LIMITED LIABILITY PARTNERSHIP ACT, 2008 (LLP ACT)

INTRODUCTION

A Limited Liability Partnership, popularly known as LLP, combines the advantages

of both the ‘Company’ and ‘Partnership’ into a single form of organisation. The Limited
Liability Partnership Act, 2008 was enacted by the Parliament of India to introduce and
legally introduce the invisible concept of LLP in India. The LLP Bill, 2008 received the
assent of the President on 7 th January, 2009. The Limited Liability Partnership Act, 2008
became operational with effect from 31 March, 2009. Main drawback of company form of
organisation is excessive legal compliance that too has been reduced by LLP form of
organisation. LLP combines the advantages of flexibility of organising management on the
basis of an agreement like traditional partnership firm and limited liability like a company. It
is a hybrid between a company and traditional partnership, much closer to private company
form.

The Limited Liability Partnership Act (LLP Act) came into existence for the
formation of the professional enterprises such as consultancy firms of CA, CS, Advocates
etc.; SMEs and Micro enterprises. The firms registered under LLP Act gets the advantages of
both the forms of organizations ie., Companies as well as the Partnership form of
organization. A partnership firm with Limited Liability registered under this act is a body
corporate having perpetual succession but confines the extent of partner's liability to the
quantum of their contributions towards LLP. It is a renowned and accepted business form
worldwide.

The incorporation of limited liability partnership is covered under Sec 11 of the LLP
Act, 2009. The partnership can be registered as a firm by filing with the Registrar the
necessary documents or it can also be registered online. According to the requirements of
LLP Act 2009, every LLP shall have a registered office and shall be registered with a name
that ends with “limited liability partnership” or ‘LLP’. Anybody whether an individual or a
body corporate can form LLP or become a partner in LLP. However, the minimum number of
partners to start LLP is two along with two designated partners. LLPs allow for a partnership
structure where each partner's liabilities are limited to the amount they put into the business.

The act is divided into XIV chapters containing 81 Sections and 4 schedules. The LLP
rules 2009 were notified in the official gazette on 1st April 2009. The first LLP was in India
established on 2nd April 2009. At present more than 10000 LLPs are registered all over
India. Limited liability partnership act 2008 applies to whole of India.

Salient Features of The LLP Act, 2008

Proper definition of concept of limited liability partnership does not find any place in
the LLP Act 2008 Section 2(1)(n) of LLP Act 2008 defines LLP as “an incorporated
partnership formed and registered under the act”. The salient features of the LLP Act, 2008,
are as follows:

(i) The LLP is a body corporate and a legal entity separate from its partners.
(ii) Any two or more persons, associated for carrying on a lawful business with a view to
profit, may by subscribing their names to an incorporation document and filing the same with
the Registrar, form a Limited Liability Partnership.
(iii) The LLP will have perpetual succession. (It implies that the organisation will continue
to exist until and unless it is forced by the law to wind up. It will not cease to exist even in
situations such as death, retirement, or insolvency of any of its members)
(iv) The mutual rights and duties of partners of an LLP shall be governed by an agreement
between partners or between the LLP and the partners subject to the provisions of the LLP
Act, 2008. It provides flexibility to devise the agreement as per their choice. In the absence of
any such agreement, the mutual rights and duties governed by the provisions of LLP Act,
2008.
(v) The LLP is a separate legal entity, liable to the full extent of its assets, with the
liability of the partners being limited to their agreed contribution in the LLP which may be of
tangible or intangible nature or both tangible and intangible in nature.
(vi) No partner is liable on account of the independent or unauthorised actions of other
partners or their misconduct. The liabilities 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.
(vii) Every LLP shall have at least two partners and shall also have at least two individuals
as Designated Partners, of whom at least one shall be resident in India. The duties and
obligations of Designated Partners shall be as provided in the law.
(viii) The LLP shall be under an obligation to maintain annual accounts reflecting a true
and fair view of its state of affairs. A statement of accounts and solvency shall be filed by
every LLP with the Registrar every year.
(ix) The accounts of LLPs shall also be audited, subject to any class of LLPs being
exempted from this requirement by the Central Government;
(x) The Central Government shall have powers to investigate the affairs of an LLP, if
required, by appointment of competent Inspector for the purpose;
(xi) A partnership firm, private company or an unlisted public company would be allowed
to be converted into LLP in accordance with the provisions of the LLP, Act, 2008.
(xii) The winding up of the LLP may be either voluntary or by the Tribunal to be
established under the Companies Act, 2013.
(xiii) The Indian Partnership Act, 1932 shall not be applicable to LLPs.

Characteristics of LLP

1. Body corporate. A ‘body corporate’ is an artificial legal person distinct and

separate having perpetual existence. An LLP is formed by the registration of an incorporation
document with the Registrar of Companies of the State in which the registered office of the
LLP is to be situated.

2. Separate legal entity. A limited liability partnership is an artificial legal person

having a distinct legal personality distinct from the individual persons who are its partners. It
has the right to own and transfer the title to property in any way it likes. No partner can either
individually or jointly claim any ownership rights in the assets of the LLP during its existence
or in its winding up. It can sue and be sued in its own name by its partners as well as
outsiders. Creditors of the LLP are creditors of the LLP alone and they cannot directly
proceed against the partners personally. Students may note that the principle of separate legal
entity as laid down for the companies in the famous case of Salomon vs Salomon & Co. Ltd.
are equally applicable to LLPs as well.

3. Artificial Legal Person. LLP is an artificial legal person because it is created by

law by following the process of incorporation. But it does not have any physical
characteristics and, thus, is invisible and intangible. Since it is a legal artificial person, it is
universal and can be dissolved only by the process of law: Since LLP is a legal person, it can
enter into contract, own property like a natural person.

4. Perpetual existence. A limited liability partnership just like a company, does not
cease to exist on account of death, insolvency or retirement of any or all partner(s). Partners
may come and go but the LLP can go on forever. Section 42 provides for transfer of rights by
a partner. Thus, an LLP has perpetual existence, irrespective of changes in its partners.
 5. Common seal. A limited liability partnership acts through its partners and
designated partners. Being a legal person, it may have a common seal, if it decides to have
one (Sec. 14). Thus, it is optional for an LLP to have a common seal. The seal shall be used
as a substitute for its signature in accordance with the provisions of the limited liability
partnership agreement and in the presence of at least two of the designated partners of the
LLP.

6. Limited liability. It is one of the significant characteristics of a LLP. Liability of

partners of a LLP shall be limited only to the extent of their investment except in case of
unauthorised acts, fraud and negligence. Moreover, a partner shall not be personally liable for
the wrongful acts or omissions of any other partner. A partner is an agent of LLP and, thus
cannot bind other partners. An obligation of LLP, whether arising in contract or otherwise,
shall solely be the obligation of the LLP only [See. 27(3)]. The liabilities of the LLP shall be
met out of the property of the LLP [See. 27(4)].

7. Number of Partners. Every LLP shall have at least two partners. The law also
requires that at least there should be two individuals as designated partner and one of them
should be resident of India. There is no maximum limit in number of partners in LLP.