What is Limited Liability Partnership (LLP)

The central government introduced the Limited Liability Partnership (LLP) Bill, 2006 in the Rajya Sabha on the 15th December, 2006. The parliamentary standing committee on Finance had examined the bill and made several recommendations and accordingly the government introduced a fresh bill during October 2008 and the bill has been passed by parliament and is assented to by the president on 7-1-2009.

The LLP form would enable startups, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.  Limited Liability Partnership Rules, 2009.

The above rules were notified vide notifications no. GSR 229 (E), dated 1-4-2009 and amended vide notification no. GSR 385 (E), dated 4-6-2009.

Limited Liability Partnership (LLP)

Difference between partnership and LLP

The partnership firm has the following main features:

  • A partnership firm can have only a maximum 20 partners.
  • The firm is not considered a separate legal entity entity different from its members.
  • Unless registered under the partnership act, a firm cannot sue outsiders in its name. Registration under the said act is only optional.
  • The partners in a firm are severally and jointly liable to the debts and liabilities of the firm without any limit.
  • On the other hand, a LLP has more advantages than a partnership, such as the following:
  • A LLP has to consist of at least two partners and there can be a maximum of 100 partners (as proposed) with no ceiling of member in respect of professional associations regulated by special acts.
  • Another advantage of LLP is that the liability of each partner will be limited to the amount he contributes to the capital.

 Advantage of LLP over a company

LLP is simple to incorporate and operate while a company is more complex and is required to comply with several formalities and has to have shareholders compulsorily. LLP has been designed to be a good blend of a firm and company and a useful medium for small business units.

Incorporation of limited liability partnership

The promoter of LLP has to carry out the following formalities to bring a LLP into existence:

  • Number of minimum subscribers and partners

At least two persons shall join together to form LLP and subscribe their names to an incorporation document. At least two partners in a LLP.

Where the number of partners in a LLP become less than two

Where the number of partners in a LLP becomes less than two and the LLP carries on business for more than six months. The only partner, when the LLP carries on business with one partner after those six months who has the knowledge that it so carries on business, shall be personally liable for the obligations for the LLP incurred during that period.

  • Incorporation document

The incorporation document shall be in Form 2 part A in the rules and will be filed with the registrar of the state where the registered office is to be located with fee prescribed in Annexure ‘A’ to the rules. It is proposed in sub-section (2) that the registration document shall be in form that may be prescribed and shall have the following contents:

The name of the LLP with the words “Limited Liability Partnership” or “LLP” as the last word of its name.

  1. Its proposed business.
  2. The address of the LLP registered office.
  3. The name and address of each of the persons who are to be its partners on incorporation.
  4. The name and addresses of the persons who are to be its designated partners as per section 7.

Such other information including fee for registration as prescribed in the rules which is given below:

Who can form LLP

  1. Any independent or body corporate may be a partner in a LLP.
  2. A single person cannot become a partner
  3. He is an undischarged insolvent
  4. He has applied to be adjudicated as an insolvent.

Statement to be filed with the registrar of companies with incorporation document

There shall be filed with the ROC, along with the registration document, a statement in Part B of form 2 to the effect, inter alia, that all the requirements of the LLP act. The rules made thereunder have been compiled with in respect of incorporation and matters precedent and incidental thereto.

Foreign nationals seeking registration of LLP in India

Rule 12 provides that foreign nationals residing outside India in countries signatory to The Hague Apostle Convention, 1961 may also take steps as mentioned above to register a Limited Liability Partnership LLP in India. It is stated that their signatures and address on the incorporation documents and proof of identity.

 Registrar’s certificate of incorporation

On receipt of the incorporation statement duly signed by at least two subscribers and the statement in the prescribed form duly signed and on receipt of fees prescribed. The registrar shall register the incorporation document and give a certificate signed by him under his official seal which shall be conclusive evidence that the LLP is incorporated by the name specified therein.

On LLP registration

On LLP registration makes a legal entity separate and body corporate from its partners.

Effect of registration of LLP

  • On receipt of the certificate of incorporation, the LLP can:
  • Sue and be sued in its name.
  • Obtain and hold in its name property of all kinds.
  • Have a common seal if the LLP desires.

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