Unit V: The Limited Liability Partnership Act, 2008

a) Salient Features of LLP

The salient features of LLP Act, 2008, inter alia, are as follows:
1. It is a body corporate with separate legal entity from its partners. The mutual
rights and duties of the partners of an LLP are governed by LLP Agreement.
2. LLP is liable to the extent of its assets. Partner’s liability is limited to the extent
of agreed contribution (capital) in the LLP Agreement.
3. No partner is liable on account of the independent or unauthorized action of
other partners or for their misconduct.
4. Every LLP should have at least two partners with at least two individuals as
“designated partners”, of whom at least one must be resident in India. Only
designated partners are responsible for compliance with the Act.
5. A firm, private company or an unlisted public company can be converted into
LLP.
6. The Act empowers Central Government to apply provisions of the Companies
Act, 1956 as appropriate, by notification with such changes as deemed
necessary, in the LLP Act, 2008.
7. The winding up of LLP is either voluntary or by the High Court.

b) Difference between LLP and Partnership

S. Basis Partnership Limited Liabilit

No. Partnershi y
p
1 Prevailing Law Partnership is Limited Liability
prevailed by ‘The Partnership are
Indian Partnership prevailed by
Act, 1932’ and ‘The Limited Liability
various Rules Partnership Act,
made thereunder 2008’ and various Rules
made thereunder
2 Capital Required No minimum No minimum amount
amount
3 Time of Registration 5-7 days 7-10 days in complete
process
4 Name of Entity Any name as per Name to contain ‘Limited
choice Liability Partnership’ or
‘LLP’ as suffix.

5 Registration Registration is Registration with

in
optional
India Registrar of LLP
required.
14 Number of Members Minimum 2 and Minimum 2 partners and
6 Creation Maximum 20 by Created
Created there is by
noLaw
limitation of
contract with 2 maximum number of
persons partners.
15
7 Ownership of Assets
Distinct entity Partners
Not a separate have The
Is LLP independent
a separate of
legal entity
joint
legal ownership
entity of the
under partners
the has
Limited
all the assets ownership
Liability of assets Act,
Partnership
belonging to 2008.
partnership firm
8 Cost of Formation The Cost of The cost of Formation is
16 Legal Proceedings Formation
Only is
registered statutory
A LLP is a filling fees,
legal entity
negligible
partnership can comparatively
can sue and be sued lesser
sue third party than the cost of
formation of Company.
9
17 Liability
Perpetual of It does not have
Unlimited. It
Limited,hasto the perpetual
extent
Partners/Members
Succession(changes perpetual
Partners are succession and partners
their contribution towards
in company succession as and
severally this may
LLP, come andingocase of
except
membership) dependsliable
jointly upon thefor intentional fraud or
will of partners
actions of other wrongful act of omission
partners and the or commission by the
10 Charter Document Partnership Deed
firm and liability LLP Agreement is a
partner.
is a charter
extend to theirof the charter of the LLP which
firm
personal which
assets. denotes its scope of
denotes its scope operation and rights and
18 Tax Liability Income
of operation and of duties
Income of of LLP
the ispartners
taxed
Partnership
rights and duties is vis-à-vis(face
at a Flat rate of to
30%face)
plus
taxed at a Flat
of the partners LLP.
education cess as
rate of 30% plus applicable.
11 Common Seal There
education iscess no as It denotes the signature
concept
applicable. of and LLP may have its
common seal in own common seal,
19 Principal/Agent Partners
partnership are Partners act as
dependant agentsthe
upon of
Relationship agents of the firm LLP and
terms notAgreement
of the of the other
and other partners.
partners.
12 Formalities of In case of Various e- forms are
20 Incorporation
Transfer registration,
/ Inheritance Not transferable. filled with Registrar
Regulations relating of
to
of Rights Partnership
In case of Deed
death LLP withare
transfer prescribed
governed fees
by
along legal
the with formheir/ the LLP Agreement .
affidavit required
receives the
to be filled
financial withof
value
Registrar of firms
share.
along with
requisite filing fee
21 Transfer of Share / In case of death In case of death of a
Partnership rights in of a partner, the partner, the legal heirs
case of death legal heirs have have the right to get the
the right to get the refund of the capital
refund of the contribution + share in
capital accumulated profits, if

contribution + any. Legal heirs will not

share in become partners
accumulated
profits, if any.
Legal heirs will
not become
partners
22 Director Identification The partners are Each Designated
Number / Designated not required to Partners is required to
Partner Identification obtain any have a DPIN before
Number (DIN / DPIN) identification being appointed as
number Designated Partner of
LLP.

23 Digital Signature There is no As eforms are filled

requirement of electronically, atleast
obtaining Digital one Designated Partner
Signature should have Digital
Signatures.

24 Dissolution By agreement, Voluntary or by order of

mutual consent, National Company Law
insolvency, Tribunal.
certain
contingencies,
and by court
order.
25 Admission as partner A person can be A person can be
/ member admitted as a admitted as a partner as
partner as per the per the LLP Agreement
partnership
Agreement
27 Cessation as partner A person can A person can cease to
/ member cease to be a be a partner as per the
partner as per the LLP Agreement or in
agreement absence of the same by
giving 30 days prior
notice to the LLP.
28 Requirement of No requirement of Designated Partners are
Managerial any managerial; responsible for
Personnel for day to personnel , managing the day to day
day administration partners business and other
themselves statutory compliances.
administer the
business

29 Statutory Meetings There is no There is no provision in

provision in regard to holding of any
regard to holding meeting.
of any meeting

30 Maintenance of There is no A LLP by agreement

Minutes concept of any may decide to record the
minutes proceedings of meetings
of the
Partners/Designated
Partners

31 Voting Rights It depends upon Voting rights shall be as

the partnership decided as per the terms
Agreement of LLP Agreement.

32 Remuneration of The firm can pay Remuneration to partner

Managerial remuneration to will depend upon LLP
Personnel for day to its partners Agreement.
day administration
33 Contracts with Partners are free Partners are free to enter
Partners/Director to enter into any into any contract.
contract.

34 Maintenance of Required to Required to maintain

Statutory Records maintain books of books of accounts.
accounts as Tax
laws

35 Annual Filing No return is Annual Statement of

required to be accounts and Solvency
filed with & Annual Return is
 Registrar of Firms required to be filed with
Registrar of Companies
every year.

36 Share Certificate The ownership of The ownership of the

the partners in the partners in the firm is
firm is evidenced evidenced by LLP
by Partnership Agreement.
Deed, if any.

37 Audit of accounts Partnership firms All LLP except for those

are only required having turnover less
to have tax audit than Rs.40 Lacs or
of their accounts Rs.25 Lacs contribution
as per the in any financial year are
provisions of the required to get their
Income Tax Act accounts audited
annually as per the
provisions of LLP Act
2008.
38 Applicability of No Accounting The necessary rules in
Accounting Standards are regard to the application
Standards. applicable of accounting standards
are not yet issued.

39 Compromise / Partnership LLP’s can enter into

arrangements / cannot merge Compromise /
merger / with other firm or arrangements / merger /
amalgamation enter into amalgamation
compromise or
arrangement with
creditors or
partners
40 Oppression and No remedy exist , No provision relating to
mismanagement in case of redressal in case of
oppression of any oppression and
partner or mismanagement
mismanagement
of Partnership
41 Credit Worthiness of Creditworthiness Will enjoy Comparatively
organization of firm depends higher creditworthiness
upon goodwill from Partnership due to
and Stringent regulatory
creditworthiness framework but lesser
of its partners
 .

c) Nature of LLP
1. Short title, extent and commencement.—
(1) This Act may be called the Limited Liability Partnership Act, 2008.
(2) It extends to the whole of India.
(3) It shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint: Provided that different dates may be
appointed for different provisions of this Act and any reference in any such
provision to the commencement of this Act shall be construed as a reference to the
coming into force of that provision.
2. Definitions.—
(1) In this Act, unless the context otherwise requires,—
(a) "address", in relation to a partner of a limited liability partnership, means— (i) if
an individual, his usual residential address; and (ii) if a body corporate, the address
of its registered office;
(b) "advocate" means an advocate as defined in clause (a) of sub-section (1) of
section 2 of the Advocates Act, 1961 (25 of 1961);
(c) "Appellate Tribunal" means the National Company Law Appellate Tribunal
constituted under sub-section (1) of section 10FR of the Companies Act, 1956 (1
of 1956);
(d) "body corporate" means a company as defined in section 3 of the Companies
Act, 1956 (1 of 1956) and includes— (i) a limited liability partnership registered
under this Act; (ii) a limited liability partnership incorporated outside India; and (iii)
a company incorporated outside India, but does not include— (i) a corporation
sole; (ii) a co- operative society registered under any law for the time being in
force; and (iii) any other body corporate (not being a company as defined in
section 3 of the Companies Act, 1956 (1 of 1956) or a limited liability partnership
as defined in this Act), which the Central Government may, by notification in the
Official Gazette, specify in this behalf;
(e) "business" includes every trade, profession, service and occupation;
(f) "chartered accountant" means a chartered accountant as defined in clause (b)
of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949)
and who has obtained a certificate of practice under sub-section (1) of section 6 of
that Act;
3. Limited liability partnership to be body corporate.—
(1) A limited liability partnership is a body corporate formed and incorporated
under this Act and is a legal entity separate from that of its partners.
(2) A limited liability partnership shall have perpetual succession.
(3) Any change in the partners of a limited liability partnership shall not affect the
 existence, rights or liabilities of the limited liability partnership.
4.Non-applicability of the Indian Partnership Act, 1932.—Save as otherwise
provided, the provisions of the Indian Partnership Act, 1932 (9 of 1932) shall not
apply to a limited liability partnership.
5. Partners.—Any individual or body corporate may be a partner in a limited liability
partnership: Provided that an individual shall not be capable of becoming a partner
of a limited liability partnership, if— (a) he has been found to be of unsound mind
 by a Court of competent jurisdiction and the finding is in force; (b) he is an
undischarged insolvent; or (c) he has applied to be adjudicated as an insolvent and
his application is pending.
6. Minimum number of partners.—(1) Every limited liability partnership shall have at
least two partners. (2) If at any time the number of partners of a limited liability
partnership is reduced below two and the limited liability partnership carries on
business for more than six months while the number is so reduced, the person,
who is the only partner of the limited liability partnership during the time that it so
carries on business after those six months and has the knowledge of the fact that it
is carrying on business with him alone, shall be liable personally for the obligations
of the limited liability partnership incurred during that period.
7. Designated partners.—(1) 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. Explanation.—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. (2)
Subject to the provisions of sub-section
(1) ,— (i) if the incorporation document— (a) specifies who are to be designated
partners, such persons shall be designated partners on incorporation; or (b) states
that each of the partners from time to time of limited liability partnership is to be
designated partner, every such partner shall be a designated partner;
(2) any partner may become a designated partner by and in accordance with
the limited liability partnership agreement and a partner may cease to be a
designated partner in accordance with limited liability partnership agreement.
(3) An individual shall not become a designated partner in any limited liability
partnership unless he has given his prior consent to act as such to the limited
liability partnership in such form and manner as may be prescribed.
(4) Every limited liability partnership shall file with the registrar the particulars of
every individual who has given his consent to act as designated partner in such
form and manner as may be prescribed within thirty days of his appointment.
(5) An individual eligible to be a designated partner shall satisfy such conditions
and requirements as may be prescribed.
(6) Every designated partner of a limited liability partnership shall obtain a
Designated Partner Identification Number (DPIN) from the Central Government
and the provisions of sections 266A to 266G 8 (both inclusive) of the Companies
Act, 1956 (1 of 1956) shall apply mutatis mutandis for the said purpose.
8. Liabilities of designated partners.—Unless expressly provided otherwise in this
Act, a 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.
9. Changes in designated partners.—A limited liability partnership may appoint a
designated partner within thirty days of a vacancy arising for any reason and
provisions of sub-section (4) and sub-section (5) of section 7 shall apply in respect
of such new designated partner: Provided that if no designated partner is
appointed, or if at any time there is only one designated partner, each partner shall
be deemed to be a designated partner. 10. Punishment for contravention of
sections 7, 8 and 9.—(1) If the limited liability partnership contravenes the
provisions of sub-section (1) of section 7, the limited liability partnership and its
every partner shall be punishable with fine which shall not be less than ten
thousand rupees but which may extend to five lakh rupees. (2) If the limited liability
partnership contravenes the provisions of sub-section (4) and sub-section (5) of
section 7, section 8 or section 9, the limited liability partnership and its every
partner shall be punishable with fine which shall not be less than ten thousand
rupees but which may extend to one lakh rupees.
EXTENT AND LIMITATION OF LIABILITY OF LIMITED LIABILITY PARTNERSHIP
AND PARTNERS
Partner as agent.—Every partner of a limited liability partnership is, for the purpose of
the business of the limited liability partnership, the agent of the limited liability
partnership, but not of other partners.
Extent of liability of limited liability partnership.—
(1) A limited liability partnership is not bound by anything done by a partner in dealing
with a person if— (a) the partner in fact has no authority to act for the limited
liability partnership in doing a particular act; and (b) the person knows that he has
no authority or does not know or believe him to be a partner of the limited liability
partnership.
(2) The limited liability partnership is liable if a partner of a limited liability partnership
is liable to any person as a result of a wrongful act or omission on his part in the
course of the business of the limited liability partnership or with its authority.
(3) An obligation of the limited liability partnership whether arising in contract or
otherwise, shall be solely the obligation of the limited liability partnership.
(4) The liabilities of the limited liability partnership shall be met out of the property of the
limited liability partnership.

28. Extent of liability of partner.—

(1) A partner is not personally liable, directly or indirectly for an obligation referred
to in sub-section (3) of section 27 solely by reason of being a partner of the
limited liability partnership.
(2) The provisions of sub-section (3) of section 27 and sub-section (1) of this
section shall not affect the personal liability of a partner for his own wrongful
act or omission, but a partner shall not be personally liable for the wrongful act
or omission of any other partner of the limited liability partnership.
Holding out.
(1) Any person, who by words spoken or written or by conduct, represents himself, or
knowingly permits himself to be represented to be a partner in a limited liability
partnership is liable to any person who has on the faith of any such representation
given credit to the limited liability partnership, whether the person representing
himself or represented to be a partner does or does not know that the representation
has reached the person so giving credit: Provided that where any credit is received
by the limited liability partnership as a result of such representation, the limited
liability partnership shall, without prejudice to the liability of the person so
representing himself or represented to be a partner, be liable to the extent of credit
received by it or any financial benefit derived thereon
(2) Where after a partner's death the business is continued in the same limited liability
partnership name, the continued use of that name or of the deceased partner's
name as a part thereof shall not of itself make his legal representative or his estate
liable for any act of the limited liability partnership done after his death.

Unlimited liability in case of fraud

(1) In the event of an act carried out by a limited liability partnership, or any of its
partners, with intent to defraud creditors of the limited liability partnership or any
other person, or for any fraudulent purpose, the liability of the limited liability
partnership and partners who 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 limited liability partnership: Provided that in case any such act is carried out by a
partner, the limited liability partnership is liable to the same extent as the partner
unless it is established by the limited liability partnership that such act was without
the knowledge or the authority of the limited liability partnership.
(2) Where any business is carried on with such intent or for such purpose as mentioned
in sub-section (1), every person who was knowingly a party to the carrying on of the
business in the manner aforesaid shall be punishable with imprisonment for a term
which may extend to two years and with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees.
(3) Where a limited liability partnership or any partner or designated partner or
employee of such limited liability partnership has conducted the affairs of the limited
liability partnership in a fraudulent manner, then without prejudice to any criminal
proceedings which may arise under any law for the time being in force, the limited
liability partnership and any such partner or designated partner or employee 14
shall be liable to pay compensation to any person who has suffered any loss or
damage by reason of such conduct: Provided that such limited liability partnership
shall not be liable if any such partner or designated partner or employee has acted
fraudulently without knowledge of the limited liability partnership.

Whistle blowing.
(1) The Court or Tribunal may reduce or waive any penalty leviable against any partner
or employee of a limited liability partnership, if it is satisfied that—
(a) such partner or employee of a limited liability partnership has provided useful
information during investigation of such limited liability partnership; or
(b) when any information given by any partner or employee (whether or not during
investigation) leads to limited liability partnership or any partner or employee of
such limited liability partnership being convicted under this Act or any other
Act.
(2) No partner or employee of any limited liability partnership may be discharged,
demoted, suspended, threatened, harassed or in any other manner discriminated
against the terms and conditions of his limited liability partnership or employment
merely because of his providing information or causing information to be provided
pursuant to sub-section (1)