Limited Liability Partnership (LLP) - Concept, Advantages, Procedure, Features

What is Concept of ‘limited liability partnership’ (LLP)?

What are the advantages of LLP structure?

What is main Difference between LLP & partnership firm?

What are main Differences between LLP & a Company?

What are the salient features of LLP?

Who can be a “Designated Partner” of a LLP? 

Who are not allowed to be “Designated Partner” of a LLP? 

Is there any requirement of ‘identification number’ of Designated Partner of LLP?

How a person can become partner of an LLP?

How an existing partner cease to be a partner of an LLP?

How to inform MCA / ROC in case of change in partner / Designated partner in LLP?

LLP need to maintain and file accounts with MCA / ROC? 

Any Annual Return required to be filed by an LLP? 

Can Partnership Firm, Private Limited Company and Unlisted Public Company Converted to LLP?

Whether Minute book would be maintained? What are the compliances relating to Meetings of LLP?

1 What is Concept of ‘limited liability partnership’ (LLP)?

LLP is an alternative corporate business entity which contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ and gives the benefit of a company like Limited Liability and also gives benefits of partnership firm like Flexibility in operations.

Existence of LLP continues even after changes in its partners and LLP can hold property, can sign agreements and contracts in its own name.

And being a separate legal entity liability of its partners is limited to the extent of their contribution in LLP and not affected by the wrong business decisions of other partners.

 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.

2  What are the advantages of LLP structure?

LLP form is preferred due to following advantages:

(i) Limited liability:  Liability of its partners is limited to the extent of their contribution in LLP.

(ii) Flexibility:  having the characteristics of partnership firms also there is flexibility in day to day operations of LLP.

(iii) Agreement driven:  operates on the basis of defined agreement so the one partner is not affected by wrongful decisions of other partner and mutual rights and duties are well defined by the way of agreement.

(iv) Lesser Compliance:  Being hybrid structure of partnership and company, legal compliances to be done by it are very less.

3  What is main Difference between LLP & partnership firm?

Liability:

In partnership firm, every partner is liable, jointly with all the other partners and also severally for all acts of the firm for the period he is partner in that firm.

Under LLP structure, liability of the partner is limited to the extent of his agreed contribution. Further, LLP operates on the basis of an defined agreement so the one partner is not affected by wrongful decisions of other partner and mutual rights and duties are well defined by the way of agreement.

4  What are main Differences between LLP & a Company?

(i) Internal Governance structure:  a company is regulated by Companies Act whereas LLP is managed by contractual agreement between partners.

 (ii) Flexibility:  having the characteristics of partnership firms also there is flexibility in day to day operations of LLP.

 (iii) Lesser Compliance:  Being hybrid structure of partnership and company, legal compliances to be done by it are very less

5 What are the salient features of LLP?

Two or more persons desiring to do a lawful business with a view to profit, may by subscribing their names to an incorporation document form a Limited Liability Partnership (LLP). This incorporation document needed to be submited with MCA / ROC with required documents.

The following are the salient features of LLP:

1) Separate Legal Entity:

It is a separate legal entity with corporate structure having perpetual succession.

2) Limited Liability of partners:

Liability of the partner is limited to the extent of his agreed contribution. Further, LLP operates on the basis of an defined agreement so the one partner is not affected by wrongful decisions of other partner and mutual rights and duties are well defined by the way of agreement.

3) Designated Partner:

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.

4) Rights and Duties of Partners:

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.

5) Books of Accounts:

The LLP needs to maintain books of accounts reflecting 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 as per due dates;

6) Conversion of firm, private company and unlisted company into LLP

A firm, private company or an unlisted public company is allowed to be converted into LLP.

Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the LLP Act.

On and from the date of registration specified in the certificate of registration, all tangible) and intangible property vested in the firm or the company, all assets, rights, liabilities and obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP and the firm or the company, shall be deemed to be dissolved

7) The Indian Partnership Act, 1932 shall not be applicable to LLPs.

6 Who can be a “Designated Partner” of a LLP? 

To have at least two Designated Partners is mandatory for every LLP. These designated partners shall be individuals and at least one of the Designated Partner shall be a resident of India.

In case of a LLP in which all the partners are bodies corporate or in which one or more partners is bodies corporate, at least two individuals who are partners of such LLP or nominees of such body corporate shall act as designated partners.

7 Who are not allowed to be “Designated Partner” of a LLP? 

1. Who has been convicted by a Court for any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months; or
2. Who suspends, or has at any time within the preceding five years suspended payment to his creditors and has not at any time within the preceding five years made, a composition with them; or
3. Who has at any time within the preceding five years been adjudged insolvent; or
4. Who has been convicted by a Court for an offence involving section 30 of the Act.

8 Is there any requirement of ‘identification number’ of Designated Partner of LLP?

Every Designated Partner would be required to obtain a DPIN  (Designated Partner’s Identification Number) , which is similar to DIN required in case of directors of companies .

Obtaining DPIN (On or After 02.10.2018)}

1. At the time of appointment in any existing LLP pursuant to the provisions of Rule 10(1)(a) of LLP rules, Individual shall make an application to registrar for DPIN in Form DIR-3.
2. At the time of Incorporation of LLP, an individual who want to become Designated Partner in the LLP and does not hold the requisite DPIN, shall apply the same in Form FiLLiP.

Note: Form FiLLiP is an incorporation form, by which DPIN can also be applied but maximum for two individuals.

    
9 How a person can become partner of an LLP?

Any persons, who subscribed to the “Incorporation Document” at the time of incorporation of LLP, shall be partners of LLP.

Subsequent to incorporation, any new partners can be admitted in the LLP as per conditions and requirements of LLP Agreement.

10 How an existing partner cease to be a partner of an LLP?

A person ceases to be a partner in accordance with the terms of agreement.

And in case of absence of agreement / no clarity in agreement, by giving 30 days’ notice to the other partners. 

Notice is required to be given to ROC when a person becomes or ceases to be partner or for any change in partners.

11 How to inform MCA / ROC in case of change in partner / Designated partner in LLP?

In case of any change in Partner / Designated Partner due to admission, resignation, cessation, death, expulsion or by any other reason as per terms of agreement, LLP should file e- form 4 within 30 days of such change including a statement signed by the incoming partner that he consents to become a partner.

And also Supplementary LLP Agreement to be filed e- form 3 with ROC within 30 days giving the alteration in mutual rights and duties of partners.

12 LLP need to maintain and file accounts with MCA / ROC? 

The LLP needs to maintain books of accounts reflecting 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 as per due dates.

13 Any Annual Return required to be filed by an LLP? 

Annual Return in e- Form-11, is to be filed with the Registrar, together with the prescribed fee, within a period of 60 days from the closure of every financial year.

14 Can Partnership Firm, Private Limited Company and Unlisted Public Company Converted to LLP?

Yes

1. a firm by filing Form 17,
2. private company or an unlisted public company by filing Form 18

can be converted into limited liability subject to approval of Registrar, who shall issue a Certificate of Registration under his seal in Form 19.

In case Registrar has refused to grant approval for such conversion, the applicant firm or private company or unlisted public company, as the case may be, may apply to the Tribunal within 60 days from the date of receipt of such intimation of refusal.

After approval of such conversion,  the firm, the private limited company or unlisted public company shall give an intimation of such conversion to the concerned Registrar of firms or Registrar of Companies, as the case may be, in Form 14 within 15 days of the date of registration of the LLP.

15 Whether Minute book would be maintained? What are the compliances relating to Meetings of LLP?

There is no any mandatory requirement for holding meetings of partners in LLP. Partners can decided when and how to meet or as may be laid down in LLP Agreement.

However, Minute book should be maintained to record minutes of meetings of partners and managing /executive committee of partners. There is no provision for regular meeting of members of LLPs.