LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. It 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.

Governing Act

Limited Liability Partnership Act, 2008

Structure Of An LLP

LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.

LLP And Traditional Partnership Firm

Under traditional partnership firm, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.

LLP And Company

A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e., Companies Act, 2013) whereas for an LLP it would be by a contractual agreement between partners.

Applicability Of The LLP Act

• Any two or more persons associating for carrying on a lawful business with a view to profit may set up an LLP. The essential requirement for setting LLP is carrying on a lawful business with a view to profit
• The provisions of Indian Partnership Act, 1932, shall not be applicable to LLPs.
• The Companies Act is not suited to the liability and governance structure intended for LLPs.

Partners And Designated Partners

• A minimum of two partners will be required for formation of an LLP. There will not be any limit to the maximum number of partners
• Even a body corporate can be a partner of an LLP.
• Any individual or body corporate may be a partner in a LLP.
• Among the members of a Limited Liability Partnership, two or more partners can be designated as a Designated Partner. Designated Partners shall also be accountable for regulatory and legal compliances, besides their liability as partners, per-se.
• Every LLP shall be mandatorily required to have at least two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India
• In case of a LLP 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 LLP or nominees of such body's corporate shall act as designated partners.
• Every Designated Partner would be required to obtain a Designated Partner's Identification Number (DPIN) on the lines similar to Director's Identification Number (DIN) required in case of directors of companies.

LLP Agreement

• The mutual rights and duties of partners inter se and those of the LLP and its partners shall be governed by the agreement between partners or between the LLP and the partners. This Agreement would be known as LLP Agreement.
• As per provisions of the LLP Act, in the absence of agreement as to any matter, the mutual rights and liabilities shall be as provided for under Schedule I to the Act. Therefore, in case any LLP proposes to exclude provisions/requirements of Schedule I to the Act, it would have to enter into an LLP Agreement, specifically excluding applicability of any or all paragraphs of Schedule I.

Registration

• LLPs shall be registered with the Registrar of Companies (ROC) (appointed under the Companies Act, 1956) after following the provisions specified in the LLP Act. Every LLP shall have a registered office. An Incorporation Document subscribed by at least two partners shall have to be filed with the Registrar in a prescribed form. Contents of LLP Agreement, as may be prescribed, shall also be required to be filed with Registrar, online. Contents of LLP Agreement or any changes made therein, if any, may be filed in Form 3 and details of partners/designated partners may be filed in Form 4 in accordance with LLP Rules, 2009
   
• The LLP Act 2008 allows Foreign Nationals including Foreign Companies & LLPs to incorporate a LLP in India provided at least one designated partner is resident of India.

However, the LLP/Partners would have to comply with all relevant Foreign Exchange Laws/ Rules/ Regulations/ Guidelines.

• Every limited liability partnership shall have either the words limited liability partnership or the acronym LLP as the last words of its name. LLPs would not be given names, which, in the opinion of the Central Government, are undesirable. Registrar would be under obligation to follow such rules, which would be framed by the Central Government in connection with allotting names to LLPs. There are also provisions in respect of rectification of name in case two LLPs have been registered with the same name, inadvertently.
   
• The name can be reserved by ROC on approval of Form 1, for a period of 3 months from the date of intimation by the Registrar. However, Foreign LLP/Companies have an option to reserve their existing names, under which they are operating outside India, for a period of 3 years in India, which can be further renewed on application to Registrar in Form 25.
   
• It has been provided in the Act that a document may be served on a LLP or a partner or designated partner by sending it by post or by any other mode (to be prescribed under Rules) at the registered office and any other address specifically declared by the LLP for the purpose in such form and manner as may be prescribed (in the rules). Thus, an LLP shall have option to declare one more address (other than the registered office) for getting statutory notices/letters etc. from Registrar.

Change In Partners

• Persons, who subscribed to the Incorporation Document at the time of incorporation of LLP, shall be partners of LLP. Subsequent to incorporation, new partners can be admitted in the LLP as per conditions and requirements of LLP Agreement.
   
• A person may cease to be a partner in accordance with the agreement or in the absence of agreement, by giving 30 days notice to the other partners. Notice is required to be given to ROC when a person becomes or ceases to be partner or for any change in partners.
   
• Every partner shall inform the LLP of any change in his name or address within a period of fifteen days of such change. The LLP, in turn, would be under obligation to file such details with the Registrar within thirty days of such change in Form 4.
   

 

Partner's Contribution And Transaction With LLP

• Partner's contribution may consist of both tangible and/or intangible property and any other benefit to the LLP. 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 in the rules.
• A partner may lend money to and transact other business with the LLP and shall have the same rights and obligations with respect to the loan or other transactions as a person who is not a partner.

Retirement Of Partner From LLP

• File Form 4 within 30 days of Retirement with attachment of the Retirement Proof.

Form LLP 4 - Change in partners/ designated partner

• Execute supplementary agreement - Prepare the Addendum of Original LLP Agreement to give effect of Retirement of partner.
• In case there is a change in LLP agreement due to change in partners, Form 4 has to be filed along with Form 3 with attachment of the Supplementary Agreement.

Form LLP 3 - Change in the LLP Agreement

Admission Of New Partner In LLP

• Documents required from new partner:
  
  1. DIN / PAN of Partner
  2. Name proof and address proof of the person to be appointed including PAN of the same.
  3. Consent to act as partner (Form-6).
  4. Details of other partnership, directorship, if any.
• File Form 4 within 30 days of such change, attaching Consent of New Partners (Form 6) and Copy of Resolution of LLP.
• Execute supplementary agreement - Prepare the Addendum of Original LLP Agreement to give effect of admission of new partner.
• In case there is a change in LLP agreement due to change in partners, Form 4 has to be filed along with Form 3 as Linked Form within 30 days of amendment in the LLP Agreement. With attachment of the Supplementary Agreement.

Form LLP 3 - Change in the LLP Agreement

Liability Of Partners

• Every partner of an LLP would be liable, for the purpose of the business of the LLP, an agent of the LLP but not of the other partners. Liability of partners shall be limited except in case of unauthorized acts, fraud and negligence.
  
  But a partner shall not be personally liable for the wrongful acts or omission of any other partner. An obligation of the limited liability partnership whether arising in contract or otherwise, is solely the obligation of the limited liability partnership.
  
   The liabilities of LLP shall be met out of the property of the LLP.
  
  
• The Act provides for the minimum of two partners to carry on LLP. 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.

Conversion Of Other Entities Into LLP And Vice Versa

• The LLP Act contains enabling provisions pursuant to which a firm (set up under Indian Partnership Act, 1932) and private company or unlisted public company (incorporated under Companies Act) would be able to convert themselves into LLPs. Provisions of clause 58 and Schedule II to Schedule IV to the Act provide procedure in this regard.
  
  
• The LLP would not be able to convert itself into Company under the Companies Act, 2013.
  
  
• On conversion of a firm/private company/unlisted public company into LLP, any approval, permit or licence issued to the firm/private company/unlisted company under any other Act shall, subject to the provisions of such other Act under which such approval, permit or licence was issued, be transferred in the name of converted entity viz LLP.