Module 8: Preliminary for
LLP
Presented by:
Varnika Taya
THE LIMITED LIABILITY
PARTNERSHIP ACT, 2008 (“LLP
ACT”)
STATEMENT OF OBJECTS AND REASONS
OF THE LLP ACT
The LLP Act is broadly based on UK LLP Act, 2000 and Singapore LLP Act, 2005
(https://www.mca.gov.in/MinistryV2/natureoflimitedliabilityparterneshipllp.html)
Reasons behind introduction of the Limited Liability Partnership Act, 2008:
Growth of Indian economy – international acknowledgement of the role played by
entrepreneurs
Identification of the combination of entrepreneurship, knowledge and risk capital to
provide a further impetus to India’s economic growth
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Need for LLP – a new corporate form – to enable professional eexpertise and
entrepreneurial
Tradi base innovative
initiative – to combine, organise and operate in flexible,
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and efficient manner
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LLP struct
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LLP – alternative corporate business vehicle = benefits of limited liability + flexibility
of organizing the internal structure as a mutually arrived agreement
LLP – commercially efficient vehicle suited for the requirements of entrepreneurs,
professionals and enterprises providing services of any kind or engaged in scientific
and technical disciplines
LLP – flexibility in structure and operation – suitable vehicle for small enterprises
and for investment by venture capital
SALIENT FEATURES OF THE LLP ACT
LLP is a body corporate and, therefore a legal entity separate from its partners.
A minimum of two persons can form it for any lawful business by signing the
incorporation document (LLP agreement) and getting it registered with the Registrar of
Companies (RoC).
Its partners can define their mutual rights and obligations under their own agreement or
agreement with LLP. In the absence of any such agreement, the provisions of the Act
would apply.
The LLP would be liable to the full extent of its assets. The partner would be liable to
the extent of their agreed contributions. No partner would be liable for independent or
unauthorised acts of other partners or for their misconduct. The liability of the LLP and
that of partners who have acted with intent to defraud creditors or for any fraudulent
purpose is to be unlimited for all or any of the debts or liabilities of LLP.
Every LLP has to have at least two individuals as designated partners. At least one of
them should be resident in India. Their duties and obligations are to be as prescribed
by the Act.
The LLP has to prepare annual accounts showing true and fair view of the state of
affairs. They have to be filed with the RoC after being audited. The Central
Government can exempt a class of LLPs from the required auditing.
If required, the Central Government may appoint inspectors to investigate affairs of
the LLP.
LLP Act provides for provisions for compromise or arrangement including
amalgamation.
A firm, private company or an unlisted public company are allowed to convert into
LLP.
An LLP may be wound up voluntarily or by the Tribunal established under the
Companies Act, 1956. (Until any such Tribunal was established, the power was to
be that of the High Court.)
The Central Government is empowered to apply any of the provisions of the
Companies Act to such LLPs.
ADVANTAGES OF AN LLP
LLP is a good hybrid of partnership and company business structures
It removes the rather risky feature of partnership, i.e. unlimited liability
There is maximum flexibility in respect of internal management
It modifies the rigidity in terms of compliance requirements for limited liability companies
Corporate membership, including LLPs, is permissible
There is no restriction on the number of LLPs of which one can become a member
It is easier to attract investors in the form of ‘limited partners’ – who are willing to take the
financial risk but do not wish to take unlimited liability
Limited partners can leave the business or be replaced, without requiring the limited partnership
to be dissolved
LLP vs. COMPANY (LIMITED LIABILITY
COMPANY)
LLP COMPANY
Limited Liability Partnership Act, 2008 Companies Act, 2013
LLP is a body corporate. It is a legal entity separate from that of its Company is a body corporate. It is a legal entity separate from that
partners. It has perpetual succession. of its partners. It has perpetual succession.
Liability of the partners is limited to the agreed contribution Liability of the members is limited to the unpaid amount of shares
taken in the company
Minimum (designated) partners – 2; Maximum (designated) Minimum members – 2 (except for one person company);
partners – not defined Maximum members – 200 (in case of a private company)
Governing document – LLP agreement Governing document – Articles of Association and Memorandum
of Association
Lower/ lesser legal compliances Higher/ stricter legal compliances
Simpler tax structure (no dividend distribution tax) Complicated tax structure (dividend distribution tax is applicable)
LLP vs. PARTNERSHIP
LLP PARTNERSHIP
Limited Liability Partnership Act, 2008 Partnership Act, 1932
Registration is mandatory Registration is optional
Governed by LLP agreement Governed by partnership agreement or partnership deed
Liability limited to capital contribution, except in case of fraud. Unlimited liability
LLP is a body corporate. It is a legal entity separate from its Partners are collectively known as firm, so there is no separate
partners. It has perpetual succession. legal entity.
LLP can enter into a contract in its name A partnership firm cannot enter into a contract in its name
Property can be held in the name of the LLP Property cannot be held in the name of the partnership firm
Partners are agents of LLP only Partners are agents of firm and other partners as well
LLP ACT, 2008
Preamble. “An Act to make provisions for the formation and regulation of LLPs and
for matters connected therewith or incidental thereto.”
Section 1. Short title, extent and commencement.
Section 2. Definitions.
By way of Section 378, 434 and 465 of Companies Act, 2013 – Companies Act,
1956 is to be read as Companies Act, 2013 for the purpose of the LLP Act
