- By P.Rajendran
Limited
Liability Partnership (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
The
LLP structure is available in countries like United Kingdom, United States
of America, various Gulf countries, Australia and Singapore. On the advice
of experts who have studied LLP legislations in various countries, the LLP
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 separate
legal entity, separate from its partners/members.
The desirability of LLP form in India was expressed in
the context of small enterprises by Bhat Committee (1972),
Naik Committee (1992), Expert Committee on Development of Small
Sector Enterprises headed by Sh. Abid Hussain in 1997 and Study Group on Development of Small Sector
Enterprises (SSEs) headed by Dr. S P Gupta (2001). The committees
set up by the Ministry of Company Affairs, namely, Committee on Regulation of
Private Companies and Partnerships headed by Sh. Naresh Chandra (2003), Committee on New Company Law (Dr. J.J. Irani
Committee) (2005) also recommended for legislation on LLPs.
The
Limited Liability Partnership (LLP) Bill, 2006 was introduced in the Rajya
Sabha on 15th December, 2006. The Bill was referred to the Lok Sabha Standing
Committee on Finance, for examination. The Standing Committee consulted various
chambers of commerce, professional institutes and other experts and also heard
the M/o Corporate Affairs. The said Committee presented/submitted its report to
the Parliament on 27th November, 2007. Based on such report the Ministry of
Corporate Affairs revised the LLP Bill and the revised LLP Bill, 2008 was
introduced in the Rajya Sabha on 21st October, 2008. This was passed by the
Rajya Sabha on 24th October, 2008. The Bill was passed by Lok Sabha on
12th December, 2008. The President gave assent to this Bill on 7th
January, 2009.
Any
two or more persons associating for carrying on a lawful business with
a view to profit may set up an LLP. The LLP Act does not restrict the
benefit of LLP structure to certain classes of professionals only. A minimum
of two partners will be required for formation of an LLP. There
will not be any limit to the maximum number of partners. A body
corporate may be a partner of an LLP. An entity which has objectives like
“charitable or other not for profit objectives” would not be able to set up LLP
since the essential requirement for setting LLP is ‘carrying on a lawful
business with a view to profit’. The LLP Act 2008 allows Foreign
Nationals including Foreign Companies & LLPs to incorporate a LLP in India
provided at least one designated partner is resident of India. However, the
LLP/Partners would have to comply with all relevant Foreign Exchange Laws/
Rules/ Regulations/ Guidelines. Every limited liability partnership shall have
either the words “limited liability partnership” or the acronym “LLP” as the
last words of its name. Indian Partnership Act, 1932 is not applicable to
LLPs.
LLP
form is a form of business model which is organized and operates on the basis
of an Agreement and it provides flexibility without
imposing detailed legal and procedural requirements, enables
professional/technical expertise and initiative to combine with financial risk
taking capacity in an innovative and efficient manner. LLP shall be a body
corporate and a legal entity separate from its
partners. It will have perpetual succession. The LLP is a separate legal entity, and is
liable to the full extent of its assets but liability of the partners is
limited to their agreed contribution in the LLP The LLP can continue its
existence irrespective of changes in partners. It is capable of entering into
contracts and holding property in its own name. 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 would be known as “LLP Agreement”. As per
provisions of the LLP Act, in the absence of agreement as to any matter, the
mutual rights and liabilities shall be as provided for under Schedule I to
the Act. Therefore, in case any LLP proposes to exclude provisions/requirements
of Schedule I to the Act, it would have to enter into an LLP Agreement,
specifically excluding applicability of any or all paragraphs of Schedule I.
LLP
form is a form of business model which is organized and operates on the basis
of an Agreement and it provides flexibility without
imposing detailed legal and procedural requirements, enables
professional/technical expertise and initiative to combine with financial risk
taking capacity in an innovative and efficient manner. LLP shall be a body
corporate and a legal entity separate from its
partners. It will have perpetual succession. The LLP is a separate legal entity, and is
liable to the full extent of its assets but liability of the partners is
limited to their agreed contribution in the LLP The LLP can continue its
existence irrespective of changes in partners. It is capable of entering into
contracts and holding property in its own name. 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 would be known as “LLP Agreement”. As per
provisions of the LLP Act, in the absence of agreement as to any matter, the
mutual rights and liabilities shall be as provided for under Schedule I to
the Act. Therefore, in case any LLP proposes to exclude provisions/requirements
of Schedule I to the Act, it would have to enter into an LLP Agreement,
specifically excluding applicability of any or all paragraphs of Schedule I.
Under “traditional partnership firm”, every partner is
liable, jointly with all the other partners and also severally for all acts of
the firm done while he is a partner. Under LLP structure, liability of the
partner is limited to his agreed contribution. Further, no partner is
liable on account of the independent or un-authorized acts of other partners,
thus allowing individual partners to be shielded from joint liability created
by another partner’s wrongful acts or misconduct. Mutual rights and duties
of the partners within a LLP are governed by an agreement between the partners
or between the partners and the LLP as the case may be. The LLP, however, is
not relieved of the liability for its other obligations as a separate entity.
A
basic difference between an LLP and a joint stock company lies in that the internal
governance structure of a company is regulated by statute (i.e.
Companies Act, 1956) whereas for an LLP it would be by a contractual agreement
between partners. The management-ownership divide inherent in
a company is not there in a limited liability partnership. LLP will have more
flexibility as compared to a company. LLP will have lesser
compliance requirements as compared to a company.
LLPs
shall be registered with the Registrar of Companies (ROC)
appointed under the Companies Act, 1956) after following the provisions
specified in the LLP Act. Every LLP shall have a registered office.
An Incorporation Document subscribed by at least two partners
shall have to be filed with the Registrar in a prescribed form. Contents
of LLP Agreement, as may be prescribed, shall also be required to be
filed with Registrar, online.
Every
LLP would be required to file annual return in Form 11 with ROC within 60 days
of closer of financial year. The annual return will be available for public
inspection on payment of prescribed fees to Registrar. The incorporation
document, names of partners and changes, if any, made therein, statement of account
and solvency annual return will be available for inspection by any person and the
fees for such inspection of an LLP is Rs 50/- and fees for certified copy or
extract of any document u/s 36 shall be Rs. 5/- per page.
For more details, send your queries to prajendranadvocate@gmail.com
