By Tania Maria Joy
Introduction
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 name. The LLP is a separate legal entity, is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP. Further, no partner is liable on account of the independent or unauthorised actions of other partners, thus individual partners are shielded from joint liability created by another partner wrongful business decisions or misconduct.
Mutual rights and duties of the partners within an 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.
Limited Liability Partnership
The structure of a Limited Liability Partnership is a corporate body with a legal entity separate. It will have perpetual succession.
The LLP is a body corporate having separate entity from its partners and perpetual succession.
An LLP in India is governed by the LLP of 2008 and, therefore, the provisions of the Indian Partnership Act, 1932 do not apply to it.
Every Limited Liability Partnership shall use the words “Limited Liability Partnership” or its acronym “LLP” as the last words of its name.
An LLP is a result of an agreement between the partners, and the mutual rights and duties of partners of an LLP are determined by the said agreement subject to the provisions of the LLP Act, 2008.
The LLP being a separate legal entity is liable for all its assets, with the liability of the partners limited only to the amount contributed by them just like a company. No partner will be individually liable for any wrongful acts of other partners. However, if the LLP was formed to defraud creditors or for any fraudulent purpose, then the liability of the partners who knew defraud for the file will be unlimited.
There must be at least two designated partners in every LLP of whom one shall be resident in India.
Every LLP shall maintain annual accounts to show its true state of affairs. It must prepare a statement of accounts and solvency every year and file with the Registrar.
The Central Government may, whenever it thinks fit, investigate the company is then removed it from the Registrar of Firms or Registrar of Companies, as the case may be.
Like the company, an LLP can be wound up either voluntary or by the Tribunal to be established under The Companies Act, 1956.
The LLP Act 2008 also enables the Central Government to apply the provisions of the Companies Act whenever it thinks appropriate and must issue a notification to that effect provided such nomination n must be laid before each House of the Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses.
Liability of Partners– The liability of Partners is limited to their contribution of share in the business. A partner is liable for his wrongful acts. One Partner is not responsible for the acts of others due to negligence or misconduct.
Legal entity- LLP is a body incorporated and a legal entity separate from its partners having perpetual succession as per Section 3 of the Limited Liability Partnership Act, 2008.
Limit of Partners – A minimum of two partners are required to form an LLP as per Section 6(1) of the Limited Liability Partnership Act, 2008. There is no maximum limit on the number of partners.
Audit of Accounts – LLP shall maintain annual accounts where an 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.
Admission or Retirement of Partner- LLP can continue its existence irrespective of changes in partners.
Designated Partners– LLP shall have two individuals as designated partners and one of them shall be a resident of India.
In every LLP there shall be two Designated Members as per Section 7 of the Limited Liability Partnership Act, 2008 who shall be the individuals where one individual shall be a resident of India. LLPs are created between the members who act as partners and manage the activities by pooling resources to lower down the costs of LLP by increasing its capacity for growth. The liabilities of Partners are limited as they may lose the assets in partnership but not their assets.
No partner is liable on account of the independent or unauthorized actions of other partners, individual partners are shielded from joint liability created by other partners due to wrong decisions or misconduct.
General Clauses in LLP Agreement
- Duration of LLP
- Contribution by Partners total contribution by each partner in LLP, additional capital contribution if any by the Partner
- Rights and Duties of Partner
- Voting rights of each partner
- Capital Contribution and Profit sharing ratio in case of Admission of new Partner
- Retirement of Partner
- Death of any Partner
- Borrowings of LLP
- Salary or Remuneration of Partners
- Term of the Agreement
Essential Clauses In LLP Agreement
- Competitive Clause
- Vesting Clause
- Interest on Capital and loan took by Partners or the limit of a loan
- Liability of LLP for the acts of Partners
- Addendum/Amendment in LLP Agreement
Conversion of Partnership Firm into LLP
Partnership firm that is willing to get converted into Limited Liability Partnership can easily convert by applying Form 17 i.e. Application and Statement for the conversion of a firm into LLP along with Form 2 i.e. Incorporation document and Subscriber’s statement.
Conversion of Private/Unlisted Public Company into LLP
Any Private or Public Unlisted company that is willing to get converted in a Limited Liability Partnership can be converted by applying through Form 18 i.e. Application and Statement for the conversion of Private Company/Unlisted Public Company into LLP. Form 18 needs to be filed along with Form 2 i.e. Incorporation document and Subscriber’s document.
Dissolution of LLP
Dissolution of LLP could be done in two ways as follows:
- Partner decides mutually or with the consensus with the partners for voluntary dissolution of LLP.
- By Tribunals is another way for an LLP to have dissolution.
Conclusion
The concept of LLP is a combination of Partnership which is beneficial for both small and medium-sized firms. Each partner is responsible for his deeds or negligence. As also is termed as an “alternative corporate business vehicle” as the functioning is the same as any other general partnership but it comes with a special provision of the limited liability rule.
