Module 9: Nature of LLP
Presented by:
Varnika Taya
LLP TO BE BODY CORPORATE
Section 3. Limited liability partnership to be body corporate. (1) A limited liability
partnership is a body corporate formed and incorporated under this Act and is a
legal entity separate from that of its partners. (2) A limited liability partnership
shall have perpetual succession. (3) Any change in the partners of a limited liability
partnership shall not affect the existence, rights or liabilities of the limited liability
partnership.
Body corporate – Section 2(1)(d)
Legal entity separate from that of its partners
Perpetual succession – Professor L.C.B. Gower rightly explains perpetual
succession, in context of a company as, “members may come & go, but the
company can go on forever”. Herein, membership of the entity may continuously
change from time to time, but that does not put any impact on the entity’s continuity.
The entity has a perpetual existence which means it has no soul to be saved or
body to be kicked.
Jayamma Xavier v. Registrar of Firms, WP(C) No. 25741 of
2020, Kerala High Court (Decided on April 8, 2021)
Facts: Herein, the Registrar of Firms, Vanchiyoor, Thiruvananthapuram had declined the registration of the
partnership firm constituted by Ms. Jayamma Xavier, stating that an LLP cannot be a partner of a firm. Ms.
Jayamma Xavier then challenged this order by way of a Writ Petition in the Kerala HC. Ms. Jayamma
Xavier claimed to be the designated partner of Sleeplock LLP registered under the LLP Act. The Sleeplock
LLP formed a partnership firm along with one Mr. Gourav Raj in the name and style of M/s. Morning Owl
Sleep Solutions. Accordingly, a partnership deed was executed on 18.09.2020. The said deed was
submitted for registration before the Registrar of Firms, Vanchiyoor, Thiruvananthapuram. The Registrar
rejected the application stating that an LLP cannot be a partner of a firm.
Issue: Whether an LLP could be a partner of a partnership firm?
Held: It was held that an LLP cannot have a disqualification from entering into a partnership with individual
or other persons. It referred to the definition of ‘persons’ as given under Section 3(42) of the General
Clauses Act, 1897 that defines “person” as - “person” shall include any company or association or body of
individuals, whether incorporated or not” to satisfy the requirements of Section 4 of Partnership Act. The
court further referred to Section 3 and 14 of the LLP Act while considering the difference in provisions of the
Partnership Act and the LLP Act in reference to liability of partners. It observed, “individual liability of the
partners of LLP would not be relevant when the LLP itself would have liability independent of the liability of
the partners. Therefore, the difference in the provisions under the Partnership Act relating to the liability of
the firm or the individual partners would not stand in the way of the constitution of a partnership with an
LLP”.
LIMITED LIABILITY PARTNERSHIP
AGREEMENT
Section 2(1)(o) – Limited liability partnership agreement – means – any written
agreement between the partners of the limited liability partnership or between the
limited liability partnership and its partners which determines the mutual rights and
duties of the partners and their rights and duties in relation to that limited liability
partnership.
NON-APPLICABILITY OF INDIAN PARTNERSHIP
ACT, 1932
Section 4. Non-applicability of the Indian Partnership Act, 1932. Save as
otherwise provided, the provisions of the Indian Partnership Act, 1932 (9 of 1932)
shall not apply to a limited liability partnership.
PARTNERS
Section 5. Partners. Any individual or body corporate may be a partner in a limited
liability partnership:
Provided that an individual shall not be capable of becoming a partner of a limited
liability partnership, if
(a) he has been found to be of unsound mind by a Court of competent jurisdiction and
the finding is in force;
(b) he is an undischarged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his application is pending.
MINIMUM NUMBERS OF PARTNERS
Section 6. Minimum number of partners. (1) Every limited liability partnership
shall have at least two partners. (2) 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.
DESIGNATED PARTNERS
Section 7 – designated partners
Resident in India – Explanation to Section 7(1)
Distinction in terms of definition of “resident in India between Section 7, LLP Act and
Section 6, Income Tax Act, 1861
Section 8 – liabilities of designated partners
Section 9 – changes in designated partners
Section 10 – punishment for contravention of sections 7 and 9
