A Limited Liability Partnership (LLP) is a partnership in which some or all partners

(depending on the jurisdiction) have limited liability. It therefore exhibits elements of

partnerships and corporations. In an LLP, one partner is not responsible or liable for
another partner’s misconduct or negligence. This is an important difference from that of
an unlimited partnership. In an LLP, some partners have a form of limited liability similar
to that of the shareholders of a corporation. In some countries, an LLP must also have
at least one “General Partner” with unlimited liability.
The Limited Liability Partnership was formed in the early 1990s in United States in the
consequence of the collapse of real estate and energy prices in Texas in the 1980s.
This collapse led to a large wave of bank and savings and loan failures. Because the
amounts recoverable from the banks were small, efforts were made to recover assets
from the lawyers and accountants who had advised the banks in the early 1980s. The
reason was that partners in law and accounting firms were subject to the possibility of
huge claims which would bankrupt them personally, and the first LLP laws were passed
to shield innocent members of these partnerships from liability. Apart from India Many
Countries like Canada, China Germany, Greece, Japan, Kazakhstan, Poland, Romania,
and Singapore have felt the need to recognize LLPs in their country. Limited Liability
Partnership in India

In India, The Limited Liability Partnership Act, 2008 was published in the official Gazette
of India on January 9, 2009 and has been notified with effect from 31 March 2009. The
first LLP was incorporated in the first week of April 2009. Some sections relating to
conversion of existing partnership firms and private as well as public unlisted companies
into LLP have been brought into force on 31-5-2009 At present, there are about 10,000
LLPs formed and registered under the Limited Liability Partnership Act.

Salient features of an LLP

 An LLP is a body corporate and legal entity separate from its partners. It has
perpetual succession.
  Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian
Partnership Act, 1932 are not applicable to an LLP and it is regulated by the
contractual agreement between the partners.
 Every Limited Liability Partnership shall use the words “Limited Liability
Partnership” or its acronym “LLP” as the last words of its name.
 It contains elements of both ‘a corporate structure’ as well as ‘a partnership firm
structure’.
 Every LLP shall have at least two designated partners being individuals, at least
one of them being resident in India and all the partners shall be the agent of the
Limited Liability Partnership but not of other partners. LLP agreement is not
mandatory but in the absence of
 LLP agreement, mutual rights and liabilities of partners shall be determined as
provided under Schedule I to the LLP Act

Advantages of forming an LLP

 LLP form is a form of business model which is organized and operates on the
basis of an agreement.
 Liability of partners is limited to their agreed contribution in the LLP and no
partner is liable on account of the independent or un-authorized actions of other
partners, thus individual partners are protected from joint liability created by
another partner’s wrongful business decisions or misconduct.
 LLP has more flexibility and lesser compliance requirements as compared to a
company.
 Simple registration procedure, no requirement of minimum capital, no
restrictions on maximum limit of partners.
 It is easy to become a partner or leave the LLP or otherwise.
 It is easier to transfer the ownership in accordance with the terms of the LLP
Agreement.
 As a juristic legal person, an LLP can sue in its name and be sued by others.
The partners are not liable to be sued for dues against the LLP.
  No restriction on limit of the remuneration to be paid to the partners like
companies, but the remuneration must be authorized by the LLP agreement and
it cannot exceed the limit prescribed under the agreement.
 The Act also provides for conversion of existing partnership firm, private limited
Company and unlisted public Company into an LLP by registering the same with
the Registrar of Companies (ROC).
 No exposure to personal assets of the partners except in case of fraud.

Disadvantages of forming an LLP

 Any act of the partner without the consent of other partners, can bind the LLP.
 Under some cases, liability may extend to personal assets of the partners.
 An LLP are not allowed to raise money from Public.
 Because of the hybrid form of the business, it is required to comply with various
rules & regulations and legal formalities.
 It is very difficult to wind up the business in case of exigency as there are a lot
of legal compliances under Limited Liability Partnership (Winding Up and
Dissolution) Rules and it is very lengthy and expensive procedure.

Procedure for Establishment of a LLP

STEP - I
Decide on the Partners and the Designated Partners
A LLP can be incorporated with a minimum of at least two partners who can be Individuals or
Body Corporate through their nominees. Further for incorporating an LLP, of the total number
no. of partners, at least two shall be Designated Partners, of which at least one must be an
Indian Resident.

Parameters for deciding the Partners and Designated Partners:

# Atleast Two Partners; Individuals or Body Corporate through individual nominees.
# Minimum of Two Individuals as Designated Partners, of total no. of Partners.
# Atleast One Designated Partner to be Resident Indian.

A person ‘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.

‘Designated Partner’ means a partner who is designated as such in the incorporation

documents or who become a designated partner by and in accordance with the Limited Liability
Partnership Agreement

STEP – II
Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate

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 eForm 7 to Central
Government and submitting the physical application along with necessary identity and Address
proof of the person applying with prescribed fees.

STEP – III
Decide on the name of the LLP and check whether it is available.
The next step is to decide the name for the proposed LLP to be incorporated, anyone intending
to incorporate an LLP has to evaluate his proposed name under the prescribed parameters and
make an application in Form 1of Rule 18(5) of the Limited Liability Partnership Act 2008, for
reservation of the desired name. The name of the limited liability partnership shall not be
similar or identical with Company or LLP already registered in India and it should not contain
words prohibited under the law.

STEP – IV
Draft the LLP agreement
The next step is drafting of Limited Liability Partnership Agreement governing the mutual rights
and obligation of the partners and among the LLP and its partners.

The basic contents of Agreement are:

# Name of LLP
# Name of Partners & Designated Partners
# Form of contribution
# Profit Sharing ratio
# Rights & Duties of Partners
# Proposed Business
# Rules for governing the LLP
# The Agreement can be drafted before or after Incorporation of the LLP

STEP – V
File the LLP Agreement, incorporation documents

Next is the filing of Incorporation documents, consent of Partners and declaration electronically
through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP
on payment of prescribed fees based on the total monetary value of contribution of partners in
the proposed LLP.

eForm 2: Incorporation Document

This is an informative document setting down the details of LLP, its Partners including
designated partners along with their amount of contribution and consent for forming a Limited
Liability Partnership to carry on a lawful business with profit motive along with declaration
stating that all the requirements of Limited Liability Partnership Act, 2008 regarding
incorporation of LLP in India have been complied with.

eForm 3: Details of LLP Agreement

This form provides for the necessary information in respect to the LLP Agreement entered into
between the partners.

eForm 4: Consent of Partners Consent of each partner to become a partner of Limited Liability
Partnership along with their address and identity proof to be filed with the Registrar of
Companies.

Subscription Sheet: Just like in case of Company formation, the partners are required to
subscribe their names along with signatures to the subscription sheet, which shall be witnessed
by any chartered Accountant/Company Secretary/Advocate in practice.

eForm 3 & 4 are required to filed within 30 days of the incorporation

STEP – VI
Obtain the Certificate of Incorporation
After the Registrar is satisfied that all the formalities with respect to the incorporation has been
complied, he will issue a Certificate of Incorporation as to formation of the LLP within maximum
of 14 days from date of filing of documents . The Certificate of Incorporation issued shall be the
conclusive evidence of formation of the LLP.