Limited Liability Partnership Act, 2008 - Complete Guide

History

The concept of limited liability partnership was introduced in India with the recommendations and suggestions from J.J. Irani Committee, The Bhatt Committee, Naik Committee, Expert Committee headed by Sh. Abid Hussain, Study Group on Development of Small Sector Enterprises headed by Dr. S.P. Gupta and the Naresh Chandra Committee - II.

The bill was approved by the cabinet on December 7, 2006. It was further presented before Rajya Sabha on December 15, 2006. On 1st May 2008, the Limited Liability Partnership Bill, 2008 received the approval of the cabinet.

The Limited Liability Partnership Act, 2008 was published on January 9, 2009, and came into effect on 31st March 2009.

Meaning

LLP is a business structure that provides the benefits of limited liability of a company to its partners along with managing their internal management based on the agreement as of a partnership firm. Under LLP, partners have lesser liabilities to any debt arising out in the future for running the business. LLP is a combination of both corporate and partnership firm structures. It can be termed as a hybrid between a company and a partnership.

The LLP agreement specifies the contribution of partners towards the LLP. The share of partners can be in any form such as tangible or intangible, movable or immovable property, monies, and cash.

Features

1. 1. Liability of partners- The liability of partners is limited to their contribution of share in the business. It means every partner is liable for his own wrong-doing. In case of negligence or misconduct, a partner cannot be held responsible for the actions of other partners.
2. 2. Legal entity- LLP is considered to be a separate legal entity from its partners as per section 3 of the Limited Liability Partnership Act, 2008.
3. 3. Limit of Partners- Though, there isn't any maximum limit on the number of partners in an LLP but minimum criteria of two partners are required to form an LLP.
4. 4. Audit of accounts- Annual accounts of LLP needs to be maintained whereas in case of contribution exceeding Rs 25 lakh or annual turnover exceeding Rs 40 lakh, an audit of accounts is required.
5. 5. Admission or Retirement- LLP can continue to exist irrespective of change in partners.
6. 6. Designated partners- There are criteria of having two individuals as designated partners and one of the designated partners needs to be a resident of India.

Registration of Limited Liability Partnership

Certain processes need to be followed for the registration of LLP.

1. 1. The first step is to obtain Digital Signature Certificate (DSC).

The requirement of DSC arises as the filing of documents is online which needs to be digitally signed. The digital signature certificate needs to obtain from a government-recognized certifying agency.

2. The second step is to apply for Director Identification Number (DIN).

DIN is mandatory for all the designated partners. The application for allotment of DIN needs to be done in Form DIR-3.

3. The third step is name approval.

The LLP-RUN (Limited Liability Partnership - Reserve Unique Name) needs to be filed for the reservation of the name of LLP. It is further processed by the Central Registration Centre under Non-STP. There is a free name service facility on the MCA portal which will provide a list of the closely resembling names of existing companies/LLPs on the basis of search criteria filled up.

4. The fourth step is the incorporation of LLP.

LLP incorporation in India is done through a form named FiLLiP. The form needs to be filed with the registrar who has jurisdiction over the area.

For LLP incorporation in India, fees need to be paid as per Annexure ‘A'.

Certain documents need to be annexed which are listed below -

• Subscriber sheet
• PAN card and Aadhar card of partners and Designated partners
• Proof of registered office - Rent agreement or sale deed can be attached
• NOC of the owner in case of premises is rented
• Latest Electricity or Telephone bill
• Details of LLP

5. The last step is the filing of an LLP agreement.

The LLP agreement governs the mutual rights and duties amongst the partners, and between the LLP and its partners. The LLP agreement needs to be filed online in Form 3 on the MCA portal. Form 3 for the LLP agreement needs to be filed within 30 days from the date of incorporation. The LLP agreement needs to be printed on a stamp paper whose value differs according to state.

Members in LLP

Under Section 7 of the Limited Liability Partnership Act, 2008 there shall be two designated members where one individual needs to be a resident of India. The liabilities of partners mean the assets in the partnership firm may be lost but it wouldn't affect the personal assets of the members. LLPs are mainly created between the members who act as partners and carry out the activities by lowering down the costs of LLP and increasing its capacity for development.

Conclusion

LLP can be termed as a merger of both corporate and partnership firm structure. LLP is mostly beneficial for both small and medium-sized firms. LLP provides an added advantage of limited liability of partners in comparison to partnership firms. LLP is also known as the alternate corporate business vehicle due to its functioning as same of any other partnership firm along with a special provision of limited liability rule.