LLP ACT,2008
Previous year questions & answers
“LLP is an alternative corporate business form that gives the benefits of limited
liability of a company and the flexibility of a partnership”. Explain. (6 Marks)
LLP is an alternative corporate business form that gives the benefits of limited liability of a
company and the flexibility of a partnership
• Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent
of the LLP, but not of other partners. The liability of the partners will be limited to their
agreed contribution in the LLP, while the LLP itself will be liable for the full extent of its
assets.
• Flexibility of a partnership: The LLP allows its members the flexibility of organizing their
internal structure as a partnership based on a mutually arrived agreement. The LLP form
enables entrepreneurs, professionals and enterprises providing services of any kind or
engaged in scientific and technical disciplines, to form commercially efficient vehicles suited
to their requirements. Owing to flexibility in its structure and operation, the LLP is a suitable
vehicle for small enterprises and for investment by venture capital.
“A LLP (Limited Liability Partnership) is a type of partnership which provides the
benefits of limited liability but allows its members the flexibility of organizing their
internal structure as a partnership based on a mutually arrived agreement.”In line
with the above statement clearly elaborate the difference between LLP and Limited
Liability Company (LLC). (6 Marks)
Distinction between Limited Liability Partnership (LLP) and Limited Liability Company (LLC)
S. Basis Limited Liability Partnership Limited Liability Company
No. (LLP) (LLC)
1. Regulating Act The LLP Act, 2008. The Companies Act, 2013.
2. Members/Par The persons who contribute The persons who invest the
tners to LLP are known as partners money in the shares are
of the LLP. known as members of the
company.
3. Internal The internal governance The internal governance
governance structure of a LLP is structure of a company is
structure governed by agreement regulated by statute (i.e.,
between the partners. Companies Act, 2013) read
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with its Memorandum of
Association and Articles of
Association.
4. Name Name of the LLP to contain Name of the public
the word “Limited Liability company to contain the
partnership” or “LLP” as word “limited” and Pvt. Co.
suffix. to contain the word
“Private limited” as suffix
5. No. of members/ Minimum – 2 partners Private company: Minimum
partners Maximum – No such limit on – 2 members Maximum 200
the partners in the Act. The members Public company:
partners of the LLP can be Minimum – 7 members
individuals/or body Maximum – No such limit
corporate through the on the members. Members
nominees. can be organizations, trusts,
another business form or
individuals
6. Liability of Liability of a partners is Liability of a member is
members/ limited to the extent of limited to the amount
partners agreed contribution. unpaid on the shares held
by them.
7. Management The business of the LLP The affairs of the company
managed by the partners are managed by board of
including the designated directors elected by the
partners authorized in the shareholders.
agreement.
8. Minimum number 2 designated partners. Pvt. Co. – 2 directors
of directors/des Public Co. – 3 directors
ignated partners
Who are the individuals which shall not be capable of becoming a partner of a
Limited Liability Partnership? (3 Marks)
Partners (Section 5 of Limited Liability Partnership Act, 2008): Any individual or body
corporate may be a partner in a LLP.
However, an individual shall not be capable of becoming a partner of a LLP, if—
a. he has been found to be of unsound mind by a Court of competent jurisdiction
and the finding is in force;
b. he is an undischarged insolvent; or
c. he has applied to be adjudicated as an insolvent and his application is pending.
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What are the effects of registration of Limited Liability Partnership? (3 Marks)
Effect of registration (Section 14 of Limited Liability Partnership Act, 2008):
On registration, a LLP shall, by its name, be capable of—
a. suing and being sued;
b. acquiring, owning, holding and developing or disposing of property, whether
movable or immovable, tangible or intangible;
c. having a common seal, if it decides to have one; and
d. doing and suffering such other acts and things as bodies corporate may lawfully
do and suffer.
Referring to the provisions of the Limited Liability Partnership Act, 2008, answer
the following:
i. Under what circumstances a Limited Liability Partnership is compulsorily
required to change its name? Also, explain the compliance requirement
following the change of name and the consequences, if any, in case of
default therein. (4 Marks)
ii. What do you mean by a Small Limited Liability Partnership? (2 Marks)
Change of name of LLP (Section 17 of Limited Liability Partnership Act,
2008):Notwithstanding anything contained in sections 15 and 16, if through inadvertence or
otherwise, a LLP, on its first registration or on its registration by a new body corporate, its
registered name, is registered by a name which is identical with or too nearly resembles to
—
(a) that of any other LLP or a company; or
(b) a registered trade mark of a proprietor under the Trade Marks Act, 1999, as is
likely to be mistaken for it, then on an application of such LLP or proprietor
referred to in clauses (a) and (b) respectively or a company, the Central
Government may direct that such LLP to change its name or new name within a
period of 3 months from the date of issue of such direction.
1. Where a LLP changes its name or obtains a new name under sub-section (1), it shall
within a period of 15 days from the date of such change, give notice of the change to
Registrar along with the order of the Central Government, who shall carry out
necessary changes in the certificate of incorporation and within 30 days of such change
in the certificate of incorporation, such LLP shall change its name in the LLP agreement.
2. If the LLP is in default in complying with any direction given under sub-section (1), the
Central Government shall allot a new name to the LLP in such manner as may be
prescribed and the Registrar shall enter the new name in the register of LLP in place of
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the old name and issue a fresh certificate of incorporation with new name, which the
LLP shall use thereafter. Nothing contained in this sub-section shall prevent a LLP from
subsequently changing its name in accordance with the provisions of section 16.
Small Limited Liability Partnership [Section 2(1)(ta) of the Limited Liability Partnership Act,
2008]: It means a limited liability partnership—
(i) the contribution of which, does not exceed twenty-five lakh rupees
or such higher amount, not exceeding five crore rupees, as may be
prescribed; and
(ii) the turnover of which, as per the Statement of Accounts and
Solvency for the immediately preceding financial year, does not
exceed forty lakh rupees or such higher amount, not exceeding fifty
crore rupees, as may be prescribed; or
(iii) which meets such other requirements as may be prescribed, and
fulfils such terms and conditions as may be prescribed.
A LLP is a new form of legal business entity with limited liability. It's an alternative
corporate business vehicle that only gives the benefits of limited liability at low
compliance cost but allows its partners the flexibility of organizing their internal
structure as a traditional partnership. Keeping in view of above, define the
following characteristics of LLP.
(i) Body Corporate
(ii) Mutual Agency
(iii) Foreign LLPs
(iv) Artificial legal person
Body corporate: Section 2(1)(d) of the LLP Act, 2008 provides that a LLP is a body corporate
formed and incorporated under this Act and is a legal entity separate from that of its
partners and shall have perpetual succession. Therefore, any change in the partners of a LLP
shall not affect the existence, rights or liabilities of the LLP. Section 3 of LLP Act, 2008,
provides that a LLP is a body corporate formed and incorporated under this Act and is a legal
entity separate from that of its partners.
Mutual Agency: No partner is liable on account of the independent or un-authorized actions
of other partners, thus individual partners are shielded from joint liability created by
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another partner’s wrongful business decisions or misconduct. In other words, all partners
will be the agents of the LLP alone. No one partner can bind the other partner by his acts.
Foreign LLPs: Section 2(1)(m) defines foreign limited liability partnership “as a limited
liability partnership formed, incorporated, or registered outside India which established as
place of business within India”. Foreign LLP can become a partner in an Indian LLP.
Artificial Legal Person: A LLP is an artificial legal person because it is created by a legal
process and is clothed with all rights of an individual. It can do everything which any natural
person can do, except of course that, it cannot be sent to jail, cannot take an oath, cannot
marry or get divorce nor can it practice a learned profession like CA or Medicine. A LLP is
invisible, intangible, immortal (it can be dissolved by law alone) but not fictitious because it
really exists.
What do you mean by Limited Liability Partnership (LLP)? What are the
advantages for forming a LLP for doing business?
Answer :
• LLP is a new form of legal business entity with limited liability. It is an alternative
corporate business vehicle that not only gives the benefits of limited liability at low
compliance cost but allows its partners the flexibility of organising their internal
structure as a traditional partnership.
• The LLP is a separate legal entity and, while the LLP itself will be liable for the full
extent of its assets, the liability of the partners will be limited. LLP is an alternative
corporate business form that gives the benefits of limited liability of a company and
the flexibility of a partnership. Since LLP contains elements of both ‘ a corporate
structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a
company and a partnership.
Advantages of LLP form:
1. LLP is organized and operates on the basis of an agreement.
2. It provides flexibility without imposing detailed legal and procedural requirements
3. It enables professional/technical expertise and initiative to combine with financial
risk taking capacity in an innovative and efficient manner.
4. It is easy to form
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5. In LLP form, all partners enjoy limited liability
6. Flexible capital structure is there in this form
7. It is easy to dissolve
What do you mean by Designated Partner? Whether it is mandatory to
appoint Designated partner in an LLP?
There is an LLP by the name Indian Helicopters LLP having 5 partners
namely Mr. A (Non resident), Mr. B (Non Resident) Ms. C (resident), Ms. D
(resident)and Ms. E (resident).who can be Designated Partners
Answers:
According to section 7:
i. Every LLP shall have at least two designated partners who are individuals and at
least one of them shall be a resident in India.
ii. If in LLP, all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such
LLP or nominees of such bodies corporate shall act as designated partners.
iii. Resident in India: For the purposes of this section, the term "resident in India"
means a person who has stayed in India for a period of not less than 120 days during
the financial year.
Explain characteristics of an LLP
Characteristic/Salient Features of LLP (study any 5 properly)
1. LLP is a body corporate: Section 2(1)(d) of the LLP Act, 2008 provides that a LLP is a
body corporate formed and incorporated under this Act and is a legal entity separate
from that of its partners and shall have perpetual succession. Therefore, any change
in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP.
Section 3 of LLP Act provides that a LLP is a body corporate formed and incorporated
under this Act and is a legal entity separate from that of its partners.
2. Perpetual Succession: The LLP can continue its existence irrespective of changes in
partners. Death, insanity, retirement or insolvency of partners has no impact on the
existence of LLP. It is capable of entering into contracts and holding property in its
own name.
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3. Separate Legal Entity: The LLP is a separate legal entity is liable to the full extent of
its assets but liability of the partners is limited to their agreed contribution in the
LLP.In other words, creditors of LLP shall be the creditors of LLP alone.
4. Mutual Agency: Further, no partner is liable on account of the independent or un-
authorized actions of other partners, thus individual partners are shielded from joint
liability created by another partner’s wrongful business decisions or misconduct.
Inother words, all partners will be the agents of the LLP alone. No one partner can
bindthe other partner by his acts.
5. LLP Agreement: Mutual rights and duties of the partners within a LLP are governed
by an agreement between the partners. The LLP Act, 2008 provides flexibility to
partner to devise the agreement as per their choice. In the absence of any such
agreement, the mutual rights and duties shall be governed by the provisions of the
LLP Act, 2008.
6. Artificial Legal Person: An LLP is an artificial legal person because it is created by a
legal process and is clothed with all rights of an individual. It can do everything which
any natural person can do, except of course that, it cannot be sent to jail, cannot take
an oath, cannot marry or get divorce nor can it practice a learned profession like CA
or Medicine. A LLP is invisible,intangible, immortal (it can be dissolved by law alone)
but not fictitious because it really exists.
7. Common Seal: An LLP being an artificial person can act through its partners and
designated partners. LLP may have a common seal, if it decides to have one [Section
14(c)]. Thus, it is not mandatory for an LLP to have a common seal. It shall remain
under the custody of some responsible official and it shall be affixed in the presence
of at least 2 designated partners of the LLP.
8. Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP,
the agent of the LLP, but not of other partners (Section 26). The liability of the
partners will be limited to their agreed contribution in the LLP. Such contribution
may be of tangible or intangible nature or both.
9. Management of Business: The partners in the LLP are entitled to manage the
business of LLP. But only the designated partners are responsible for legal
compliances.
10.Minimum and Maximum number of Partners: Every LLP shall have least two
partners and shall also have at least 2 individuals as designated partners, of whom at
least one shall be resident in India. There is no maximum limit on the partners in LLP.
11.Business for Profit Only: The essential requirement for forming LLP is carrying on a
lawful business with a view to earn profit. Thus, LLP cannot be formed for charitable
or non-economic purpose.
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12.Investigation: The Central Government shall have powers to investigate the affairs
of an LLP by appointment of competence authority for the purpose.
A LLP has three partners, one individual i.e. Mr. X and two bodies
corporates viz. M/s XYZ Ltd and M/s ABC Ltd, advice how DP should be
made
If in LLP, all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such LLP
or nominees of such bodies corporate shall act as designated partners.
Mr X and a nominee of either of company can act as a DP
Explain the essential elements to incorporate a Limited Liability
Partnership and the steps involved therein under the LLP Act, 2008.
Answer:
Under the LLP Act, 2008, the following elements are very essential to form a LLP in
India:
i. To complete and submit incorporation document in the form prescribed with the
Registrar electronically.
ii. To have at least two partners for incorporation of LLP [Individual or body corporate]
iii. To have registered office in India to which all communications will be made and
received
iv. To appoint minimum two individuals as designated partners who will be responsible
for number of duties including doing of all acts, matters and things as are required to
be done by the LLP. At least one of them should be resident in India.
v. A person or nominee of body corporate intending to be appointed as designated
partner of LLP should hold a Designated Partner Identification Number (DPIN)
allotted by MCA.
vi. To execute a partnership agreement between the partners inter se or between the
LLP and its partners. In the absence of any agreement the provisions as set out in
First Schedule of LLP Act, 2008 will be applied.
vii. LLP Name.
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Steps to incorporate LLP:
1. Name reservation:
➢ The first step to incorporate Limited Liability Partnership (LLP) is reservation of
name of LLP.
➢ Applicant has to file e-Form 1, for ascertaining availability and reservation of the
name of a LLP business.
2. Incorporate LLP:
➢ After reserving a name, user has to file e- Form 2 for incorporating a new Limited
Liability Partnership (LLP).
➢ e-Form 2 contains the details of LLP proposed to be incorporated, partners’
/designated partners’ details and consent of the partners/designated partners to
act as partners/ designated partners
3. LLP Agreement
➢ Execution of LLP Agreement is mandatory as per Section 23 of the Act.
➢ LLP Agreement is required to be filed with the registrar in e-Form 3 within 30 days
of incorporation of LLP.
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