26

Limited Liability Partnership Act, 2008

The LLP structure is practised in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. In India, the LLP Act was drafted based on the advice of experts who studied LLP legislations in various countries. The Act is broadly based on UK LLP Act, 2000, and Singapore LLP Act, 2005. Both these Acts allow creation of LLPs in a body corporate form, i.e., as a legal entity, separate from its partners. On the recommendation of various committees, the government introduced the LLP Act in 2009. The Act is applicable all over India.

26.1 FEATURES OF LLP

LLP is governed by the Limited Liability Partnership Act, 2008, with effect from April 1, 2009. It combines the advantages of separate legal entity status and limited liability aspect of a company when running a partnership.

Here are some of the main features of LLP:

• LLP is a legal entity, which is separate from its partners. It can own assets in its name, sue and be sued.
• Unlike corporate shareholders, the partners of LLP have the right to manage the business directly.
• One partner is not responsible or liable for another partner’s misconduct or negligence.
• There should be a minimum of 2 partners. There is no maximum limit.
• It should be a ‘for profit’ business.
• It has perpetual succession.
• The rights and duties of partners in LLP will be governed by the agreement between the partners. The partners have the flexibility to devise the agreement according to their choice. The duties and obligations of the designated partners shall be as provided in the law.
• Liability of partners is limited to the extent of his contribution to the LLP. There is no exposure of personal assets of the partner, except in cases of fraud.
• LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs. 40 lakhs.
• Partnership Act is not applicable to LLP.

26.2 DIFFERENCE BETWEEN PARTNERSHIP AND LLP

Category	Partnership	LLP
Applicable act	The Indian Partnership Act, 1932.	The Limited Liability Partnership Act, 2008 and LLP Rules 2009.
Registration	Registration is optional. If partners want to register, they can register with Registrar of the firm.	Registration with Registrar of Companies is required.
Creation	Created by agreement or contract.	Created by law
Separate legal entity	It is not a separate legal entity.	It is a separate legal entity.
Name of entity	Any name as per choice	Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.
Perpetual succession	It does not have perpetual succession.	It has perpetual succession and partners may come and go
Charter document	Partnership deed is a charter of the firm. It denotes scope of operation and rights and duties of the partners.	LLP agreement is a charter of the LLP, which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.
Common seal	There is no concept of common seal in partnership	It denotes the signature and LLP may have its own common seal, depending upon the terms of the Agreement
Registration process	Partnership is registered by filing Partnership Deed along with form / affidavit required to be filled with Registrar of Firms along with requisite filing fee	Various e-forms and the LLP Agreement are filed with the Registrar of LLP along with the prescribed fee.
Right to sue	Only registered partnership can sue third party	LLP, as a legal entity, can sue and be sued
Number of members	Minimum 2 and Maximum 20	Minimum 2 partners and no limit to maximum number of partners.
Ownership of assets	Partners have joint ownership of all assets belonging to the partnership firm	The LLP is independent of the partners and has ownership of assets
Rights and duties of the partners or designated partners	It is governed by Partnership Deed.	It is governed by LLP Agreement.
Liability of partners	Unlimited. Partners are severally and jointly liable for actions of other partners and the firm and liability extends to their personal assets.	Limited to the extent of their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
Whether agent?	Partners are agents of the firm and other partners.	Partners act as agents of LLP and not of the other partners.
Transfer of rights	Not transferable. In case of death the legal heir receives the financial value of share.	Regulations relating to transfer are governed by the LLP Agreement.
Transfer of share / Partnership rights in case of death	In case of death of a partner, the legal heirs have the right to get a refund of the capital contribution and a share in accumulated profits, if any. Legal heirs will not become partners	In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partners
Director Identification Number(DIN)	The partners are not required to obtain any identification number	Each designated partner is required to have a DIN before being appointed as Designated Partner of LLP.
Digital signature	There is no requirement of obtaining digital signature	As e-forms are filled electronically, at least one Designated Partner should have Digital Signatures.
Dissolution	Firm can be dissolved by agreement, mutual consent, insolvency, certain contingencies, and by court order.	Voluntary or by order of National Company Law Tribunal.
Transferability of interest	A partner can transfer his interest subject to the Partnership Agreement	A partner can transfer his interest subject to the LLP Agreement
Admission as partner	A person can be admitted as a partner as per the Partnership Agreement	A person can be admitted as a partner as per the LLP Agreement
Cessation as partner	A person can cease to be a partner as per the agreement	A person can cease to be a partner as per the LLP Agreement or in absence of the same by giving 30 days prior notice to the LLP.
Who is responsible for day-to-day affair?	Any partner can manage day- to-day business.	Designated partners are responsible for managing the day to day business and other statutory compliances.
Maintenance of minutes	There is no concept of any meeting of minutes	LLP, by agreement, may decide to record the proceedings of meetings of the partners.
Voting rights	It depends upon the partnership agreement	Voting rights shall be as decided as per the terms of LLP Agreement.
Annual filing	No return is required to be filed with Registrar of Firms	Annual statement of accounts and solvency and annual return is required to be filed with Registrar of LLP every year.
Audit of accounts	Partnership firms are only required to have a tax audit of their accounts as per the provisions of the Income Tax Act	All LLP except for those having turnover less than Rs.40 lakhs or Rs.25 lakhs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act, 2008.
Accounting standards	Accounting standards are not applicable.	The necessary rules in regard to the application of accounting standards are not yet issued.

26.3 DIFFERENCE BETWEEN COMPANY AND LLP

Category	Company	LLP
Applicable law	Companies Act, 2013, is applicable.	Limited liability partnership is governed by ‘The Limited Liability Partnership Act, 2008’ and LLP Rules, 2009.
Name of entity	Name to contain ‘Limited’ in case of public company or ‘Private Limited’ in case of private company as suffix.	Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.
Charter document	Memorandum and Article of association is the charter of the company which defines its scope of operation.	LLP agreement is the charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.
Formalities of incorporation	Various e-forms along with the Memorandum and Articles of association are filed with the registrar of companies with prescribed fee	Various e-forms and the LLP agreement are filed with the registrar of LLP along with the prescribed fee.
Number of members	In case of private company, 2 to 200 members and minimum 7 members in case of public company.	There should be a minimum of 2 partners. There is no limit to the maximum number of partners.
Rights and duties of the partners or directors	Rights and duties of the directors are governed by Article of association and resolution passed by shareholders or directors.	Rights and duties of the partners are governed by LLP agreement.
Liability of partners/members	Generally limited to the amount required to be paid up on each share.	Limited to the extent of their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
Principal-Agent relationship	The directors act as agents of the company and not of the members	Partners act as agents of LLP and not of the other partners.
Transfer of ownership rights	Ownership is easily transferable.	Regulations relating to transfer are governed by the LLP agreement.
Transfer of share / partnership rights in case of death	In case of death of member, shares are transmitted to the legal heirs.	In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution and the share in accumulated profits, if any. Legal heirs will not become partners
Transferability of interest	A member can freely transfer his interest	A partner can transfer his interest subject to the LLP agreement
Admission as partner / member	A person can become member by buying shares of a company.	A person can be admitted as a partner as per the LLP agreement
Cessation as partner / member	A member or shareholder can cease to be a member by selling his shares.	A person can cease to be a partner as per the LLP agreement or in absence of the same by giving 30 days prior notice to the LLP.
Charter document	Memorandum and Article of association is the charter of the company which defines its scope of operation.	LLP agreement is the charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.
Formalities of incorporation	Various e-forms along with the Memorandum and Articles of association are filed with the registrar of companies with prescribed fee	Various e-forms and the LLP agreement are filed with the registrar of LLP along with the prescribed fee.
Number of members	In case of private company, 2 to 200 members and minimum 7 members in case of public company.	There should be a minimum of 2 partners. There is no limit to the maximum number of partners.
Rights and duties of the partners or directors	Rights and duties of the directors are governed by Article of association and resolution passed by shareholders or directors.	Rights and duties of the partners are governed by LLP agreement.
Liability of partners/ members	Generally limited to the amount required to be paid up on each share.	Limited to the extent of their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
Principal-Agent relationship	The directors act as agents of the company and not of the members	Partners act as agents of LLP and not of the other partners.
Transfer of ownership rights	Ownership is easily transferable.	Regulations relating to transfer are governed by the LLP agreement.
Transfer of share / partnership rights in case of death	In case of death of member, shares are transmitted to the legal heirs.	In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution and the share in accumulated profits, if any. Legal heirs will not become partners
Transferability of interest	A member can freely transfer his interest	A partner can transfer his interest subject to the LLP agreement
Admission as partner / member	A person can become member by buying shares of a company.	A person can be admitted as a partner as per the LLP agreement
Cessation as partner / member	A member or shareholder can cease to be a member by selling his shares.	A person can cease to be a partner as per the LLP agreement or in absence of the same by giving 30 days prior notice to the LLP.
Management of day-to-day administration	Directors are appointed to manage the business and other statutory compliances on behalf of the members.	Designated partners are responsible for managing the day-to-day business and other statutory compliances.
Statutory meetings	Board meetings and general meetings are required to be conducted as per provisions of the Companies Act.	There is no provision in regard to holding of any meeting.
Voting rights	Voting rights are decided as per the number of shares held by the members.	Voting rights shall be as decided as per the terms of LLP agreement.
Remuneration to director/partner	Company can pay remuneration to its directors subject to provisions of Companies Act.	Remuneration to partner will depend upon LLP Agreement.
Contracts with Partners/Director	Restrictions on board regarding some specified contracts, in which directors are interested.	Partners are free to enter into any contract.
Maintenance of statutory records	Required to maintain books of accounts, statutory registers, minutes etc.	Required to maintain books of accounts.
Annual filing	Annual financial statement and annual return are required to be filed with the Registrar of Companies every year.	Annual statement of accounts and solvency and annual Return is required to be filed with Registrar of LLP every year.
Audit of accounts	Companies are required to get their accounts audited annually as per the provisions of the Companies Act, 2013,	All LLP except those having turnover less than Rs. 40 lakhs or Rs. 25 lakhs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act, 2008.

26.4 LLP AGREEMENT

The mutual rights and duties of partners inter se and those of the LLP and its partners shall be governed by the agreement between partners or between the LLP and the partners. This agreement is known as LLP agreement.

In the absence of any LLP agreement, the mutual rights and liabilities of partners are determined as provided under Schedule I to the Act. LLP may exclude the provisions of Schedule-I by entering into LLP agreement.

In order to ensure better governance, it is always advisable to enter into a well-drafted legal agreement.

26.4.1 Stamp duty

Stamp Act provides different amount of stamp duty payable in different states. At present, stamp duty payable on LLP Agreement is same as it is payable on partnership deed.

26.5 INCORPORATION DOCUMENT—SECTION 11

For a limited liability partnership to be incorporated,

• two or more persons associated for carrying on a lawful business with a view to profit shall subscribe their names to an incorporation document;
• the incorporation document, along with fees, shall be filed with the registrar of the state in which the registered office of the limited liability partnership is to be situated; and
• Statement declaring by either an advocate, or a company secretary or a chartered accountant or a cost accountant, who is engaged in the formation of the limited liability partnership and by anyone who subscribed his name to the incorporation document, that all the requirements of this Act and the rules made thereunder have been complied with, in respect of incorporation and matters precedent and incidental thereto.

The incorporation document shall—

• be in a form as may be prescribed;
• state the name of the LLP;
• state the proposed business of the LLP;
• state the address of the registered office of the LLP;
• state the name and address of each of the persons who are to be partners of the LLP on incorporation;
• state the name and address of the persons who are to be designated partners of the LLP on incorporation;
• contain such other information concerning the proposed LLP as may be prescribed.

If a person makes statement on above subject matter which he:

• knows to be false; or
• does not believe to be true,

he shall be punishable with imprisonment for a term which may extend to two years with fine which shall not be less than ten thousand rupees but which may extend to five lakh rupees.

26.6 INCORPORATION BY REGISTRATION

When the requirements of Section 11 have been complied with, the registrar shall within a period of fourteen days-

• register the incorporation document; and
• give a certificate that the LLP is incorporated by the name specified therein.

The certificate issued shall be signed by the registrar and authenticated by his official seal. The certificate shall be conclusive evidence that the limited liability partnership is incorporated by the name specified therein.

26.7 PARTNER—SECTION 5–6

LLP should have at least two partners. Any individual or body corporate can be partner of LLP. LLP Act does not provide any qualification to be a partner for LLP but the person should be competent to enter into contract. However, the Act provides a few disqualifications. The following individuals cannot be partner in LLP:

• a person found to be of unsound mind
• a person who is an undischarged insolvent
• a person who has applied for being declared as insolvent and whose application is pending.

26.7.1 What if the Number of Partners Reduces Below Minimum?

LLP should have at least two partners. If at any point of time, the number of partners reduces below two and the remaining partner carries on business with knowledge of this fact for a period of more than six months, he is liable in unlimited manner for all liabilities undertaken by the LLP, after 6 months.

26.8 DESIGNATED PARTNER—SECTION 7–9

‘Designated partner’, in reference to Limited Liability Partnership, means any partner designated as such pursuant to Section 7 of Limited Liability Partnership Act, 2008.

LLP shall have at least two ‘designated partners’ who are individuals and at least one of them shall be ‘resident in India’. In case one or more of the partners of the LLP are bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as ‘designated partners’.

 

If the incorporation document specifies the names of designated partners, such persons shall be designated partners on incorporation.

In case if no partner is designated as such, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner of the LLP.

An individual can become a designated partner in any LLP if:

• he has given his prior consent to act as such to the LLP in such form and manner as may be prescribed
• he has obtained a Director Identification Number.

LLP is required to file with the registrar, particulars of every individual who has given his consent to act as designated partner in the prescribed form.

The role of designated partners in case of LLP is on the same footage as of Directors in case of a Company. The designated partners are directly responsible for the compliances of all provisions provided under LLP Act, 2008, and the provisions specified in the LLP Agreement.

Rights of designated partner are same as those of other partners. Alike other partners, they are not entitled to any remuneration for their participation in management of LLP unless otherwise specifically provided in the LLP Agreement; yet they have additional responsibilities to comply with.

A designated partner shall be

• responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and
• liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

26.8.1 Designated vs Managing Partner

Designated partners are partners who are responsible for managing the compliance under the LLP Act and managing partners are partners, who are managing the business of the Firm and therefore it is not necessary that a designated partner is also a managing partner and vice versa.

26.9 MAJOR DUTIES OF A DESIGNATED PARTNER

Designated partners have a duty to comply with the provisions of LLP Act. Following are the major duties of designated partners:

• Notify any changes in the LLPs to Registrar of Companies.
• Notify any changes in the partners’ names and residential addresses to Registrar of Companies.
• Notify any change in Registered Office address to Registrar of Companies.
• File annual return, statement of accounts and other documents specified under the provisions of LLP Act with the Registrar of Companies.
• Sign statement of accounts and solvency
• Preserve and produce before an inspector or any person authorised by him on this behalf with the previous approval of the Central Government, all books and papers of, or relating to, the limited liability partnership or, as the case may be, the other entity, which are in their custody or power
• Sign all e-forms filed with the Registrar of Companies.

Any vacancy arising in the office of the designated partner shall be filled within 30 days and the change shall be intimated to the Registrar of Companies. The partner may cease to be designated partner in accordance with LLP agreement, as per Section 9.

26.10 REGISTERED OFFICE

A document may be served on the LLP or a partner or designated partner by sending it by post or by any other mode (to be prescribed under Rules) to the registered office or any other address specifically declared by the LLP.

The LLP shall file Form 12 with the Registrar of LLP for intimating other addresses for service of documents.

26.10.1 Procedure for Change of Registered Office

The registered office can be changed as per the LLP agreement or by obtaining consent of all the partners of the LLP. Further consent of the secured creditors of the LLP should also be obtained and a general notice published, not less than 21 days before filing any notice with the Registrar of Companies, in a daily newspaper published in English and in the principal language of the district in which the registered office of the limited liability partnership is situated and circulating in that district giving notice of change of registered office. The notice of shifting of registered office shall be given to the registrar within 30 days of publication of the notice in the newspaper.

26.11 NAME OF LLP—SECTIONS 11–21

The proposed partners of LLP should select the name for the LLP before they proceed to register it. The selected name may or may not be available for registration. Therefore, an application should be made to the registrar to check whether the selected name is available for registration. On approval of the selected name, the proposed partners can proceed to file other incorporation documents.

A name which is not rejected on the ground of being undesirable or identical or too nearly resembling that of any other partnership firm or limited liability partnership or body corporate or a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999, can be reserved for a period of three months from the date of intimation by the Registrar.

Foreign LLP or Companies have an option to reserve their existing names under which they are operating outside India, for a period of 3 years in India, which can be further renewed

A person cannot choose any name for LLP. The LLP Act prescribes guidelines for choosing the name of LLP; under the said guidelines, any name of the LLP should pass the following test:

• The name of the LLP should not be identical with an already registered name.
• The name should not be prohibited.

In case the name requires the consent of any regulatory authority, the consent has to be obtained.

Every LLP is required to write its name, address of registered office and registration number of LLP on its invoices, official correspondence and publications, as per Section 21

26.11.1 Change in name of LLP—Section 17

The name of LLP can be changed as per the procedure prescribed in the LLP Agreement. In case the agreement is silent, consent of all the members will be required.

The terms ‘same as’ or ‘identical’ signifies that the proposed name of LLP should not be similar or identical to an already registered name. Normally, a name is considered as identical, if the first two starting words of any name matches with an already registered name.

The registrar can reject the proposed name of LLP if it fulfils any of the below conditions:

1. It is identical with an already registered name
2. It contains any prohibited word
3. It does not have the required permission from any regulatory authority.

26.12 NAME GUIDELINE—RULE 18 OF LLP RULES, 2009

Rule 18 of the Limited Liability Partnership Rules, 2009, prescribes the guidelines to be kept in mind, while deciding the name of the LLP. Following are main points of the guidelines:

• The name of the limited liability partnership shall not be one prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950.
• A name shall not generally be reserved, if
  • It includes any words which are offensive to any section of the people;
  • The proposed name is the exact Hindi or English translation of the name of an existing LLP in English or Hindi, as the case may be;
  • The proposed name has a close phonetic resemblance to the name of an LLP in existence;
• It includes the word ‘co-operative’, ‘sahakari’ or an equivalent of the word ‘co-operative’ in the regional languages of the country;
• It connotes the participation or patronage of the Central or State Government;
• The proposed name contains the words ‘British India’;
• The proposed name implies association or connection with any Embassy or Consulate or of a foreign government or connection with local authorities such as Municipal, Panchayat, Zila Parishad or any other body connected with the Union or State Government;
• The proposed name is vague;
• Provided the name shall be reserved, in case ‘No Objection Certificate’ is granted by the registered LLP or the Company as the case may be;
• It includes names of registered trade mark, unless the consent of the owner of the trade mark has been produced;
• The proposed name is identical with or too nearly resembles the name of a firm or LLP or company incorporated outside India and reserved by such firm, LLP or company with the registrar in accordance with these rules;
• It is identical with or too nearly resembles the name of the limited liability partnership or a company in liquidation or it is identical with or too nearly resembles names of the LLP or a company which is struck off, up to the period of 5 years;
• It includes words like ‘bank’, ‘insurance’ and ‘banking’, ‘venture capital’ or ‘mutual fund’ or such similar names without the approval of the regulatory authority;
• It is intended to or likely to produce a misleading impression regarding the scope or scale of its activities which would be beyond the resources at its disposal;
• The proposed name includes words like French, British, German etc., unless the partners satisfy that there is some form of collaboration and connection with the foreigners of that particular country or place, the name of which is incorporated in the name;
• The proposed name of LLP includes the words ‘company secretary’, ‘chartered accountant’, ‘advocates’ or such similar words as indicative of a profession, as part of the proposed name, the same shall be allowed only after obtaining approval from the Council governing such profession or such authority as may be nominated by the Central Government, on its behalf.

26.13 PARTNERS AND THEIR RELATIONS AND EXTENT OF LIABILITY—SECTIONS 22–31

Mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between the partners, or agreement between the LLP and its partners. In absence of any such agreements, the mutual rights and duties shall be governed by the LLP Act.

Every partner of an LLP is an agent of LLP for the purpose of the business of LLP but the partner is not an agent of other partner of LLP. LLP, being a separate legal entity, shall be liable to the full extent of its assets whereas the liability of the partners of LLP shall be limited to their agreed contribution in the LLP. LLP is not bound by the act of a partner in dealing with a person if –

• the partner, in fact, has no authority to act for the LLP in doing a particular act; and
• the person knows that he has no authority or does not know or believe him to be a partner of the LLP

The LLP is liable if a partner of the LLP is liable to any person for wrongful act or omission on his part in the course of business of LLP if the said act is within his authority. Obligation of LLP, whether arising in contract or otherwise, shall solely be the obligation of LLP. Liabilities of LLP shall be met out of properties of LLP. A partner is not personally liable for the obligations of LLP solely by reason of being a partner of LLP.

No partner is liable for the wrongful act or omission of any other partner of LLP, but the partner will be personally liable for his own wrongful act or omission. The liability of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.

26.13.1 Cessation of Partner

Cessation of a partner on grounds like resignation, death, dissolution of LLP, declaration that a person is of unsound mind, declared or applied to be adjudged as insolvent etc. will not be effective unless:

• the person has notice that the partner has ceased to be so; or
• the notice of cessation has been delivered to ROC.

A person may cease to be a partner of LLP under the following circumstances:

• According to an agreement with the other partners.
• In case of absence of such agreement, by giving a notice in writing of not less than 30 days to the other partners of his intention to resign as partner (as per Section 24(1)).

26.13.2 Notice of Cessation

The notice of cessation may be filed by the outgoing partner if he has reasonable cause to believe that LLP has not filed the said notice.

The former partner can be regarded as still being a partner of the LLP unless:

• the person has notice that the former partner has ceased to be a partner of the LLP;
  or
• the notice that the former partner has ceased to be a partner of the LLP has been delivered to the Registrar.

26.13.3 Liability on Cessation

The cessation of a partner does not, by itself, discharge the partner from any obligation to the LLP or to the other partners or to any other person, which he incurred while being a partner.

26.13.4 Right on Cessation

On cessation of the partnership, the former partner or a person entitled to his share in consequence of the death or insolvency of the former partner, shall be entitled to receive from the LLP, unless otherwise provided in the LLP agreement:

• an amount equal to the capital contribution of the former partner actually made to the LLP; and
• his right to share in the accumulated profits of the LLP.

after deduction of accumulated losses of the LLP determined as at the date the former partner ceased to be a partner, in accordance with Section 24(5).

26.14 WHISTLE BLOWING—SECTION 31

The court or tribunal may reduce or waive any penalty leviable against any partner or employee of a limited liability partnership, if it is satisfied that:

• such person has provided useful information during investigation of the LLP or
• when any information given by any partner or employee (whether or not during investigation) leads to the limited liability partnership or any partner or employee of such limited liability partnership being convicted under this Act or any other Act.

The partner or employee of any LLP cannot be discharged, demoted, suspended, threatened, harassed or, in any other manner, discriminated against the terms and conditions of his limited liability partnership or employment merely because of his providing information or causing information to be provided about any offence of violation.

26.15 CONTRIBUTION BY PARTNER—SECTION 32–33

A contribution of a partner to the capital of LLP may consist of any of the –

• tangible, intangible, movable or immovable property
• other benefits to the LLP including money, promissory notes, contracts for services performed or to be performed.

The obligation of a partner for the contribution shall be as per the LLP agreement. A creditor who extends credit or acts in reliance on an obligation described in the LLP agreement, without the notice of any compromise made between the partners, may enforce the original obligation against such partner.

26.15.1 Increase in Contribution

The LLP Act, 2008, or the LLP Rules, 2009, do not contain any specific provisions regarding the procedure for increase in contribution of an LLP. Hence, the procedure for increase in contribution of an LLP shall be governed by the provisions of the LLP Agreement. For indicating an increase in the contribution of an LLP, Form 3 is required to be filed with the registrar within 30 days from the date of alteration. At the time of increase in contribution, stamp duty is payable as per Stamp Act in the same manner as stamp duty is applicable for partnership agreement.

26.15.2 Steps for Increase in Contribution by Way of Introduction of New Partner

For increase in contribution by way of introduction of new partner(s), the following steps are involved:

• To check whether the LLP Agreement specifies the procedure for modification of the LLP Agreement for introduction of a new partner.
• If yes, to modify the LLP Agreement, by following the procedure prescribed in the LLP Agreement for modification of the agreement for introduction of a new partner.
• If the LLP Agreement is silent about the procedure to be followed for modification of the Agreement for introduction of a new partner, to pass a resolution by taking consent of all the partners for modification of the Agreement for introduction of a new partner and increase in contribution which is brought in by the new partner.
• If the new partner shall also be a designated partner of the LLP, such person shall obtain Designated Partner’s Identification Number (DPIN) from the Central Government by making an application electronically in Form 7 to the Central Government.
• The proposed Designated Partner shall give his prior consent to act as a designated partner and intimate his DPIN, in Form 9, to the LLP.
• Filing of Form 4 by the LLP with the Registrar, within 30 days from the date of appointment of the designated partner or partner, along with the requisite fees.
• Filing of Form 3 by the LLP with the Registrar, within 30 days from the date of modification of the Agreement along with the requisite fees.

26.16 VOTING RIGHT

Voting rights of partners is not determined by the contribution brought in by partners and can be specified in the LLP Agreement. If the LLP Agreement is silent about the voting rights of partners, each partner shall be entitled to one vote, irrespective of the capital brought in by him.

26.17 AUDIT AND FINANCIAL DISCLOSURES—SECTION 34–35

An LLP shall maintain the prescribed books of accounts relating to its affairs on cash or accrual basis and according to the double entry system of accounting. Schedule III of the Companies Act, 2013, is not applicable to an LLP. It applies to all companies registered under Companies Act but LLP is a body corporate and not a company. Annual accounts of LLP should reflect true and fair view of its state of affairs.

The accounts of every LLP are required to be audited, except in following situations:

• Turnover does not exceed Rs. 40,00,000 in any financial year; or
• Contribution does not exceed Rs. 25,00,000

The Central Government has powers to exempt certain class of LLP from requirement of compulsory audit.

An LLP is required to file the following documents with the Registrar of Companies:

• Statement of account and solvency, within 30 days from the end of 6 months of the financial year.
• Annual return within 60 days from the end of the financial year. Annual return is filed in Form 11.

26.17.1 Appointment of Auditor

The designated partners annually appoint the auditor of the LLP. The first auditor must be appointed before the end of the financial year for which they are appointed. Thereafter, the appointment or reappointment of the auditors must be made one month before the closing of the financial year by the designated partners

In case of failure of the designated partners to appoint the first auditors within the prescribed time, the partners may appoint the first auditors. In case of failure of designated partners to appoint any subsequent auditor within the prescribed time, the partners may appoint such subsequent auditors.

Where no new auditor has been appointed before 30 days prior to the end of financial year, any auditor holding office shall be deemed to be re-appointed unless

• the LLP Agreement requires actual re-appointment; or
• a majority of partners have determined that he should not be re-appointed and have given a notice to this effect to the LLP.

The designated partners may fill the casual vacancy arisen by removal of an auditor. No time limit has been specified for filling the casual vacancy.

26.17.2 Who can be Appointed as Auditor?

An auditor must be independent of the LLP. Member of ICAI holding certificate of practice can be appointed as auditor to conduct audit of LLP. However, the following persons cannot be appointed as auditor of LLP:

• A partner of LLP.
• An employee of the LLP.
• A partner of employee of an associated undertaking.
• A partner or employee of such a person, or a partnership of which such a person is a partner.

26.17.3 Exemption from Audit

The Central Government may, by a notification in the official gazette, exempt any class or classes of LLPs from the requirements of audit. However, the exempted LLPs may get their accounts audited voluntarily.

In case of LLPs which avail the audit exemption, the following obligations are prescribed:

• A statement by the partners to the effect that the partners acknowledge their responsibilities for complying with the provisions of this Act and Rules with respect to preparation of accounts is required to be included in the Statement of Account and Solvency.
• A certificate needs to be attached in Form 8 to be filed with the Ministry of Corporate Affair (MCA), along with the Statement of Account and Solvency.

Auditor’s report is not required to be filed with Ministry of Corporate Affairs (MCA). The Designated Partners are authorised to fix the remuneration of auditors, unless the LLP Agreement prescribes otherwise.

26.17.4 Removal of Auditors

The partners of LLP can remove the auditors by following the procedure as may be laid down in the LLP agreement. If the LLP Agreement is silent about the procedure of removal of auditors, then the auditors can be removed with the consent of all the partners.

26.18 ASSIGNMENT AND TRANSFER OF PARTNERSHIP RIGHTS—SECTION 42

The rights of a partner to a share of the profits and losses of the LLP and to receive distribution in accordance with the LLP agreement are transferable, either wholly or in part. However, such transfer of rights does not cause either disassociation of the partner or a dissolution and winding up of the LLP.

Such transfer of right, shall not, by itself, entitle the assignee or the transferee to participate in the management or conduct of the activities of the LLP or access information concerning the transactions of the LLP.

26.19 INVESTIGATION—SECTIONS 43–46

The Central Government may appoint one or more competent person as inspector to investigate the affairs of an LLP and to report on it if:

• The Company Law Tribunal (CLB)/Tribunal has declared that affairs of the LLP ought to be investigated. Such declaration can be made by the CLB/Tribunal either suo moto or based on an application received from not less than 1/5^th of the total number of partners of LLP.
• Court has declared by order that affairs of LLP ought to be investigated.

The Central Government may appoint an inspector to investigate the affairs of an LLP when not less than 1/5^th of total number of partners make an application in writing along with supporting evidence. The Central Government may appoint an inspector to investigate the affairs of an LLP where the LLP makes an application to this effect.

The Central Government may appoint an inspector to investigate the affairs of an LLP if, in the opinion of the Central Government, circumstances suggest:

• That the business of the LLP is being or has been conducted with intent to defraud creditors, partners or any other person.
• That the business of the LLP is being or has been conducted for fraudulent or unlawful purpose or in an oppressive manner.
• That the affair of the LLP is not being conducted in accordance with the provisions of this Act.
• That, on receipt of report of registrar, there are sufficient reasons that affairs of the LLP ought to be investigated.

The inspector appointed by the Central Government has the power to investigate the affairs of related entities, whether associated, in past or in present, including past and present designated partners subject to the specified rules and with the permission of the Central Government.

Only an individual person can be appointed as inspector to investigate the affairs of the LLP. Firm, body corporate or association cannot be appointed as inspector to investigate affairs of the LLP.

26.19.1 Documents to be Kept Open for Inspection

The LLP shall keep open the following documents for inspection:

• Incorporation document
• Name of partners and changes, if any, made therein.
• Statement of account and solvency.
• Annual return filed by each limited liability partnership with the registrar.

The said documents shall be available for inspection by any person in such manner and on payment of such fee, as may be prescribed.

26.20 FOREIGN LLP—SECTION 59 AND RULE 34

On establishment of a place of business in India, a foreign LLP is required to file the prescribed documents for registration with ROC within 30 days of its establishment in India.

Any alteration in the constitution documents, overseas principal office address and partner of foreign LLP is required to be filed with the ROC in the prescribed form within 60 days of the close of the financial year.

Any alteration in the certificate of registration of the foreign LLP, its authorised representative in India and principal place of business in India are required to be filed with the ROC in the prescribed form within 30 days of alteration.

A foreign LLP ceasing to have a place of business in India, is required to give notice to ROC in the prescribed form within 30 days of its intention to close the place of business and from the date of such notice, the obligation of the Foreign LLP to file any document with the ROC shall cease, provided it has no other place of business in India and it has filed all the documents due for filing as on the date of the notice.

26.21 TAXATION OF LLP

Since taxation-related matters in India are provided under tax Laws, the taxation of LLPs has not been provided in the LLP Act. Income Tax Act, 1961, contains following provisions regarding taxation of LLPs:

• LLPs are to be taxed on the lines similar to general partnerships under Indian Partnership Act, 1932, i.e., taxation in the hands of the entity and exemption from tax in the hands of its partners.
• The designated partner shall sign the income tax return of an LLP, or where for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return.
• In case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.

The following points are also worthy of note with reference to income tax of LLP:

• Surcharge is not applicable in the case of LLP.
• Dividend distributable tax is not applicable in case when LLP declares dividend, while it is applicable to a company.
• Loan to director in the case of a company is treated as deemed dividend in hand of the director under Section 2(22) of Income Tax Act, while loan to partner is not treated as deemed dividend in hand of the partner.
• LLP can claim expenses incurred by it for family planning for the benefit of employees.
• Rate of MAT (minimum alternate tax) applicable is 19.055% in case when taxable income of LLP exceeds Rs. 1 crore.
• Section 79 of Income Tax Act, 1961, regarding carry forward and set-off losses cannot be exercised by any LLP.

26.22 CONVERSION OF PARTNERSHIP FIRM OR PRIVATE COMPANY OR UNLISTED PUBLIC COMPANY INTO LLP—SECTIONS 55– 58

The following forms of businesses can be converted into LLP by complying with the provisions of conversion under LLP Act:

• a partnership firm into LLP.
• a private limited company into LLP.
• an unlisted public company into LLP.

The second, third and fourth schedules to the LLP Act contain provisions relating to conversion of a partnership firm into LLP, a private limited company into LLP and unlisted public company into LLP, respectively.

26.22.1 Eligibility for Conversion

Firm into LLP: A firm can be converted into LLP if all the partners of the firm become partners of the LLP and no one else.

Company into LLP: Private limited company and unlisted public company can be converted if and only if:

• there is no security interest in its assets subsisting or in force at the time of application for conversion; and
• all shareholders of the company become partners of LLP and no one else.

26.22.2 Procedure and Effect of Conversion

For conversion of firm or private limited company or unlisted public company into LLP, the partners of the firm or shareholders of the company are required to file a statement and incorporation documents in the prescribed form with the ROC.

On receiving the documents for conversion, the ROC shall register the documents and issue a certificate of registration specifying the date of registration as LLP. Upon registration by ROC, the LLP shall intimate Registrar of Firm or Registrar of Companies, as the case may be, about conversion within 15 days of registration.

On and from the date specified in the certificate of registration issued by ROC –

• all property (tangible, intangible, movable and immovable property), liabilities, interest, obligation etc. relating to the firm or private limited company or unlisted public company and the whole of the undertaking of the firm or private limited company or unlisted public company, shall be transferred to and shall vest in the LLP without further assurance, act or deed.
• The firm or private limited company or unlisted public company shall be deemed to be dissolved and removed from the records of Registrar of Firm or Registrar of Companies, as the case may be.

If any property or rights, etc. of the partnership firm or private limited company or unlisted public company is registered with any authority, the LLP shall take steps to notify the authority of the conversion.

Upon conversion, following things/events in favour of or against the firm or private limited company or unlisted public company on the date of registration may be continued, completed and enforced by or against the LLP:

• all proceedings, conviction, ruling, order or judgment of any court, tribunal or other authority pending in any court or tribunal or before any authority on the date of registration.
• every agreement irrespective of whether or not the rights and liabilities thereunder could be assigned.
• deeds, contracts, schemes, bonds, agreements, applications, instruments and arrangements.
• every contract of employment.
• appointment in any role or capacity.
• any approval, permit or licence issued under any other Act, etc.

In case of a firm, every partner of a firm which is converted into an LLP shall continue to be personally liable (jointly and severally with the LLP) for the liabilities and obligations of the firm incurred prior to the conversion or which arose from any contract entered into prior to the conversion. In case any such partner discharges any such liability or obligation he shall be entitled (subject to any agreement with the LLP to the contrary) to be fully indemnified by the LLP in respect of such liability or obligation.

For a period of 12 months commencing on or before 14 days from the date of registration, the LLP shall ensure that every official correspondence of the LLP bears the following:

• a statement that it was, as from the date of registration, converted from a firm or private limited company or unlisted public company into a LLP; and
• the name and registration number, if applicable, of the firm or private limited company or unlisted public company from which it was converted.

26.23 STEPS FOR CONVERSION OF PARTNERSHIP INTO LLP

To convert an existing partnership into LLP, the following steps should be taken:

26.23.1 Step 1—Deciding Partners and Designated Partners

A partnership which desires to convert its status to LLP Form shall decide the designated partners of the proposed LLP. When a partnership firm is proposed to be converted to LLP, only the partners of the partnership firm can be the partners of the converted LLP. The person who is not a partner of the firm cannot be partner of the LLP. To convert a firm into LLP, at least two partners are required. At least two partners have to be designated partners; of them one shall have to be a resident Indian.

26.23.2 Step 2—Obtain DIN and Digital Signature

Every designated partner is required to obtain a DPIN (Designated Partner Identification Number) from the Central Government.

DPIN is an 8-digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application to the Central Government along with the prescribed fees.

All the forms required for the purpose of incorporating an LLP are filed online; it is not possible to sign them manually. Moreover the DPIN Form is to be signed by the concerned designated partner himself. Therefore, for the purpose of signing these forms, all designated partners of the proposed LLP need to obtain a digital signature certificate (DSC).

26.23.3 Step 3—Checking Name Availability for LLP

The name selected may not be available for registration; therefore, an application for reservation of the desired name of the LLP should be made along with the prescribed fees.

26.23.4 Step 4—Drafting of LLP Agreement

Once the desired name is available and prima facie permitted, a limited liability partnership agreement should be drafted. The basic contents of the Agreement are:

• Name of LLP
• Name of partners and designated partners
• Form of contribution
• Profit sharing ratio
• Rights and duties of partners
• Proposed business
• Rules for governing the LLP

It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the agreement need to be filed in e-Form 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms and conditions of the agreement after the conversion into LLP, it is always beneficial to have the LLP Agreement drafted and executed before the incorporation of the LLP.

26.23.5 Step 5—Filing Incorporation Documents

Incorporation documents in e-Form No. 2 and declaration should be filed online at the Website www.llp.gov.in along with the prescribed fees. The fee is based on the total monetary value of contribution of the partners in the proposed LLP. For filing e-forms, digital signature is required of all the designated partners.

Incorporation document (i.e., e-Form No. 2) 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.

The partners are required to subscribe their names along with signatures to the subscription sheet, which shall be witnessed by any chartered accountant or company secretary or advocate in practice. In case the subscription sheet is executed outside India, then it must be notarised and consularised.

26.23.6 Step 6—Filing Conversion Application

Application for conversion of firm into LLP is submitted in e-Form 17 by the partners of the partnership name covering name, details of address and registration (if any) consent of all partners of the firm along with following details:

• Whether up to date income-tax return is filed under the Income-tax Act, 1961.
• Whether any proceeding by or against the firm is pending in any court or tribunal or any other authority.
• Whether any conviction, ruling, order, judgment of any court, tribunal or other authority in favour of or against the firm is subsisting.
• Whether any clearance, approval or permission for conversion of the firm into limited liability partnership is required from anybody or authority.

All the e-forms will be digitally signed by any designated partner and shall be certified by an advocate or company secretary or chartered accountant or cost accountant in practice engaged in the formation of LLP.

26.23.7 Step 7—Certificate of Registration

On completion of the above formalities and filings been complied with by the applicants and approved by the ministry, the registrar will issue a certificate of registration as to conversion of the LLP. The certificate of registration issued is conclusive evidence of conversion of the LLP.

If the registrar refused the registration, the applicant company may apply to the tribunal within sixty days from the date of receipt of such intimation of refusal.

26.23.8 Step 8—Information for Conversion to the Register of Firm

In case the partnership firm is registered, than the converted limited liability partnership shall, within fifteen days of the date of conversion, inform the concerned Registrar of Firm with which it was registered under the provisions of the Indian Partnership Act, 1932, about the conversion and of the particulars of the limited liability partnership in:

 

26.24 CONVERSION OF PRIVATE COMPANY IN TO LLP

To convert an existing private company into LLP, the following steps should be taken:

26.24.1 Step 1—Deciding Partners and Designated Partners

A private company which desires to convert its status to LLP Form shall foremost decide the designated partners of the proposed LLP, as only the members can be partners of the converted LLP and of these members of the company, at least two partners shall be the designated partners. If a body corporate which was a member of the company desires to act as designated partner of LLP, their nominee can be appointed as the designated partner.

26.24.1.1 Parameters for Deciding Designated Partners

• Minimum two individuals of the total number of partners should be designated partners.
• At least one designated partner should be a resident Indian.

In case of conversion of Private Limited Company into LLP, all the shareholders of the company should be partners in the LLP and no one else; there will also be no security interest subsisting or in force at the time of application in the assets of the company.

26.24.2 Step 2—Obtain DIN and Digital Signature

Every designated partner is required to obtain a DIN from the Central Government. If a person already has a DIN, the same can be used for forming LLP. Generally, the DIN and digital signature of a director of a private company shall be valid for LLP too.

26.24.3 Step 3—Checking Name Availability for LLP

The next step is to make an application in e-Form 1 of Rule 18(5) of the Limited Liability Partnership Act, 2008, for reservation of the desired name of the LLP on payment of the prescribed fees.

A board resolution passed by the company approving the conversion into LLP shall be attached with the aforesaid form. It is not necessary to file the LLP Agreement at the time of incorporation; it can also be filed within 30 days of the incorporation

26.24.4 Step 4—Drafting of LLP Agreement

On availability of the desired name the LLP Agreement should be drafted. The same provisions as indicated in Step 4 for conversion of partnership into LLP (as discussed on Page 682) are applicable here.

26.24.5 Step 5—Filing Incorporation Documents

Incorporation documents are prepared and filled online. The same provisions as indicated at Step 5 for conversion of partnership into LLP (as discussed on Page 682) are applicable here.

26.24.6 Step 6—Filing Conversion Application

Application for conversion, in e-Form 18, has to be submitted by the shareholder of the company covering name, registration number and date of incorporation of the company, and consent of all shareholders of the company along with following details:

• Whether any security interest in the assets of the company is subsisting or in force
• Whether up-to-date income-tax return is filed under the Income-tax Act, 1961.
• Whether any prosecution has been initiated against or show cause notice received by the company for alleged offences under the Companies Act, 1956.
• Whether any proceeding by or against the company is pending in any court or tribunal or any other authority.
• Whether any conviction, ruling, order, judgment of any court, tribunal or other authority in favour of or against the company, is subsisting.
• Whether any clearance, approval or permission for conversion of the company into limited liability partnership is required from any authority.

All e-forms will be digitally signed by any a designated partner and be certified by an advocate or company secretary or chartered accountant or cost accountant in practice engaged in the formation of LLP.

26.24.7 Step 7—Certificate of Registration

On all formalities and filings being complied with by the applicants and approved by the Ministry, the Registrar of LLP issues a Certificate of Registration as to conversion of the LLP. The certificate of registration issued shall be the conclusive evidence of conversion of the LLP.

In the event of the Registrar having refused the registration, the applicant company may apply to the tribunal within 60 days from the date of receipt of such intimation of refusal.

e-Form 3: Details of LLP Agreement This form provides for the necessary information in respect of the LLP Agreement entered into between the partners.

e-Form 4: Consent of Partners Consent of each partner to become a partner of limited liability partnership has to be filed with the Registrar of LLP

26.24.8 Step 8—Information for conversion to the register of companies

The converted limited liability partnership has to file, within 15 days of the date of registration, information to the concerned Registrar of Companies with which it was registered under the provisions of the Companies Act, 1956, about the conversion and of the particulars of the limited liability partnership in e-Form 14.

26.25 COMPROMISE, ARRANGEMENT OR RECONSTRUCTION OF LLPS—SECTION 60

Provisions have been made in the LLP Act for allowing a compromise and arrangement including mergers and amalgamations. Compromise and arrangement can be between LLP and its creditors or between LLP and its partners.

26.25.1 Procedure

If a majority representing 3/4th in value of creditors or partners, at the meeting, agree to compromise or arrangement, it shall, if sanctioned by National Company Law Tribunal [NCLT], be binding on all creditors, all the partners and the LLP. NCLT shall pass an order subject to disclosure of all material facts/latest financial position and pendency of the investigation proceedings.

• NCLT order shall be filed with the ROC within 30 days, in order to be effective.
• In case of scheme of the amalgamation, NCLT shall pass order only on receipt of report from the ROC that the affairs of the LLP (transferor LLP) have not been conducted in a manner prejudicial to the interest of the partner/public.

26.26 WINDING-UP OF LLP—SECTIONS 63 AND 64

LLPs may be wound up, either voluntarily or by NCLT. LLP may be wound up by NCLT if:

• The LLP decides to be wound up by NCLT;
• The number of partners reduces below 2 for a period of more than 6 months;
• The LLP is unable to pay its debts;
• The LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
• The LLP has defaulted in filing Statement of Account and Solvency or annual return with the ROC for five consecutive financial years; or
• NCLT is of the opinion that it is just and equitable that the LLP be wound up

On 30^th March 2010, MCA has issued Limited Liability Partnership (Winding up and Dissolution) Rules, 2010.

26.27 ADVANTAGES OF LLP

LLP form of business is well recognised and offers the following advantages:

• Renowned and accepted form of business worldwide in comparison to Company.
• Low cost of formation.
• Easy to establish.
• Easy to manage and run.
• No requirement of any minimum capital contribution.
• No restrictions on the maximum number of partners.
• LLP and its partners are distinct from each other.
• Partners are not liable for Act of partners.
• Less compliance level.
• No exposure to personal assets of the partners except in case of fraud.
• Less requirement of maintenance of statutory records.
• Less government intervention.
• Easy to dissolve or wind up.
• Professionals can form multi-disciplinary professional LLP, which was not allowed earlier.
• Audit is required only for contributions exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh.

26.28 DISADVANTAGES OF LLP

LLP form of business is not without disadvantages. Following are the limitations of LLP format of business:

• Any act of the partner without the other partner, may bind the LLP.
• Under some cases, liability may extend to personal assets of partners.
• It cannot raise money from the Public.

TEST YOUR KNOWLEDGE

1. A limited liability partnership is a body corporate. Comment.

   (Ref. Para-26.1)

2. Provisions of Indian Partnership Act, 1932, are applicable to LLPs and body corporate may be partner of LLP. Comment.

   (Ref. Para-26.1)

3. What are the salient features of limited liability partnership?

   (Ref. Para-26.1)

4. Write the main points of difference between Partnership and LLP.

   (Ref. Para-26.2)

5. There are no shareholders in a limited liability partnership; instead, there are partners. Comment.

   (Ref. Para-26.3)

6. Distinguish between Company and LLP.

   (Ref. Para-26.3)

7. State whether stamp duty is payable on LLP agreement. Is so, how is the amount of stamp duty calculated?

   (Ref. Para-26.4)

8. What governs the mutual rights and duties of the partners of an LLP and that of the LLP with its partners?

   (Ref. Para-26.4)

9. State whether LLP Agreement would be mandatory for all LLPs.

   (Ref. Para-26.4)

10. How are the mutual rights and duties of the partners of an LLP and that of the LLP with its partners determined in the absence of any agreement about the matter?

    (Ref. Para-26.4)

11. What are the requirements of incorporation document to incorporate an LLP?

    (Ref. Para-26.5)

12. What are the registration formalities relating to LLPs?

    (Ref. Para-26.6)

13. When is an individual disqualified from being appointed as a partner of LLP?

    (Ref. Para-26.7)

14. Can an LLP have less than two partners?

    (Ref. Para-26.7)

15. Can any person other than subscriber to an LLP become a partner?

    (Ref. Para-26.7)

16. What is the liability of a partner if the number of members in an LLP reduces to less the minimum permitted?

    (Ref. Para-26.7)

17. All members of a limited partnership firm are ‘designated members’. Comment.

    (Ref. Para-26.8)

18. Can partners act as designated partners?

    (Ref. Para-26.8)

19. Who can be a designated partner?

    (Ref. Para-26.8)

20. How can a designated partner be nominated?

    (Ref. Para-26.8)

21. Is there any difference between managing partner and designated partner?

    (Ref. Para-26.8)

22. What are the major duties of a designated partner?

    (Ref. Para-26.9)

23. What is the manner of service of documents on the partner?

    (Ref. Para-26.10)

24. Is it possible to change the registered office of an LLP from one state to another? What is the procedure in this regard?

    (Ref. Para-26.10)

25. An LLP wants to give an other address apart from its registered office for the purpose of receiving communication. What would be your advice?

    (Ref. Para-26.10)

26. What are the broad provisions of the Act in respect of names of LLPs?

    (Ref. Para-26.11)

27. Explain the name guideline prescribed by the government for selection of name of an LLP

    (Ref. Para-26.12)

28. Which names are not allowed to be registered for LLP?

    (Ref. Para-26.12)

29. Does any change in the partners of an LLP affect its existence, rights or liabilities?

    (Ref. Para-26.13)

30. Who can act as partners of an LLP?

    (Ref. Para-26.13)

31. When shall a person cease to be partner of an LLP?

    (Ref. Para-26.13)

32. What results in cessation of partnership interest?

    (Ref. Para-26.13)

33. On cessation of a partner from an LLP, does he get discharged of obligations to the LLP or to the other partners or to any other person?

    (Ref. Para-26.13)

34. Is the partner, on cessation of the partnership, entitled to receive anything from the LLP?

    (Ref. Para-26.13)

35. Write short note on whistle blowing.

    (Ref. Para-26.14)

36. What are the different forms of contribution?

    (Ref. Para-26.15)

37. Can there be an increase in the contribution of an LLP?

    (Ref. Para-26.15)

38. What are the steps for increase in contribution by way of introduction of new partner(s)?

    (Ref. Para-26.15)

39. What are the provisions in the LLP Act regarding voting right of partners? How shall voting rights of partners be determined, if the LLP Agreement is silent on this matter?

    (Ref. Para-26.16)

40. Is every LLP required to maintain and file accounts?

    (Ref. Para-26.17)

41. State whether audit of all LLPs is mandatory.

    (Ref. Para-26.17)

42. Are there any criteria based on which an LLP can claim exemption audit? If so, what are the obligations prescribed on LLPs which avail the audit exemption?

    (Ref. Para-26.17)

43. Can a chartered accountant who is related to the partners of an LLP, be appointed as an auditor of the LLP?

    (Ref. Para-26.17)

44. Who can appoint the first auditors of an LLP?

    (Ref. Para-26.17)

45. What is the time limit for appointment of first auditors of an LLP?

    (Ref. Para-26.17)

46. In case of failure of designated partners to appoint the first auditors within the prescribed period, who can appoint the first auditors?

    (Ref. Para-26.17)

47. What is the time limit for appointment of subsequent auditors of an LLP?

    (Ref. Para-26.17)

48. What will be the position of auditors if he is not re-appointed within 30 days prior to the end of the financial year?

    (Ref. Para-26.17)

49. What is the procedure for removal of auditors?

    (Ref. Para-26.17)

50. Is the partner’s interest in the LLP transferable?

    (Ref. Para-26.18)

51. Does the transfer of any right by the partner result in disassociation of the partner or a dissolution and winding up of the LLP?

    (Ref. Para-26.18)

52. Do the partners of an LLP have a right to make an application to the tribunal for carrying out an investigation of the LLP?

    (Ref. Para-26.19)

53. Can the inspector investigating the affairs of related entities, etc. investigate the affairs of present or former partners?

    (Ref. Para-26.19)

54. Which documents will be available for public inspection in the office of the registrar?

    (Ref. Para-26.19)

55. Can foreigners incorporate LLP?

    (Ref. Para-26.18,26.20)

56. How is the profit of a limited liability partnership treated for the purpose of Tax Acts?

    (Ref. Para-26.21)

57. What is the tax treatment being provided for LLPs?

    (Ref. Para-26.21)

58. Who shall be the partners in case of conversion of a private company into LLP or unlisted public company into LLP?

    (Ref. Para-26.22)

59. What are the steps to be taken for conversion of a partnership into LLP?

    (Ref. Para-26.23

60. List the documents that are to be prepared and filled for incorporation of an LLP.

    (Ref. Para-26.24)

61. Can a compromise or arrangement be entered into between the partners and the LLP? If so, what is procedure to be followed in this regard?

    (Ref. Para-26.25)

62. When is the compromise or arrangement binding on all the partners?

    (Ref. Para-26.25)

63. Can an LLP be wound up? How?

    (Ref. Para-26.26)

64. What are the reasons for which an LLP can be wound up?

    (Ref. Para-26.26)

65. Explain any five advantages of LLP.

    (Ref. Para-26.27)

66. What are the advantages and disadvantages of LLP?

    (Ref. Para-26.27,26.28)

MULTIPLE-CHOICE QUESTIONS

1. LLP Act of India is broadly based on _____.
   1. UK LLP Act, 2000
   2. Singapore LLP Act, 2005
   3. Both of the above.
   4. None of the above.
2. LLP Act is applicable to _____.
   1. a few states of India
   2. the whole of India
   3. the whole of India except Jammu and Kashmir
   4. the whole of India and any branches located outside India
3. LLP combines the advantages of _____.
   1. Partnership and HUF
   2. HUF and Company
   3. Partnership and Company
   4. Partnership and association
4. Which of the following is/are feature(s) of an LLP?
   1. It is a separate legal entity.
   2. It is separate from its partners.
   3. It can own assets in its name, sue and be sued.
   4. All of the above.
5. Who manages the business of an LLP?
   1. Shareholders
   2. Partners
   3. Partners and registrar
   4. Both (a) and (b)
6. LLP Act requires a minimum of _____ partners.
   1. 2
   2. 3
   3. 5
   4. 7
7. LLP Act requires a maximum of _____ partners.
   1. 5
   2. 10
   3. 12
   4. No limit
8. Which of the following statement(s) is/are not correct?
   1. LLP should be for profit or charitable business.
   2. LLP has perpetual succession.
   3. Both of the above
   4. None of the above
9. Which of the following statement(s) is/are not incorrect?
   1. LLP shall maintain annual accounts.
   2. Partnership Act is not applicable to LLP.
   3. Both of the above
   4. None of the above
10. Which of the following statement(s) is/are not correct?
    1. The rights and duties of partners in LLP will be governed by the agreement between partners.
    2. The duties and obligations of designated partners shall be as provided in LLP Agreement.
    3. Both of the above
    4. None of the above
11. Liability of the partner is limited to the extent of his _____ in the LLP.
    1. contribution
    2. profit sharing ratio
    3. as per LLP Act
    4. as per Government norms
12. Audit of the accounts of LLP is required only if the contribution exceeds Rs. _____ lakhs or annual turnover exceeds Rs. _____ lakhs.
    1. 25; 40
    2. 40; 25
    3. Any amount; any amount
    4. 50; 100
13. Partnership Act is _____ to LLP
    1. applicable
    2. not applicable
    3. applicable to certain extent
    4. not applicable to certain extent
14. Which of the following statement(s) is/are correct?
    1. In the case of LLP, registration is optional.
    2. LLP is required to be registered with Registrar of firm.
    3. LLP is required to be registered with Registrar of companies.
    4. None of the above.
15. Which of the following statement(s) is/are incorrect?
    1. Partnership firm can be converted into LLP
    2. LLP can be converted into partnership
    3. Company cannot be converted into LLP
    4. None of the above.
16. Which of the following statement(s) is/are incorrect?
    1. LLP can be converted into company
    2. Only a private company can be converted into LLP
    3. Only unlisted public company can be converted into LLP
    4. All of the above.
17. Which one of the following is most correct?
    1. LLP is not body corporate
    2. LLP is an entity
    3. LLP is a legal entity
    4. LLP is a separate legal entity.
18. LLP is created by _____.
    1. Agreement
    2. Law
    3. Parties
    4. Registrar
19. LLP can be wound up _____.
    1. voluntarily
    2. Either (a) or (b)
    3. by order of National Company Law Tribunal.
    4. Neither (a) nor (b)
20. Who can be partner of LLP?
    1. Any individual
    2. Body corporate
    3. Both of the above.
    4. None of the above.
21. Who cannot be partner in LLP?
    1. Person found to be of unsound mind.
    2. Person who is an undercharged insolvent
    3. Person who has applied for declaring as insolvent and his application is pending.
    4. Any of the above
22. LLP shall have at least two designated partners who should be _____.
    1. individuals
    2. a resident in India
    3. Both of the above.
    4. None of the above.
23. An individual can become a designated partner in any LLP if
    1. he has given his prior consent
    2. he has obtained a Director Identification Number.
    3. Either (a) or (b).
    4. Both (a) and (b).
24. Who is required to file with the registrar, particulars of every individual who has given his consent to act as designated partner in prescribed form?
    1. Partner
    2. Designated partner
    3. LLP
    4. Managing partner.
25. Any vacancy arising in the office of designated PArtner shall be filled within _____ and the change shall be intimated to the registrar of companies.
    1. One month
    2. 30 days
    3. 60 days
    4. 14 days
26. A contribution of a partner to the capital of LLP may be
    1. tangible or intangible
    2. movable or immovable property
    3. Both of the above.
    4. None of the above.

ANSWER KEYS

1. iii
2. ii
3. iii
4. iv
5. ii
6. i
7. iv
8. i
9. iii
10. ii
11. i
12. i
13. ii
14. iii
15. ii
16. iv
17. iv
18. ii
19. iii
20. iii
21. iv
22. i
23. iv
24. iii
25. ii
26. iii