Limited Liability Partnership Act, 2008
Introduction of Limited Liability Partnerships
“Limited Liability Partnership” most commonly known as “LLP” is a type of
constitution/structure in which business and profession can be carried on.
It is a hybrid version of a partnership firm and private limited company. It provides
the benefits of body corporate to a partnership firm with limited compliance.
The concept of LLP was statutorily recognised in India on 31-03-2009 with the
enactment of the Limited Liability Partnership Act, 2008.
It was conceptualized to cater to large number of small businesses in India which
until then ran on proprietorship or partnership basis.
It provides benefits to small businessmen like limited liability, continued existence
while retaining the simple structure and compliances of a typical partnership firm.
LLPs are commonly used by professionals such as lawyers, accountants, and
consultants, as well as small and medium-sized businesses.
Main features of an LLP are as follows:
(a) Limited Liability:
As the name suggests, in an LLP, the liability of partners, like shareholders of a
company is limited to the extent of capital contributed by them.
In a traditional partnership the partners have unlimited liability, meaning thereby
that they can be sued for an amount even beyond the capital contributed by them
and even their personal assets can be attached and sold for liabilities of the
partnership firm.
However, in case an LLP is sued or becomes insolvent, the personal assets of its
partners are protected and cannot be appropriated for settling the liability of the
LLP.
It is important to note that this protection does not extend to cases of fraud or
illegal activities committed by the partners. In such cases, the partners can still be
held personally liable for their actions.
(b) Separate Legal Entity:
An LLP, like a company, has separate legal entity from its partners which means
that it can own property, sue and be sued, and enter into contracts in its own
name.
(c) Perpetual Succession:
It means that an LLP does not dissolve or comes to an end on death of any of its
partners. It can come to an end or be dissolved by a legal process.
(d) Governing Body:
LLPs are governed by the Limited Liability Partnership Act, 2008, and are
registered therein with the Registrar of Companies (ROC) functioning under the
Ministry of Corporate Affairs,
(e) Treatment under Income Tax laws:
For the purposes of income tax assessment, LLPs are treated like a partnership
firm and are taxed as such.
(f) Management:
Every LLP must have at least two individual (ie. natural persons) as designated
partners, and at least one of them must be a resident of India.
The designated partners are responsible for the overall management of the LLP,
and they are the only partners who can enter into binding agreements on behalf
of the LLP.
Designated partners are equivalent to a director in a company and they are
responsible for maintaining the books of accounts, filing the annual returns, and
ensuring that the LLP complies with all the legal and regulatory requirements.
They are also responsible for ensuring that the LLP files all the necessary
documents and returns with the Registrar of Companies (ROC) and other
regulatory authorities.
Liability of designated partner is extended to some extent as compared to other
partners. Designate partner is also responsible for penalties levied on the LLP in
case of non-compliance in relation to filing the documents, returns, account
statements.
The Registrar of Companies
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.
Limited Liability Partnership Act, 2008
Section 1 to 2
This Act is to be called and referred as the “Limited Liability Partnership Act, 2008.
It applies and extends to the whole of India.
Definitions
S.2 (1)
Address: in relation to a partner of an LLP means:
(1) in case partner is an individual - his usual residential address
(2) in case partner is a body corporate - its registered office address
"Partnership" is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called
individually, "partners" and collectively "a firm", and the name under which their
business is carried on is called the "firm-name".
The relation of partnership arises from contract and not from status; and, in
particular, the members of a Hindu undivided family carrying on a family business
as such, or a Burmese Buddhist husband and wife carrying on business as such
are not partners in such business.
MODE OF DETERMINING EXISTENCE OF PARTNERSHIP. In determining whether a group of
persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall
be had to the real relation between the parties, as shown by all relevant facts taken
together. Explanation I : The sharing of profits or of gross returns arising from property by
persons holding a joint or common interest in that property does not of itself make such
persons partners.
Explanation II : The receipt by a person of a share of the profits of a business, or
of a payment contingent upon the earning of profits or varying with the profits
earned by a business, does not itself make him a partner with the persons
carrying on the business; and, in particular, the receipt of such share or payment -
(a) by a lender of money to persons engaged or about to engage in any business
(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity, or
(d) by a previous owner or part-owner of the business, as consideration for the
sale of the goodwill or share thereof, does not of itself make the receiver a partner
with the persons carrying on the business.
Section7 PARTNERSHIP-AT-WILL.
Where no provision is made by contract between the partners for the duration of their
partnership, or for the determination of their partnership, the partnership is
"partnership-at-will".
