Unit 3 – Limited Liability Partnership Act, 2008

 Features of LLP, Difference between LLP and Partnership, LLP and Company
 LLP Agreement
 Partners and Designated Partners
 Incorporation Document
 Incorporation by Registration
 Partners and their relationship
 Extent and Limitation of Liability and Partner
 Whistleblowing
 Conversion into LLP
Introduction
The Indian economy is growing with leaps and bounds. With its growth, the role played by its entrepreneurs
has been acknowledged globally. Entrepreneurship, knowledge and risk capital pool provide a further stimulus
to India’s economic growth. In this scenario, a need was felt for a new system of the corporate that could
deliver an alternative to the traditional partnership which had unlimited personal liability and statute-based
governance structure of the limited liability.
Limited Liability Partnership (LLP) is a form of business enterprise in India but different from other business
organisations such as sole proprietorship, company and partnership, etc. LLP is an incorporated partnership
registered and formed under the Limited Liability Partnership Act, 2008 in India. It has limited liability as the
name suggests, has a separate legal entity, and perpetual succession. It is the most suitable form of business
organisation for small and medium enterprises. This form of enterprise amalgamates the characters of both
traditional partnership firms and limited liability corporations. A change in the partners doesn’t affect its
existence, rights or liabilities.
Meaning of a Limited Liability Partnership
In a partnership firm, the partners have unlimited liability for their total debts and the legal consequences
thereof. In a partnership firm, the assets are prone to get attached to fulfil the debts and liabilities of the firm,
the limited liability partnership solved this problem. This means that a limited liability partnership is a kind of
business partnership where all the liabilities of a partner are restricted only to the money he/she invests. In
other words, in case the partners are unable to make a profit in the business, creditors cannot confiscate their
personal assets. LLP has a legal existence though, and its identity is separate from the partners.
The limited liability partnership structure is mainly based on the UK LLP Act, 2000 and Singapore LLP Act, 2005.
One can find LLPs in countries like the United Kingdom, the United States of America, some Gulf countries,
Australia and Singapore.
The legal framework of a Limited Liability Partnership
Any two or more persons conjoining to carry out a lawful business with an aim to make a profit may set up an
LLP. The Companies Act, 2013 is not well-matched for the liability and governance structure wished-for for
LLPs. The general focus of the legislation to standardise widely-held companies is distinctive. Therefore, in
harmony with the proposals of the Irani Committee, it was felt that separate legislation should be enacted for
LLPs.
The organisation and administration of partnership firms are at the state level under the Indian Partnership
Act, 1932 where a partnership firm involves full joint and several liabilities on the partners. This is the reason
for many enterprises employed in fields such as Biotechnology, Intellectual Property, Information Technology,
and other knowledge-based fields, find traditional partnerships incompatible. Even for multi-disciplinary
combinations, traditional partnerships are considered inappropriate that comprise a large number of partners
that are looking for a flexible working environment but with limited liability.
The LLP structure, however, would stimulate growth and facilitate such enterprises to expand their trade and
business across different states in India as well as abroad.
On 2nd November 2005, the Ministry of Corporate Affairs cited a concept paper on LLP Law on its website.
This was to enable all interested stakeholders to express their opinions and suggest constructions for the
Ministry to consider on various aspects of LLP Law. The concept paper was also spread to other concerned
departments, autonomous bodies and ministries for their comments like:

 Securities and Exchange Board of India (SEBI),

 Comptroller and Auditor General of India (C&AG),
 Insurance Regulatory Development Authority (IRDA), etc.
Many suggestions and comments were sent to the Ministry of Corporate Affairs on the concept paper after
which these were examined in the context of international practices in this area of law. The Indian Act,
however, has been prepared while keeping in mind the Indian requirements.
Finally, the Limited Liability Partnership Act, 2008 was passed by the Parliament for governing the LLP and its
businesses in the country. Section 2 of this Act defines that the LLP is a type of partnership that is registered
under this Act and the LLP agreement states the written agreement between the LLP partners themselves or
the LLP itself and its partners. This agreement is supposed to define the duties, liabilities, rights and powers of
the partners in the LLP.
From the inputs received by the Ministry of Corporate Affairs, it was also proposed that the framework should
not be restricted to only professional services as recommended earlier by Naresh Chandra Committee and
thus the LLP Act does not restrict the advantage of LLP structure to some classes of professionals only. Now
that the Limited Liability Partnership Act governs the LLPs, the Indian Partnership Act, 1932 is not applicable to
these partnerships.
Certain other committees, which made proposals for legislation on LLPs in India are as follows:

 Bhat Committee, (1972)

 Naik Committee, (1992)
 Expert Committee on Development of Small Sector Enterprises, (1997)
 Study Group on Development of Small Sector Enterprises, (2001)

Salient Features of Limited Liability Partnership

 LLP is a body corporate
According to Section 3 of the Limited Liability Partnership Act 2008 (LLP Act), an LLP is a body corporate, formed
and incorporated under the Act. It is a legal entity separate from its partners.
 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.
 Separate Legal Entity
Just like a corporation or a company, it is a separate legal body. Further, it is completely liable for its assets. Also,
the liability of the partners has certain limitations in their contribution to the LLP. Hence, the creditors of the LLP
are not the creditors of individual partners.
 Mutual Agency
Another difference between an LLP and a partnership firm is that independent or unauthorized actions of one
partner do not make the other partners liable. All partners are agents of the LLP and the actions of one partner do
not bind the others.
  LLP Agreement
An agreement between all partners governs the rights and duties of all the partners. Also, the partners can devise
the agreement as per their choice. If such an agreement is not made, then the Act governs the mutual rights and
duties of all partners.

 Artificial Legal Person

For all legal purposes, LLP is an artificial legal person. A legal process creates it and has all the rights of an
individual. It is invisible, intangible, and immortal but not fictitious since it exists.
 Common Seal
If the partners decide, the LLP can have a common seal [Section 14(c)]. It is not mandatory though. However, if it
decides to have a seal, then it is necessary that the seal remains under the custody of a responsible official.
Further, the common seal can be affixed only in the presence of at least two designated partners of the LLP.
 Limited Liability
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 personal liability protection to its partners.
 Minimum and Maximum Number of Partners in an LLP
Every Limited Liability Partnerships must have at least two partners and at least two individuals as 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 entity.
 Business Management and Business Structure
The partners of the LLP can manage their business. However, only the designated partners are responsible for
legal compliances.
 Business for Profit Only
Limited Liability Partnerships cannot be formed for charitable or non-profit purposes. It is essential that the entity
is formed to carry on a lawful business with a view to earning a profit.
 Investigation
The power to investigate the affairs of an LLP resides with the Central Government. Further, they can appoint a
competent authority for the same.
 Compromise or Arrangement
Any compromise or arrangement like a merger or amalgamation needs to be in accordance with the Act.
 Conversion into LLP
A private company, firm, or an unlisted public company or a small business can convert into an LLP in accordance
with the provisions of the Act.

 E-Filing of Documents

If the entity is required to file any form/application/document, then it needs to be filed in an electronic form on
the website www.mca.gov.in. Further, a partner or designated partner has to authenticate the same using an
electronic or digital signature.

Meaning of LLP Agreement and Importance

LLP Agreement is a written contract between the partners of the LLP or between the LLP and its designated
partners. It establishes the rights and a duty of the designated partners toward each other as well toward the
LLP. It is compulsory to execute and file the LLP agreement with MCA within 30 days of the incorporation of
LLP.
It creates the foundation for the smooth running of Limited Liability Partnership. It defined the outlook and set
well define concepts for decision making, adding a new partner and leaving of existing partners or change in
roles.
Therefore, well structured detailed LLP Agreement set the groundwork and act as a backbone to strengthen
the firm. It is the guide that gives directions to the LLP registration.
Content of LLP Agreement
A well structured and briefly summarized agreement is very much required for the successful functioning of an
LLP.
Every standard agreement contains the below-mentioned provisions:
1.Name of the LLP
The name must end with LLP or Limited Liability Partnership as per the provisions of the LLP Act, 2008.
2. Date of the agreement and parties to the agreement
After incorporation, the agreement is to be executed within 30 days as per the LLP Act, 2008. LLP agreement is
between all the partners and designated partner. The agreement must contain the date and of entering into
an agreement.
3. Introductory provisions
It includes all the definitions of terms used in the LLP agreement.

4. Place of business
The agreement must contain the place of business which is the registered office of the LLP.
5. Business activity
It is important to include the business activities to be carried on by the LLP. It must be in the same nature as
approved by the MCA at the time of incorporation of LLP.

6. Duration
If the LLP is formed for the specific period, then such period must be mention after which the LLP must be
dissolved. LLP can also be formed for certain object, after completion of such object; the LLP must be closed.
In the absence of specific period or object, one can include the duration of LLP as up to the period until which,
it is terminated with the consent of the partners of the LLP.
7. Accounting and auditing etc.
This includes how to maintain the books of accounts, whether it is cash basis or accrual basis. During which
period a partner can access books of accounts, whether an audit is mandatory or will follow the rules
mentioned in the LLP Act.
8. Partners’ contribution and method of contribution
Represents the contribution ratio of partners in terms of capital invested, interest on contribution, Profit
Sharing Ratio as well as the time period after which the capital can be withdrawn by any of the designated
partners. It is important for maintaining a good relationship between partners.
9. Record keeping and bank arrangement
It includes the maintenance, storage, and recording of books and other related documents.
10. Allocation and distribution
It clarifies the system of profit sharing among all partners and distribution including interim distribution or
final distribution. It portrays the distribution of Profit between the partners as per the decided ratio.
11. Disassociation of partner
Specifies the terms and conditions when partners can withdraw or disassociate from the LLP. This is one of
the vital clauses of the LLP Agreement. It states the rights of partners and rights on assets after disassociation.
12. Partners’ rights to records
Each partner has the right to check the records for avoiding misappropriation.
13. Management and fiduciary duty
It takes into account the liability of the management of a LLP and the appointment of the person liable for
taking care of confidential information of the LLP.
14. Arbitration and general provisions
In the case of conflict between parties, the parties may involve the third person known as an arbitrator who
listens to both the parties and takes a decision, which is to accepted by both the parties concerned and the
final order must be applied on both parties.

15. Other Provisions

Several other provisions also come under the LLP Agreement such as admission of new partners and its rights
thereafter and changes in the designation. It includes the right to take part in business, title and interest in
assets, right to access, right to continue the independent business, right to recover the due debt. and selling,
transferring of partnership right to existing partner and another partner. It covers the mode, time period of
the meeting of partners, the decision-making process, agenda and the voting rights of the partners.
It also includes the rights of designated partners as well as how those rights can be availed from the LLP. It
considers methods of readmission of partners as well as cross purchase. This clause illustrates the right of
redemption of a partner’s rights.
Partners and Designated Partners
The word ‘Partner‘ is a common term which is used to indicate any person who invests his/her capital to
partnership business and agrees to share profits and losses, risks and rewards. On the other hand, designated
partner, as the name suggests, is the one, whom the other partners appoint, to be responsible for complying
with the terms of LLP Act.

The concept of Designated Partner is put forward by the Limited Liability Partnership Act, 2008. The work of a
designated partner is exactly the same as the Directors of a Company, but with more rights and privileges.

All the Designated Partner of the LLP must obtain a DPIN, i.e. Designated Partner Identification Number. At the
time of registration, the document must specify, at least two persons as designated partners. In the absence
of any specification, any partner whose name is first listed in the statement of partners in the declaration will
be considered as a designated partner.

Additionally, any partner can be assigned the role of designated partner in an LLP, subject to the consent of
the other partners.

As per the Limited Liability Partnership Act, 2008, at least two partners are to be appointed as ‘designated
partner’ in the incorporation document, who must be individuals. Although, if no person is specified, then
every partner of the LLP will be regarded as a designated partner.

Further, one of the two designated partners should be India’s resident. However, if in an LLP all the partners
are Companies, or in which one or more partners are individuals and companies, then a minimum of two
persons who joined LLP as partners or nominees of the Company, can be appointed as designated partners.

The LLP agreement can permit the review and rotation of the role of designated partner so that each partner
can participate.
Comparison Chart

BASIS FOR
PARTNER DESIGNATED PARTNER
COMPARISON

Meaning When two or more persons enter Designated Partner refers to any
into partnership business with one partner who is appointed as
another, they are individually called such, in the incorporation
as partners. document, at the time of LLP
registration.

Context General Partnership and Limited Limited Liability Partnership

Liability Partnership only.

Act as Agent Agent as well as Directors

Eligibility Criteria Any person or body corporate can Only individuals can be selected
become a partner. or appointed as a designated
partner.

Duties, Rights and Partner's duties, rights and liabilities The duties, rights and liabilities
Liabilities are stated in Partnership Deed in of designated partners are
case of General Partnership and in stated in the LLP Agreement.
LLP Agreement in case of Limited
Liability Partnership.

Accountability for No Yes

regulatory and legal
compliance

Identification No requirement for obtaining an Every designated partner is

Number identification number. required to obtain a DPIN
(Designated Partner
Identification Number).
Incorporation Document
Documents Required for LLP Registration
A. Documents of Partners
 PAN Card/ ID Proof of Partners – All the partners are required to provide their PAN at the time of
registering LLP. PAN card acts as a primary ID proof.
 Address Proof of Partners – Partner can submit any one document out of Voter’s ID, Passport, Driver’s
license or Aadhar Card. Name and other details as per address proof and PAN card should be exactly
the same. If the spelling of own name or father’s name or date of birth is different in address proof and
PAN card, it should be corrected before submitting to RoC.
 Residence Proof of Partners – Latest bank statement, telephone bill, mobile bill, electricity bill or gas
bill should be submitted as residence proof. Such bill or statement shouldn’t be more than 2-3 months
old and must contain the name of partner as mentioned in PAN card.
 Photograph – Partners should also provide their passport size photograph, preferably on white
background.
 Passport (in case of Foreign Nationals/ NRIs) – For becoming a partner in Indian LLP, foreign nationals
and NRIs have to submit their passport compulsorily. Passport has to be notarized or apostilled by the
relevant authorities in the country of such foreign nationals and NRI, else Indian Embassy situated in
that country can also sign the documents.
Foreign nationals or NRIs have to submit proof of address also which will be a driving license, bank statement,
residence card or any government-issued identity proof containing the address.
If the documents are in other than the English language, a notarized or apostilled translation copy will be also
be attached.
B. Documents of LLP
 Proof of Registered Office Address: Proof of registered office has to be submitted during registration or
within 30 days of its incorporation.
i. If the registered office is taken on rent, a rent agreement and a no-objection certificate from
the landlord has to be submitted. No objection certificate will be the consent of the landlord to
allow the LLP to use the place as a ‘registered office’.
ii. Besides, any one document out of utility bills like gas, electricity, or telephone bill must be
submitted. The bill should contain the complete address of the premise and owner’s name and
the document shouldn’t be older than 2 months.
 Digital Signature Certificate: One of the designated partners needs to opt for a digital signature
certificate also since all documents and applications will be digitally signed by the authorized signatory
LLP Registration Process
Step 1: Obtain Digital Signature Certificate (DSC)
Before initiating the process of registration, you must apply for the digital signature of the designated partners
of the proposed LLP. This is because all the documents for LLP are filed online and are required to be digitally
signed. So, the designated partner must obtain their digital signature certificates from government recognized
certifying agencies.
Step 2: Apply for Director Identification Number (DIN)
You have to apply for the DIN of all the designated partners or those intending to be designated partner of the
proposed LLP. The application for allotment of DIN has to be made in Form DIR-3.
You have to attach the scanned copy of documents (usually Aadhaar and PAN) to the form. The form shall be
signed by a Company Secretary in full- time employment of the company or by the Managing
Director/Director/CEO/CFO of the existing company in which the applicant shall be appointed as a director.
Step 3: Name Approval
LLP-RUN (Limited Liability Partnership-Reserve Unique Name) is filed for the reservation of the name of the
proposed LLP which shall be processed by the Central Registration Centre under Non-STP. But before quoting
the name in the form, it is recommended that you use the free name search facility on MCA portal.
The system will provide the list of closely resembling names of existing companies/LLPs based on the search
criteria filled up. This will help you in choosing names not similar to already existing names. The registrar will
approve the name only if the name is not undesirable in the opinion of the Central Government and does not
resemble any existing partnership firm or an LLP or a body corporate or a trademark.
The form RUN-LLP has to be accompanied by fees as per Annexure ‘A’ which may be either approved/rejected
by the registrar. A re-submission of the form shall be allowed to be made within 15 days for rectifying the
defects. There is a provision to provide for 2 proposed names of the LLP.
Step 4: Incorporation of LLP
 The form used for incorporation is FiLLiP(Form for incorporation of Limited Liability Partnership) which
shall be filed with the Registrar who has jurisdiction over the state in which the registered office of the
LLP is situated. The form will be an integrated form.
 Fees as per Annexure ‘A’ shall be paid.
 This form also provides for applying for allotment of DPIN, if an individual who is to be appointed as a
designated partner does not have a DPIN or DIN.
 The application for allotment shall be allowed to be made by two individuals only.
 The application for reservation may be made through FiLLiP too.
 If the name that is applied for is approved, then this approved and reserved name shall be filled as the
proposed name of the LLP
Step 5: File Limited Liability Partnership (LLP) Agreement
LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its
partners.
 LLP agreement must be filed in form 3 online on MCA Portal.
 Form 3 for the LLP agreement has to be filed within 30 days of the date of incorporation.
 The LLP Agreement has to be printed on Stamp Paper. The value of Stamp Paper is different for every
state.
Partners and their relationship
Section 23 in The Limited Liability Partnership Act, 2008
Relationship of partners .-
(1) Save as otherwise provided by this Act, the mutual rights and duties of the partners of a limited liability
partnership, and the mutual rights and duties of a limited liability partnership and its partners, shall be
governed by the limited liability partnership agreement between the partners, or between the limited liability
partnership and its partners.
(2) The limited liability partnership agreement and any changes, if any, made therein shall be filed with the
Registrar in such form, manner and accompanied by such fees as may be prescribed.
(3) An agreement in writing made before the incorporation of a limited liability partnership between the
persons who subscribe their names to the incorporation document may impose obligations on the limited
liability partnership, provided such agreement is ratified by all the partners after the incorporation of the
limited liability partnership.
(4) In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual
rights and duties of the limited liability partnership and the partners shall be determined by the provisions
relating to that matter as are set out in the First Schedule.
Section 24 in The Limited Liability Partnership Act, 2008
Cessation of partnership interest .-
(1) A person may cease to be a partner of a limited liability partnership in accordance with an agreement with
the other partners or, in the absence of agreement with the other partners as to cessation of being a partner,
by giving a notice in writing of not less than thirty days to the other partners of his intention to resign as
partner.
(2) A person shall cease to be a partner of a limited liability partnership-
(a) on his death or dissolution of the limited liability partnership; or
(b) if he is declared to be of unsound mind by a competent court; or
(c) if he has applied to be adjudged as an insolvent or declared as an insolvent.
(3) Where a person has ceased to be a partner of a limited liability partnership (hereinafter referred to as
"former partner"), the former partner is to be regarded (in relation to any person dealing with the limited
liability partnership) as still being a partner of the limited liability partnership unless-
(a) the person has notice that the former partner has ceased to be a partner of the limited liability
partnership; or
(b) notice that the former partner has ceased to be a partner of the limited liability partnership has been
delivered to the Registrar.
(4) The cessation of a partner from the limited liability partnership does not by itself discharge the partner
from any obligation to the limited liability partnership or to the other partners or to any other person which
he incurred while being a partner.
(5) Where a partner of a limited liability partnership ceases to be a partner, unless otherwise provided in the
limited liability partnership agreement, the former partner or a person entitled to his share in consequence of
the death or insolvency of the former partner, shall be entitled to receive from the limited liability
partnership-
(a) an amount equal to the capital contribution of the former partner actually made to the limited liability
partnership; and
(b) his right to share in the accumulated profits of the limited liability partnership, after the deduction of
accumulated losses of the limited liability partnership, determined as at the date the former partner ceased to
be a partner.
(6) A former partner or a person entitled to his share in consequence of the death or insolvency of the former
partner shall not have any right to interfere in the management of the limited liability partnership.
Section 25 in The Limited Liability Partnership Act, 2008
Registration of changes in partners .-
(1) Every partner shall inform the limited liability partnership of any change in his name or address within a
period of fifteen days of such change.
(2) A limited liability partnership shall-
(a) where a person becomes or ceases to be a partner, file a notice with the Registrar within thirty days from
the date he becomes or ceases to be a partner; and
(b) where there is any change in the name or address of a partner, file a notice with the Registrar within thirty
days of such change.
(3) A notice filed with the Registrar under sub-section (2)-
(a) shall be in such form and accompanied by such fees as may be prescribed;
(b) shall be signed by the designated partner of the limited liability partnership and authenticated in a manner
as may be prescribed; and
(c) if it relates to an incoming partner, shall contain a statement by such partner that he consents to becoming
a partner, signed by him and authenticated in the manner as may be prescribed.
(4) If the LLP contravenes the provision of sub section (2) the LLP and every designated partner of the LLP shall
be liable (Liable to the penalty of Rs 10,000).
(5) If the LLP contravenes the provision of sub section (1) such partner shall be (Liable to the penalty of Rs
10,000) .
(6) Any person who ceases to be a partner of a limited liability partnership may himself file with the Registrar
the notice referred to in sub-section (3) if he has reasonable cause to believe that the limited liability
partnership may not file the notice with the Registrar and in case of any such notice filed by a partner, the
Registrar shall obtain a confirmation to this effect from the limited liability partnership unless the limited
liability partnership has also filed such notice: Provided that where no confirmation is given by the limited
liability partnership within fifteen days, the registrar shall register the notice made by a person ceasing to be a
partner under this section.
Section 31: Whistle blowing
(1) The Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a
limited liability partnership, if it is satisfied that—
(a) such partner or employee of a limited liability partnership has provided useful information during
investigation of such limited liability partnership; or
(b) when any information given by any partner or employee (whether or not during investigation) leads to
limited liability partnership or any partner or employee of such limited liability partnership being convicted
under this Act or any other Act.
(2) No partner or employee of any limited liability partnership may be discharged, demoted, suspended,
threatened, harassed or in any other manner discriminated against the terms and conditions of his limited
liability partnership or employment merely because of his providing information or causing information to be
provided pursuant to sub-section (1).