms of the
Agreement
Formalities of In case of registration, Various eforms along the Various eforms are filled
Incorporation Partnership Deed along Memorandum & Articles with Registrar of LLP with
with form / affidavit of Association are filled prescribed fees
required to be filled with Registrar of
with Registrar of firms Companies with prescribed
along with requisite fees
filing fee
Legal Proceedings Only registered A company is a legal entity A LLP is a legal entity can
partnership can sue third which can sue and be sued sue and be sued
party
Foreign Foreign Nationals can Foreign Nationals can be a Foreign Nationals can be a
Participation not form Partnership member in a Company. Partner in a LLP.
Firm in India
Number of Minimum 2 and 2 to 50 members in case of Minimum 2 partners and
Members Maximum 20 Private Company and there is no limitation of
Minimum 7 members in maximum number of
case of Public Company. partners.

Ownership of Partners have joint The company independent The LLP independent of the
Assets ownership of all the of the members has partners has ownership of
assets belonging to ownership of assets assets
partnership firm
Rights / Duties / Rights / Duties / Rights / Duties / obligation Rights / Duties / obligation
obligation of the obligation of the of the directors are of the partners are governed
Partners / partners are governed governed by AOA and by LLP Agreement.
Managing by Partnership Deed. resolution passed by
Partners / shareholders or directors.
Directors
Liability of Unlimited. Partners are Generally limited to the Limited, to the extent their
Partners/Member severally and jointly amount required to be paid contribution towards LLP,
s liable for actions of up on each share. except in case of intentional
other partners and the fraud or wrongful act of
firm and liability extend omission or commission by
to their personal assets. the partner.
Tax Liability Income of Partnership is Income of Company is Income of LLP is taxed at a
taxed at a Flat rate of Taxed at a Flat rate of 30% Flat rate of 30% plus
30% plus education cess Plus surcharge as education cess as applicable.

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as applicable. applicable.

Principal/Agent Partners are agents of The directors act as agents Partners act as agents of LLP
Relationship the firm and other of the company and not of and not of the other partners.
partners. the members
Transfer / Not transferable. In case Ownership is easily Regulations relating to
Inheritance of of death the legal heir transferable. transfer are governed by the
Rights receives the financial LLP Agreement .
value of share.
Transfer of Share In case of death of a In case of death of In case of death of a partner,
/ Partnership partner, the legal heirs member, shares are the legal heirs have the right
rights in case of have the right to get the transmitted to the legal to get the refund of the
death refund of the capital heirs. capital contribution + share
contribution + share in in accumulated profits, if
accumulated profits, if any. Legal heirs will not
any. Legal heirs will not become partners
become partners
Director The partners are not Each director is required to Each Designated Partners is
Identification required to obtain any have a Director required to have a DPIN
Number / identification number Identification Number before being appointed as
Designated before being appointed as Designated Partner of LLP.
Partner Director of any company.
Identification
Number (DIN /
DPIN)
Digital Signature There is no requirement As eforms are filled As eforms are filled
of obtaining Digital electronically, atleast one electronically, atleast one
Signature Director should have Designated Partner should
Digital Signatures have Digital Signatures.
Dissolution By agreement, mutual Voluntary or by order of Voluntary or by order of
consent, insolvency, National Company Law National Company Law
certain contingencies, Tribunal. Tribunal.
and by court order.
Transferability of A partner can transfer A member can freely A partner can transfer his
Interest his interest subject to transfer his interest interest subject to the LLP
the Partnership Agreement
Agreement
Admission as A person can be A person can become A person can be admitted as
partner / member admitted as a partner as member by buying shares a partner as per the LLP
per the partnership of a company. Agreement

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Agreement

Cessation as A person can cease to A member / shareholder A person can cease to be a

partner / member be a partner as per the can cease to be a member partner as per the LLP
agreement by selling his shares. Agreement or in absence of
the same by giving 30 days
prior notice to the LLP.
Requirement of No requirement of any Directors are appointed to Designated Partners are
Managerial managerial; personnel , manage the business and responsible for managing the
Personnel for day partners themselves other statutory day to day business and
to day administer the business compliances on behalf of other statutory compliances.
administration the members.
Statutory There is no provision in Board Meetings and There is no provision in
Meetings regard to holding of any General Meetings are regard to holding of any
meeting required to conducted at meeting.
appropriate time.
Maintenance of There is no concept of The proceedings of A LLP by agreement may
Minutes any minutes meeting of the board of decide to record the
directors / shareholders are proceedings of meetings of
required to be recorded in the Partners/Designated
minutes. Partners
Voting Rights It depends upon the Voting rights are decided Voting rights shall be as
partnership Agreement as per the number of shares decided as per the terms of
held by the members. LLP Agreement.

Remuneration of The firm can pay Company can pay Remuneration to partner will
Managerial remuneration to its remuneration to its depend upon LLP
Personnel for day partners Directors subject to law. Agreement.
to day
administration
Contracts with Partners are free to enter Restrictions on Board Partners are free to enter into
Partners/Director into any contract. regarding some specified any contract.
contracts, in which
directors are interested.
Maintenance of Required to maintain Required to maintain Required to maintain books
Statutory Records books of accounts as books of accounts, of accounts.
Tax laws statutory registers, minutes
etc.

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

Annual Filing No return is required to Annual Financial Annual Statement of

be filed with Registrar Statement and Annual accounts and Solvency &
of Firms Return is required to be Annual Return is required to
filed with the Registrar of be filed with Registrar of
Companies every year. Companies every year.
Share Certificate The ownership of the Share Certificates are The ownership of the
partners in the firm is proof of ownership of partners in the firm is
evidenced by shares held by the evidenced by LLP
Partnership Deed, if members in the Company Agreement.
any.
Audit of accounts Partnership firms are Companies are required to All LLP except for those
only required to have get their accounts audited having turnover less than
tax audit of their annually as per the Rs.40 Lacs or Rs.25 Lacs
accounts as per the provisions of the contribution in any financial
provisions of the Companies Act, 1956, year are required to get their
Income Tax Act accounts audited annually as
per the provisions of LLP
Act 2008.
Applicability of No Accounting Companies have to The necessary rules in
Accounting Standards are applicable mandatorily comply with regard to the application of
Standards. accounting standards accounting standards are not
yet issued.
Compromise / Partnership cannot Companies can enter into LLP’s can enter into
arrangements / merge with other firm Compromise / Compromise / arrangements
merger / or enter into arrangements / merger / / merger / amalgamation
amalgamation compromise or amalgamation
arrangement with
creditors or partners
Oppression and No remedy exist , in Provisions providing for No provision relating to
mismanagement case of oppression of remedy against Oppression redressal in case of
any partner or and mismanagement exists oppression and
mismanagement of mismanagement
Partnership
Credit Worthiness Creditworthiness of Due to Stringent Will enjoy Comparatively
of organization firm depends upon Compliances & disclosures higher creditworthiness from
goodwill and under various laws, Partnership due to Stringent
creditworthiness of its Companies enjoys high regulatory framework but
partners degree of creditworthiness. lesser than a company.

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St. Mira’s College for Girls, TY BCOM M LAW SEM VI UNIT II 2020-21, Dr. Dimple Buche

Whistle Blowing No such provision is No such provision is Provision has been made to
provided under provided under the provide protection to
Partnership Act, 1932 Companies Act, 1956. employees & partners,
providing useful information
during an investigation or
convicting any partner or
firm.

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