LIMITED LIABILITY PARTNERSHIP:

- Mitali Aryan

In the present era, the notion of a limited liability partnership is among the most well-known
methods of doing business. India is among the countries that conduct business through
limited liability partnerships. In 2008, India enacted the Limited Liability Partnership Act. A
Limited Liability Partnership, or LLP, is formed when the Partnership and the Company
merge into a single entity. In other words, an LLP, like a partnership corporation, is a
corporate structure that allows members to take on limited responsibilities while maintaining
flexibility.

A Limited Liability Partnership (LLP), in contrast to a partnership administered under the

Indian Partnership Act, 1932, is a type of partnership in which the partners' liability is
limited. In an LLP, a partner cannot be held liable for the wrongdoings or carelessness of his
or her co-partners. This is a significant distinction from a partnership with no restrictions. As
a corollary, partners in an LLP have limited liability, similar to shareholders in a corporation.
As a consequence, an LLP is a blend of both a partnership and a corporate, making it perfect
for small and medium-sized companies.

ORIGIN OF LIMITED LIABILITY PARTNERSHIP:

As a result of the dramatic collapse in real estate and early pricing in Texas in the 1980s, as
well as the impact it had on financial firms, the notion of a Limited Liability Partnership
(LLP) evolved in the United States in the early 1990s. This slump resulted in a significant
increase in bank and savings account failures, as well as bad debt 1. Due to the small sum that
could be recovered from the banks, attempts were undertaken to collect goods from the
accountants and lawyers who had counseled the banks in the early 1980s. The rationale for
this was that partners in legal or accounting companies were vulnerable to large claims that
may impoverish them individually, hence the first LLP regulations were enacted to protect
innocuous members of these partnerships. Therefore, on August 26, 1991, Texas passed the
first LLP statute, which was quickly followed by other countries throughout the world.


Student of B.A. LL.B (Hons), 3rd Semester, Enrollment No. CUSB2013125070, School Of Law and Governance,
Central University of South Bihar
1
Overview Of Limited Liability Partnership In India, Available at: https://blog.ipleaders.in/overview-limited-
liability-partnership-india/; (Visited on October 16th,2021)
Canada, Germany, Japan, China, Greece, Singapore, and other nations have acknowledged
the concept of LLPs, with India being one of them.

HISTORICAL BACKGROUND OF LIMITED LIABILITY

PARTNERSHIP IN INDIA:

The J.J. Irani Committee, the Bhatt Committee in 1972, the Naik Committee in 1992, the
Expert Committee on Small Sector Enterprises led by Sh. Abid Hussain in 1997, the Study
Group on Small Sector Enterprises (SSEs) led by Dr. S.P. Gupta in 2001, and the Naresh
Chandra Committee-II all made recommendations and suggestions for the adoption of
Limited Liability Partnerships in India.

The Cabinet passed legislation on December 7, 2006, which was then proposed in the Rajya
Sabha on December 15, 2006. The Limited Liability Partnership (LLP) Bill was passed by
the Cabinet on May 1, 2008. The bill was passed without amendments in the House of
Commons.

The measure received the President's approval on January 7, 2009. On January 9, 2009, the
Limited Liability Partnership Act of 2008 was promulgated in India's official gazette, and it
went into effect on March 31, 2009. The Limited Liability Partnership Act of 2008, as
modified, oversees the formation and regulation of limited liability partnerships, as well as
associated topics.

The Limited Liability Partnership Act, 2008, was published in India's official gazette on
January 9, 2009, and it went into effect on March 31, 2009. The LLP Act of 2008, as
amended, governs the establishment and regulation of limited liability partnerships, as well as
matters related to them.

MEANING OF LIMITED LIABILITY PARTNERSHIP:

Limited Liability Partnership (LLP) is an acronym for Limited Liability Partnership. A

partnership, like a limited partnership, is a corporate business entity that allows its members
to enjoy the benefits of limited liability while still having control over its internal
administration on mutually agreed-upon conditions. Partners are significantly less
accountable for any future debt incurred while running the business. Because it contains
features of both a corporate and a partnership business form, it is referred to as a hybrid
between a company and a partnership. The LLP Agreement requires the Partners to join the
LLP. Their stake could be in any form of property, whether tangible or intangible, mobile or
immovable, or a combination of all three.

In a Limited Liability Partnership, the firm is responsible for any losses or debts incurred in
the course of business, but the current members of the LLP are not.

SALIENT FEATURES OF LIMITED LIABILITY PARTNERSHIP:

1) Раrtners' Resроnsibility: Раrtners' liаbility is limited tо the аmоunt оf mоney they

рut intо the business. А раrtner is resроnsible fоr his оwn wrоngdоings. Due tо
negligenсe оr wrоngdоing, оne Раrtner is nоt liаble fоr the асtiоns оf the оther.
2) Legal Entity: Ассоrding tо Seсtiоn 3 оf the Limited Liаbility Раrtnershiр Асt,
2008, аn LLР is а bоdy inсоrроrаted аnd а legаl entity indeрendent frоm its
раrtners with рerрetuаl suссessiоn.
3) Limit оf Раrtners: Ассоrding tо Seсtiоn 6(1) оf the Limited Liаbility
Раrtnershiр Асt, 2008, аn LLР must hаve аt leаst twо раrtners. There is nо limit tо
hоw mаny раrtners yоu саn hаve.
4) Аudit оf Ассоunts: LLР shаll mаintаin аnnuаl ассоunts where аudit оf the ассоunts
is required оnly if the соntributiоn exсeeds Rs. 25 lаkh оr аnnuаl turnоver exсeeds
Rs. 40 lаkh. А stаtement оf ассоunts аnd sоlvenсy shаll be filed by every LLР
with the Registrаr оf Соmраnies (RОС) every yeаr.
5) Аdmissiоn оr Retirement оf Раrtner: LLР саn соntinue its existenсe irresрeсtive
оf сhаnges in раrtners.
6) Designаted Раrtners: LLР shаll hаve twо individuаls аs designаted раrtners аnd
оne оf them shаll be resident оf Indiа.
THE INFLUENTIAL LAW AND KEY CLAUSES OF LIMITED
LIABILITY PARTNERSHIP:

The Limited Liability Partnership Act of 2008, which took effect on April 1, 2008, governs
limited liability partnerships. There are a total of 81 sections and four schedules that say that
the majority of the forms must be completed with MCA for a limited liability partnership
agreement to be successful. A limited liability partnership agreement is a written contract
between authorized partners and the LLP or between the LLP's partners. It outlines the
chosen partners' rights and obligations to one another as well as to the LLP2.

It is required that the LLP agreement be signed and filed with the MCA within 30 days of the
limited liability partnership agreement's incorporation. Apart from boilerplate clauses, the
LLP agreement has certain significant clauses, which are listed below.

 Clause of capital contribution: It can be defined as the entire amount of money

contributed to the LLP by each partner at the time of its formation. According to the
LLP agreement, the partners who have contributed money will not receive any
interest.

 The ratio of profit/loss sharing clause: This is described as whatever the profit/loss
ratio is, it will be divided among the LLP agreement participants.

 Clause of drawing: It specifies that each member shall be permitted and has the right
to borrow a set amount of money from the LLP's pool each month. This is a payment
made on behalf of each member's yearly profit share, and it recognizes that members
will have personal needs that they may not be able to meet if they wait until each
member's profit share is calculated at the end of the year. Drawings are a type of
claim that must be included in the agreement clause.

2
The Limited Liability Partnership Bill, 2008; Available at:
https://www.mca.gov.in/Ministry/actsbills/pdf/LLP_27oct2008.pdf; (Visited on October 16th, 2021)
 Clause of indemnity: LLP Members of a limited liability partnership agreement are
designed to maintain certain commitments to the partnership agreement. This
provision incorporates the duties owed by the partners to the limited partnership
agreement. Despite each member executing on their duties and obligations in
conformity with the LLP's norms, each member has the right to be indemnified
against any losses incurred.

 Non-competition agreement:
If any of the company's members retire or are terminated, they are prohibited from
conducting any business within a specific geographical location that appears to
compete with the firm's activity.

 Finance:
This clause restricts the use of corporate resources for personal gain by members of
the firm without the consent of the other members. It can also limit judgments made
based on personal ties or for the benefit of family members.

 Accounts:
All accounts and books of accounts are kept in detail under this provision, and they
must be maintained by the Limited Liability Partnership Agreement on a timely basis
and following the established accounting standards.

 LLP banks are limited-liability partnerships:

This clause comprises information on the bank and its address, as well as the LLP and
its transactions.
 Liabilities and rights:
This provision is included to ensure that the partners have a clear awareness of their
rights and potential responsibilities. The right to receive a salary from the company is
an example of such a right.

What is the procedure for registering a limited liability partnership (LLP)?

Step 1: Obtain a certificate for digital signatures:
Before the registration process can begin, the selected partners of the new LLP must
sign a digital signature. All registration documents can be submitted online and must
be digitally signed. As a result, the selected partner's digital signature certifications
must be issued by recognized authorities that are authorized to certify such
certificates.
Step 2: Apply a Director Identification Number (DIN) (DIN)
The application for the DIN of all designated partners or those wishing to be
designated partners of the proposed LLP must be filed in Form DIR-3.

A scanned copy of relevant papers (usually Aadhaar and PAN) is included in the form
for this reason. The paperwork must be attested by either a full-time Firm Secretary or
the Managing Director/Director/CEO/CFO of the existing company where the
candidate will be appointed as a director.

Step 3: Reservation of the proposed LLP's name Limited liability partnership-

Reserve Unique Name:
a.k.a. LLP-RUN must be filed with the Central Registration Centre under Non-STP
for the reservation of the proposed LLP's name. It is strongly advised that corporate
officials undertake a free name check on the MCA portal before quoting the name.
In doing so, one will be able to see whether any other companies have names that are
similar to this one, and one will be able to pick ones that aren't already taken. The
name is normally approved only if it is beneficial in the eyes of the Central
Government and does not sound like any other partnership firm, LLP, corporation, or
trademark.
The form RUN-LLP must be accompanied by fees listed in Annexure 'A,' which the
registrar may approve or refuse. Within 15 days of receiving the form, you may
submit it again to correct any errors. There is a provision for the LLP to have two
suggested names.

Step 4: LLP Incorporation:

For incorporation, the FiLLiP (Form for Incorporation of Limited Liability
Partnership) is utilized. It must be submitted with the Registrar who has jurisdiction
over the state where the LLP's registered office is located.
 If a designated partner does not have a DPIN or DIN, he or she can use this form to
apply for one, as it also allows for DPIN allotment. When just two people apply for an
allotment, the application will be accepted. If the application for a name is approved,
the approved and reserved name will be used as the LLP's proposed name.

Steр 5: Filing the limited liаbility раrtnershiр (LLР) аgreement:

The LLP agreement covers not only the rights and responsibilities of the partners but also
those of the LLP and its partners. The LLP agreement can be filed electronically in Form 3 on
the MCA Portal, and it must be filed within 30 days of the date of formation. Stamp Paper is
required for printing.

DISSOLUTION OR WINDING UP OF LIMITED LIABILITY

PARTNERSHIP:
А. Vоluntаry winding uр:
Under this, the раrtners mаy deсide аmоng themselves tо terminаte аnd stор the
орerаtiоns оf the LLР аnd wind uр the firm аnd рut аn end tо the limited liаbility
раrtnershiр. Fоr the sаid рurроse, а resоlutiоn аррrоved by 3/4th оf the tоtаl
number оf раrtners hаs tо be раssed. Further, а сорy оf the resоlutiоn is mаndаtоry
tо be filed with the Registrаr within 30 dаys оf раssing suсh resоlutiоn аnd а сорy
оf the sаme hаs tо be given tо the рersоn арроinted fоr hаndling the wind-uр.

B. Compulsory decommissioning:
Compulsory winding up is a procedure in which a tribunal orders the dissolution and
wound up of an LLP. The same could be requested for a variety of reasons, such as:
If the LLP's number of partners has been decreased to less than two for more than six
months, or if the LLP is unable to pay its debts;
If the LLP has acted in a way that jeopardizes India's sovereign integrity, state
security, or public order; if the LLP has failed to file the Account Statement and
Solvency or annual return with the Registrar for five consecutive financial years;
If a Tribunal determines that winding up the LLP is in the best interests of justice and
equity.

C. LLP liquidation with creditors:

For this purpose, the majority of the partners must make an announcement in Form-2
stating that they have no unpaid debts or that they will pay their debts within a
specified period set by the partners, but not more than a year from the date of passing
the resolution to wind up.
Publication of Resolution: Within 14 days of passing the winding-up Resolution and
gaining the creditors' consent, the LLP must have an advertisement announcing the
resolution of winding up published in a widely circulated newspaper in the territory
where the LLP's registered office is located.