Limited Liability Partnership Act, 2008

Overview of the Limited Liability Partnership Act, 2008

• Enactment & Structure: Received President's assent on 7th Jan 2009 and enacted on Jan 9, 2009. Comprises $81$ sections and $4$ schedules.

• Schedules:

  • First Schedule: Rights and duties of partners and LLP in the absence of a formal agreement.

  • Second Schedule: Conversion of a firm into an LLP.

  • Third Schedule: Conversion of a private company into an LLP.

  • Fourth Schedule: Conversion of an unlisted company into an LLP.

• Purpose: Introduced as an alternative corporate structure offering limited liability benefits while retaining flexible, partnership-like internal management.

Key Definitions

• Body Corporate [Section 2(1)(d)]:

  • Includes: LLP registered under this Act, LLP incorporated outside India, and company incorporated outside India.

  • Excludes: Corporation Sole, Co-operative Society, and any other body corporate notified by the Central Government (CG).

• Business [Section 2(1)(e)]: Includes every trade, profession, service, and occupation, except activities excluded by CG notification.

• Financial Year [Section 2(1)(l)]: Period from April 1 to March 31. For an LLP incorporated after September 30, the financial year may end on March 31 of the next following year (e.g., incorporated 15/10/24, FY is 15/10/24 – 31/03/26).

• Foreign LLP [Section 2(1)(m)]: An LLP formed, incorporated, or registered outside India that establishes a place of business within India.

• LLP Agreement [Section 2(1)(o)]: Written agreement between partners or between the LLP and its partners determining mutual rights, duties, and governance.

• Small LLP [Section 2(1)(ta)]:

  • Contribution $≤ \text{Rs. } 25\,\text{lakhs}$ (or higher prescribed amount up to $\text{Rs. } 5\,\text{crores}$), AND

  • Turnover $≤ \text{Rs. } 40\,\text{lakhs}$ (or higher prescribed amount up to $\text{Rs. } 50\,\text{crores}$).

Core Statutory Provisions

• Non-Applicability of Indian Partnership Act, 1932 (Section 4): Provisions of the Indian Partnership Act, 1932 do not apply to LLPs.

• Partners (Section 5):

  • Individuals or bodies corporate can be partners.

  • Exclusions: Individuals declared of unsound mind by a competent court, undischarged insolvents, or persons with pending insolvency applications.

  • HUF is not a Body Corporate and cannot become a partner in an LLP.

  • One LLP, foreign LLP, or foreign company can become a partner in another LLP.

• Minimum Number of Partners (Section 6):

  • Minimum $2$ partners; no upper limit.

  • If partner count drops below $2$ and business continues for $> 6\,\text{months}$, the remaining partner carrying on business is personally liable for obligations incurred after $6\,\text{months}$.

• Designated Partners (DP) (Section 7):

  • At least $2$ individual DPs (or individual nominees if all partners are bodies corporate), with at least $1$ resident in India ($\ge 120\,\text{days}$ during the financial year).

  • Penalty for Non-Compliance: Fine of $\text{Rs. } 10,000$ plus $\text{Rs. } 100/\text{day}$ up to $\text{Rs. } 1\,\text{lakh}$ for the LLP, and $\text{Rs. } 50,000$ for every partner.

Incorporation & Operational Governance

• Incorporation Document (Section 11):

  • Filed with the ROC of the State where the registered office is proposed.

  • Requires $2$ or more subscribers for lawful business with profit motive (LLP cannot be an NPO).

  • Requires a compliance statement by an Advocate, CA, CS, or Cost Accountant engaged in formation, and by one subscriber.

  • False statements are punishable by imprisonment up to $2\,\text{years}$ and a fine of $\text{Rs. } 10,000$ to $\text{Rs. } 5\,\text{lakhs}$.

• Incorporation by Registration (Section 12): ROC registers documents and issues an authenticated Certificate of Incorporation within $14\,\text{days}$.

• Registered Office & Service of Documents (Section 13):

  • Document service at the registered office can be made by post, registered post, or prescribed modes.

  • Penalty for failing to notify ROC of office change: $\text{Rs. } 500/\text{day}$ up to $\text{Rs. } 50,000$ for LLP and DPs.

• Effect of Registration (Section 14): Upon registration, an LLP is capable of suing and being sued, acquiring/owning/holding/disposing property, having a common seal, and performing corporate acts.

• Name & Name Rectification (Sections 15–17):

  • Must carry suffix "LLP" or "Limited Liability Partnership".

  • Cannot use undesirable names or names identical/resembling existing LLPs, companies, or registered trademarks.

  • Name reserved by ROC remains valid for $3\,\text{months}$.

  • CG may direct name rectification within $3\,\text{months}$ if inadvertently registered with an identical or similar name. Trademark proprietors must apply within $3\,\text{years}$ of incorporation/change.

  • Change in name must be notified to ROC within $15\,\text{days}$, and ROC issues a fresh Certificate of Incorporation within $30\,\text{days}$.

Comparative Summary

• LLP vs. Partnership Firm:

  • Regulating Act: LLP Act, 2008 vs. Indian Partnership Act, 1932.

  • Legal Status: Body corporate with separate legal entity vs. Not a body corporate.

  • Registration: Mandatory vs. Voluntary.

  • Perpetual Succession: Continuous existence regardless of member changes vs. No perpetual succession.

  • Liability: Limited to agreed contribution vs. Unlimited liability.

  • Mutual Agency: Partner binds LLP alone vs. Partner binds firm and other partners.

  • Designated Partners: At least $2$ required vs. No provision.

  • Annual Filing: Statement of Accounts and Solvency (SAS) & Annual Return vs. No requirement.

  • Minor as Partner: Not allowed vs. Can be admitted to benefits.

• LLP vs. Limited Company:

  • Regulating Act: LLP Act, 2008 vs. Companies Act, 2013.

  • Contributors: Partners vs. Members.

  • Internal Governance: Governed by LLP Agreement vs. Regulated by statute (Companies Act).

  • Management: Managed by Designated Partners vs. Managed by Board of Directors (BoD).

  • Member Limits: Min $2$, Max No limit vs. Private Co. (Min $2$, Max $200$); Public Co. (Min $7$, Max No limit).

  • Minimum Directors/DPs: Min $2$ DPs vs. Private Co. ($2$ directors), Public Co. ($3$ directors).

Overview of the Limited Liability Partnership Act, 2008

• Enactment & Structure: Assented on Jan 7, 2009; enacted Jan 9, 2009. Comprises $81$ sections and $4$ schedules.

• Schedules:

  • First Schedule: Default rights and duties of partners and LLP.

  • Second Schedule: Conversion of a firm into an LLP.

  • Third Schedule: Conversion of a private company into an LLP.

  • Fourth Schedule: Conversion of an unlisted public company into an LLP.

• Purpose: Hybrid corporate structure providing limited liability with flexible, partnership-like management.

Key Definitions

• Body Corporate [Section 2(1)(d)]: Includes Indian LLPs, foreign LLPs, and foreign companies. Excludes Corporation Sole, Co-operative Societies, and CG-notified entities.

• Business [Section 2(1)(e)]: Includes trade, profession, service, and occupation (except CG exclusions).

• Financial Year [Section 2(1)(l)]: April 1 to March 31. For LLPs incorporated after Sept 30, FY may extend to March 31 of the following year.

• Foreign LLP [Section 2(1)(m)]: Formed outside India with an established place of business in India.

• LLP Agreement [Section 2(1)(o)]: Written agreement determining rights, duties, and governance.

• Small LLP [Section 2(1)(ta)]: Contribution $≤ \text{Rs. } 25\,\text{lakhs}$ (up to $\text{Rs. } 5\,\text{crores}$) AND turnover $≤ \text{Rs. } 40\,\text{lakhs}$ (up to $\text{Rs. } 50\,\text{crores}$).

Core Statutory Provisions

• Non-Applicability of Partnership Act, 1932 (Section 4): Indian Partnership Act, 1932 does not apply to LLPs.

• Partners (Section 5): Individuals or bodies corporate. Excludes persons of unsound mind, undischarged insolvents, or pending insolvency applicants. HUFs cannot be partners.

• Minimum Number of Partners (Section 6): Minimum $2$ partners; no upper limit. Carrying on business with $1$ partner for $> 6\,\text{months}$ makes that partner personally liable for subsequent obligations.

• Designated Partners (DP) (Section 7): At least $2$ individual DPs (or nominees of bodies corporate), with at least $1$ Indian resident ($\ge 120\,\text{days}$ in the FY).

Incorporation & Operational Governance

• Incorporation Document (Section 11): Filed with state ROC by $\ge 2$ subscribers for lawful profit motive (cannot be an NPO). Requires compliance statements from a professional and subscriber.

• Registration (Section 12): ROC issues Certificate of Incorporation within $14\,\text{days}$.

• Registered Office (Section 13): Official address for document service; office changes must be notified to ROC.

• Effect of Registration (Section 14): LLP becomes a body corporate with perpetual succession, power to hold property, sue/be sued, and have a common seal.

• Name & Rectification (Sections 15–17): Must end with "LLP". Name reserved for $3\,\text{months}$. CG may direct name changes within $3\,\text{months}$ if identical or too similar to existing names/trademarks.

Comparative Summary

• LLP vs. Partnership Firm: Separate legal entity vs. not; mandatory registration vs. voluntary; limited liability vs. unlimited liability; partner binds LLP only vs. partner binds firm and co-partners.

• LLP vs. Limited Company: Regulated by LLP Act, 2008 vs. Companies Act, 2013; governed by LLP agreement vs. statute; managed by DPs (min $2$) vs. Board of Directors (min $2$ private / $3$ public).