LIMITED LIABILITY PARTNERSHIP ACT 2008 NOTES
QUESTION: Explain salient features of LLP. Discuss incorporation by registration?
ANSWER:
Limited Liability Partnership enterprise has been introduced in India by enacting the Limited Liability Partnership Act, 2008. LIMITED LIABILITY PARTNERSHIP Act was notified on 31.03.2009.
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.
SALIENT FEATURES OF LIMITED LIABILITY PARTNERSHIP
LLP is a body corporate
According to Section 3 of the Limited Liability Partnership Act (LLP Act), 2008, an LLP is a body corporate formed and incorporated under the Act. It is a legal entity separate from its partners.
Perpetual Succession
Unlike a general partnership firm, a limited liability partnership can continue its existence even after the retirement, insanity, insolvency or even death of one or more partners. Further, it can enter into contracts and hold property in its name.
Separate Legal Entity
Just like a corporation or a company, it is a separate legal entity. Further, it is completely liable for its assets. Also, the liability of the partners is limited to their contribution in the LLP. Hence, the creditors of the limited liability partnership are not the creditors of individual partners.
Mutual Agency
In an LLP independent or unauthorized actions of one partner do not make the other partners liable. All partners are agents of the LLP and the actions of one partner do not bind the others.
LIMITED LIABILITY PARTNERSHIP Agreement
The rights and duties of all partners are governed by an agreement between them. Also, the partners can devise the agreement as per their choice. If such an agreement is not made, then the Act governs the mutual rights and duties of all partners.
Artificial Legal Person
For all legal purposes, an LLP is an artificial legal person. It is created by a legal process and has all the rights of an individual. It is invisible, intangible and immortal but not fictitious since it exists.
Common Seal
If the partners decide, the LLP can have a common seal [Section 14(c)]. It is not mandatory though. However, if it decides to have a seal, then it is necessary that the seal remains under the custody of a responsible official. Further, the common seal can be affixed only in the presence of at least two designated partners of the Limited Liability Partnership.
Limited Liability
According to Section 26 of the Act, every partner is an agent of the LLP for the purpose of the business of the entity. However, he is not an agent of other partners. Further, the liability of each partner is limited to his agreed contribution in the Limited Liability Partnership. It provides liability protection to its partners.
Minimum and Maximum Number of Partners in an LLP
Every Limited Liability Partnership must have at least two partners and at least two individuals as designated partners. At any time, at least one designated partner should be resident in India. There is no maximum limit on the number of maximum partners in the entity.
Business Management and Business Structure
The partners of the Limited Liability Partnership can manage its business. However, only the designated partners are responsible for legal compliances.
Business for Profit Only
Limited Liability Partnerships cannot be formed for charitable or non-profit purposes. It is essential that the entity is formed to carry on a lawful business with a view to earning a profit.
Investigation
The power to investigate the affairs of a Limited Liability Partnership resides with the Central Government. Further, they can appoint a competent authority for the same.
Compromise or arrangement
Any compromise or arrangement like a merger or amalgamation needs to be in accordance with the Act.
Conversion into LLP
A private company, firm or an unlisted public company can convert into an LLP in accordance with the provisions of the Act.
E-filing of documents
If the entity is required to file any form/application/document, then it needs to be filed in an electronic form on the website www.mca.gov.in. Further, a partner or designated partner has to authenticate the same using an electronic or digital signature.
REGISTRATION OF LLP
Process of Formulation of LLP
Capital 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 as specified in LLP agreement. 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 practising Chartered Accountant or by a practising Cost Accountant or by approved value from the panel maintained by the Central Government. The 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.
Designated Partners:
Every limited liability partnership shall have at least two designated partners to do all acts under the law who are individuals and at least one of them shall be a resident in India. ‘Designated Partner’ means a partner who is designated as such in the incorporation documents or who becomes a designated partner by and in accordance with the LLP Agreement.
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 Identification Number (DPIN):
Every Designated Partner is required to obtain a DPIN from the Central Government. DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in Form 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees.
However, if an individual already holds a DIN (Director Identification Number), the same number could be allotted as your DPIN also. For that the users while submitting Form 7 needs to fill their existing DIN No. in the application.
It is not necessary to apply Designated Partner Identification Number every time you are appointed partner in a LLP, once this number is allotted it would be used in all the LLP’s in which you will be appointed as partner.
Digital Signature Certificate:
All the forms like e Form 1, e Form 2, e Form 3 etc. which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet. 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, at least one of 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.
LLP Name:
Ideally the name of the LLP should be such which represents the business or activity intended to be carried on by the LLP. LLP should not select similar name or prohibited words.
LLP Agreement:
For forming an LLP, there should be agreement between/among the partners. The said Agreement contains name of LLP, Name of Partners and Designated Partners, Form of Contribution, Profit Sharing Ratio, and Rights and Duties of Partners.
In case no agreement is entered into, the rights and 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 Companies.
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.