Introduction

With the growth of the Indian economy, the role played by its entrepreneurs and their skilled manpower has been very well acknowledged even internationally. In order to provide further growth to India’s economic growth, it was felt necessary to provide for a new corporate form that would provide an alternate to the traditional partnership which is with unlimited personal liability. The statute based structure of the limited liability company was felt necessary in order to encourage the entrepreneurs. Keeping in mind the need, “The Limited Liability Partnership Act, 2008” was enacted with “The Limited Liability Partnership Rules, 2009”, which were subsequently amended as “The Limited Liability Partnership (Amendment) Act, 2021” and “The Limited Liability Partnership (Amendment) Rules, 2023”. The Act comprises 80 sections with four schedules

The long title of Act says “An Act to make provisions for the formation and regulation of limited liability partnerships and for matters connected therewith or incidental thereto.

 The Limited Liability Partnership (LLP) is viewd as best alternative of corporate business with the benefits of limited liability but allows the flexibility of organising their internal structure as a partnership based, mutually agreed agreement. It contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ and is called a hybrid between a company and a partnership.

The Act provides provisions relating to the formation and regulation of LLPs and lays down the provisions for matters which are incidental or connected with the formation and regulation of LLPs. The LLP shall be a body corporate and a legal entity separate from its partners. The LLP is a formal structure that requires a written partnership agreement.  The provisions of the Indian Partnership Act, 1932 shall not apply to a limited liability partnership.

The Partners are required to contribute towards the LLP as specified in the LLP Agreement. Their share can be in any form i.e. tangible or intangible, movable or immovable property, monies and cash.

In terms of liability under Limited Liability Partnership the Company is liable for losses or debts incurred in running the business where the individual members of the LLP shall not be liable for such losses or debts.

Example :

‘XY-LLP’ has two partners X and Y. Its capital is Rs. 12 lakhs where X is supposed to contribute Rs. 7 lakhs and Y Rs. 5 lakhs. In fact, both the partners contributed Rs. 8 lakhs as X contributed Rs. 5 lakhs and Y contributed Rs. 3 lakhs. ‘XY-LLP’ takes a loan of Rs.25 lakhs and is unable to repay the loan. In such a case XY-LLP will be liable for up to the amount of Capital i.e. Rs. 12 lakhs only i.e X’s liability will be 2 lakhs and Y’s 2 lakhs more, as per their share of contribution. The Creditors cannot recover more amounts, if such amount is insufficient to clear the debts of the LLP.

The Salient Features of Limited Liability Partnership Act, 2008 are as follows :

1. LLP is a body corporate :  According to Section 3 of the Limited Liability Partnership Act 2008 (LLP Act), ‘Limited Liability Partnership’ is to be a ‘body corporate’, formed and incorporated under the Act. It is a legal entity separate from its partners.

Section 2(d) of LLP Act defines ‘body corporate’ as,

“body corporate” means a company as defined in clause (20) of section 2 of the Companies Act, 2013 and includes—

(i) a limited liability partnership registered under this Act;

(ii) a limited liability partnership incorporated outside India; and

(iii) a company incorporated outside India,

     but does not include—

(i) a corporation sole;

(ii) a co-operative society registered under any law for the time being in force; and (iii) any other body corporate (not being a company as defined in clause (20) of section 2 of the Companies Act, 2013 or a limited liability partnership as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf;

2. LLP Agreement : The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners. In the absence of such an agreement, the Act governs the mutual rights and duties of all partners.

3. Separate Legal Entity : The LLP is a separate legal entity, liable to the full extent of its assets, with limited liability of partners as to their agreed contribution. No partner will be liable for the unauthorised acts or misconduct of other partners. The creditors of the LLP are not the creditors of individual partners.

4. Number of Partners : Every Limited Liability Partnerships must have at least two partners out of which at least two individuals are designated partners. Out of two designated partners, at any time, at least one designated partner should be resident in India. There is no maximum limit on the number of maximum partners in the LLP. The provisions regarding the ‘designated partners’ is in section 7 of The LLP Act.

5. Role of Designated Partners : The partners of the LLP can manage their business. But, only the designated partners are responsible for legal compliances.

6. Partner as Agent : According to Section 26 of the Act, every partner is an agent of the LLP for the purpose of the business of the entity. However, he is not an agent of other partners. Further, the liability of each partner has limitations to his agreed contribution to the LLP. It provides protection against  personal liability of partners.

7. Power of Central Government : The Act provides power of investigation of the affairs of an LLP to the Central Government. They can appoint a competent inspector for the same.

8. Perpetual Succession : Unlike a general partnership firm, a limited liability partnership can continue its existence even after the retirement, insanity, insolvency or even death of one or more partners. Further, it can enter into contracts and hold property in its name.

9. Common Seal : As per section 14(c), if the partners decide, the LLP can have a common seal.

10. Registered Office : Section 13 provides that every LLP shall have a registered office to which all communications will be made and received. It also prescribes the procedure of intimating the change of the address of the registered office and informing the Registrar.

11. Unlimited Liability in case of fraud : Section 30 provides for unlimited liability of the LLP and its partners in case LLP or any of its partners carry out and act with the intention to defraud its creditiors.

12. Maintenance of books of account, other records and audit : Section 34 provides for requirement relating to maintenance of proper books of account by the LLP relating to its affairs for each year and for filing of an annual statement of account and solvency with the Registrar.

13. Conversion to Limited Liability Partnership : Chapter 10 of the LLP Act provides the provision to convert from firm, private company and unlisted public company into Limited Liability Partnership.

14. Winding up and dissolution : The winding up of a limited liability partnership may be either voluntary or by the Tribunal and limited liability partnership, so wound up may be dissolved.

15. Application of the provisions of the Companies Act (Sec 67) : The Central Government may, by notification in the Official Gazette, direct that any of the provisions of the Companies Act, 2013 specified in the notification—

(a) shall apply to any limited liability partnership; or

(b) shall apply to any limited liability partnership with such exception, modification and adaptation, as may be specified, in the notification

Designated Partner

Designated Partners is a concept introduced by the Limited Liability Partnership Act, 2008. Designated Partners are similar to Directors of a Private Limited Company. .

Section 7 to 10 provides for the provisions related to ‘Designated Partner’.

The Act provides that, an LLP shall have at least two designated partners who shall be individual (not any body corporate) and at least one of them shall be resident in India. The individual can not become designated partner in any LLP unless he has given consent to act as designated partner in the prescribed form filed with the Registrar. The Act empowers the Central Government to make rules prescribing conditions and requirements for an individual to be a designated partner. All Designated Partners in an LLP are required to have a Designated Partner Identification Number (DPIN).

A designated partner shall be :

(a) responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and

(b) liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

In case of any vacancy of designated partner, the Act provides for the 30 days period for filling up of a vacancy of a designated partner. If no designated partner is appointed, each partner of the LLP shall be deemed to be a designated partner.

The Act provides punishment for contravention of provisions relating to ‘designated partner’. In case of failing to appoint ‘designated partner’, then the LLP and its every partner shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to five lakh rupee.

A designated partner is a person who is legally empowered to act on behalf of the LLP. A designated partner’s duties include :

1. Receiving and holding funds as an agent on behalf of the LLP,

2. Signing and issuing LLP’s bank statements,

3. Preparing financial statements for the LLP,

4. Signing LLP’s audit report,

5. Signing LLP’s tax returns.

Key Differences between Partnership & Limited Liability Partnership :

Formation : Two or more persons can come together and form a partnership firm. Whereas in LLP, minimum of two designated partners are mandatory

Liability : In partnership firm liability for debts and obligations of partners is unlimited. Whereas in LLP, liability of partners is limited.

Management of Affairs : All partners have equal authority in the management of business affairs. Whereas in LLP, designated partners have executive authority.

Status : Partnership is not separate legal entity. Whereas LLP is a separate legal entity.

Perpetual Succession : Partnerhip firm gets dissolved on the death or exit of a partner. Whereas, LLP continues even in case of death or exit of a partner.

Governing Act : Partnership firm is governed by ‘The Indian Partnership Act of 1932’. Whereas, ‘The Limited Liability Partnership Act 2008’ governs the LLP

Taxation : Partnership firms are not taxed as separate entities. Instead, each partner is responsible for paying taxes on their share of the firm’s profits. Whereas  LLP’s are taxed as a separate legal entity, and the partners are taxed only on the income they receive as a salary or profit distribution.

Foreign Nationals as Partner : Foreign nationals cannot form a partnership firm in India. Wheres. a foreign national and an Indian resident can form an LLP together.

Number of partners : Maximum of 100 in partnership whereas in case of LLP, There is no limit on the maximum number of partners in an LLP.

Name of the firm : LLPs must have the word ‘LLP’ at the end of their names whereas it is not required in case of partnership firm.

Ownership of assets : All assets of the partnership firm are owned jointly by the partners. Whereas, the LLP has the ownership of assets that are independent of the partners.

Annual returns : A partnership firm need not file any annual returns with the Registrar of Firms. Whereas, the LLP must file an annual statement of accounts, solvency, and yearly return with the Registrar of Companies annually.

Dissolution : An agreement amongst partners, mutual consent of partners, court order, insolvency, etc., can dissolve a partnership firm. Whereas, LLP’s can be dissolved voluntarily or by the National Company Law Tribunal (NCLT) order.