Concept of Limited Liability Partnership

Introduction

Limited Liability Partnership (LLP) is an alternative of corporate commercial form that provides the benefits of limited liability of company and flexibilities of partnership firm[1]. LLP was introduced in India in 2008 by ratifying the Limited Liability Partnership Act, 2008[2]. This type of business organization is well-known in the world, and now it is forming its roots in India as well. This concept has mixed features of a Company and a Partnership firm as well. It is an attempt to mix the characteristics of both the company and a partnership firm but to avoid disadvantages of both. Only advantageous and promising features have been taken from both the business form. It permits the partners to conduct their inner assembly like a traditional partnership of the Company.

Statutory Definition

According to Section 3 of the LLP Act 2008, a LLP is a body corporate formed and incorporated under the Act. It is a legal unit separate from its partners. The Cabinet approved the bill of LLP on 7th December 2006, which was then presented before Rajya Sabha on December 15, 2006. The Limited Liability Partnership Bill, 2008 acknowledged the sanction of the Cabinet on 1st May 2008. Both Houses of Parliament passed the bill without any changes, and after the Presidential assent, it becomes an Act. A limited liability partnership agreement administers the privileges and obligations of all the partners. In case there is no such agreement then the business organization can assume the provisions laid down in Schedule I of the limited liability partnership act[3].

LLP delivers the assistance of limited liability of a corporation to its associates. Also, it permits to achieve their internal administration on the basis of jointly outside contract as in case of a partnership firm.

Liability of Partners in LLP

In LLP form of business, the corporation has full control over and liable to the extent of its assets; however, the liability of partners is limited to the agreed contribution.

In terms of accountability under LLP, the corporation is legally responsible for all its losses or loans if its work within its boundaries whereas the individual associates of the limited liability partnership shall not be held accountable for any debts. There is no supreme boundary to the number of partners to form a limited liability partnership, but a minimum of two members should be there to start the limited liability partnership.

Illustration

For example, a corporate firm named BCD LLP has two partners named A and M, firm BCD takes a debt of ₹ 40 lakhs and is incapable of reimbursing the debt. The main investment or the amount is ₹ 20 lakhs where A is supposed to contribute ₹ 12 lakhs, and M is supposed to contribute remaining ₹ 8 lakhs. But they had only contributed ₹ 10 lakhs as A had contributed ₹ 6 lakhs and M gave ₹ 4 lakhs.

In any situation, limited liability partnership firm will be accountable for up to a share of ₹ 20 lakhs and A and M will be legally responsible for ₹ 10 lakhs as per their commitment towards the firm. The Creditors cannot recover more amounts if such amount is not enough to finish the loans of the firm.

Features of LLP

Level of Liability- The liability of partners is written and specified depending upon their involvement of stocks in the business. A partner is legally responsible for his own unlawful acts. Only one partner is not accountable for the acts of other partners due to negligence or wrongdoing. One partner could not be litigated for the deceitful actions of another partner if he/she were not entangled in any of the misdeeds.
Perpetual Succession-According to Section 3 of the Limited Liability Partnership Act, 2008, it is an integrated statue and a legal entity detached from its partners having continuous succession[4].
Common Seal- Like the company, LLP is an artificial person, and it can act through its partners. It can also form its common seal.
The requirement of members- According to Section 6(1) of the Limited Liability Partnership Act 2008, there is a minimum requirement of two partners to make limited liability partnership. One must be a resident of India. Although there is no maximum limit for the LLP[5].
Review of Financial Records- It shall uphold yearly records where a review of the financial records is needed only if the paid amount exceeds ₹ 25 lakhs or yearly turnover exceeds ₹ 40 lakhs. Every LLP shall file the statement of financial records with the Registrar of Companies every year[6].

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Registration of Limited Liability Partnership[7]

Obtaining of Digital Signature Certificate- The first step in order to get the limited liability partnership registered is of obtaining a digital signature certificate. It is a certificate that is being adopted by different government agencies and now is a constitutional necessity in various applications.[8]
Obtaining of DIN- The second step is that the designated partners are required to obtain DIN number that is Director Identification Number. Form DIR-3 is there for the application of securing DIN number.
Registration of Name- The third step is getting the name of the firm. This is to be done by reserving the name of the firm from the Reserve Unique Name which is to be processed by the Central Registration Centre.
Incorporation of LLP- The next step is the incorporation of the firm. FiL LiP (Form for incorporation of Limited Liability Partnership) is the form which is used for registration of the firm. The form along with the requisite fees and documents to be filed with the Registrar.
Filing of LLP Agreement-Another important form to be filed is FORM-3. The form asked for the details of the agreement of the firm. The mutual rights and duties, indemnity clauses are some of the important features to be mentioned in the form. Also, this form has to be filed within 30 days of incorporation.

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Benefits of LLP

LLP firms are a mixture of partnership firms as well as companies. Therefore, it appreciates advantages from both types of organizations.
Partners have limited liabilities. Their responsibility is not unlimited, it depends upon the agreement formed between the partners, and the contribution of their share is already specified in the agreement.[9]
It is a statutory body which can purchase properties in its own name.
The amount of formation of the limited liability partnership is lower, as compared to that of any other corporation and the procedure for the formation of the LLP is neither too composite nor very lengthy.
The restrictions imposed on LLP are also not that complex.

Conversion of a Partnership Firm in LLP And Vice Versa

The trend of shifting from outdated businesses to LLP is very prevalent in recent years. The motive behind this is that LLP offers more durability, limitless partners etc. Although the major and primary reason for this trend is because LLP offers a major advantage in terms of limited liability. The tension on the personal assets of the partner is put in relaxation when it is a talk about LLP, which is a combination of both the partnership and the corporation.

The advantages of the LLP types of business overshadow those of the traditional partnership business. Partnership firm that is enthusiastic for getting converted into limited liability partnership can easily shift by applying Form 17 that is the Application and Statement for the conversion of a firm in to LLP along with Form 2 the is Assimilation document and Subscriber’s declaration[10].

Any private or public company that is enthusiastic about getting transformed into LLP can be transformed by putting on through Form 18 that is the application and statement for the conversion of Private Company into limited liability partnership. Form 18 needs to be filed along with Form 2 that is Assimilation document and Subscriber’s document[11].

Conclusion

The Government of India has made an attempt to generate an enabling situation for impresarios, service earners and authorities to meet the global competition. The notion of limited liability partnership is a grouping of partnership which is advantageous for all types of corporations. Though India recognized the concept of LLP very late, limited liability partnership in India has finally found its space. LLP is one of the easiest types of business which is easy to build and accomplish.

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As the nature of LLP is flexible, it has now widely spread, and a number of firms and companies are now getting transformed into limited liability partnership. LLP helps partners to secure them as they are only responsible for their own deeds or negligence, unlike other corporations where partners are liable for their partner’s deeds. LLP would also contribute to the growth of the service industry. The LLP systematic procedure has helped them

[1]FAQs on the nature of Limited Liability Partnership, Ministry of Corporate Affairs, Government of India, available at http://www.mca.gov.in/MinistryV2/natureoflimitedliabilityparterneshipllp.html

[2]Ishita Ramani, India LLP Act 2008 and all you need to know about LLP in India, Tax Guru, updated on 9th January 2020, available at https://taxguru.in/corporate-law/india-llp-act-2008-llp-india.html , accessed on 26th September 2020 at 11:47 am

[3]Schedule I of the Limited Liability Partnership Act, 2008, available at https://www.advocatekhoj.com/library/bareacts/limited/schedule1.php?Title=Limited%20Liability%20Partnership%20Act,%202008&STitle=First%20Schedule

[4]Limited Liability Partnership Act, 2008; Section 3

[5] Limited Liability Partnership Act, 2008; Section 6

[6]Annual Filings for Limited Liability Partnership, Clear Tax, updated on 26th October 2017, available at https://cleartax.in/s/llp-annual-filings accessed on 26th September 2020 at 6:12 pm

[7] Limited Liability Partnership Registration in India, Clear Tax, updated on 19th September 2020, available at https://cleartax.in/s/limited-liability-partnership-registration-procedure-india

[8]FAQs on Digital Signature Certificate, Ministry of Corporate Affairs, Government of India, available at http://www.mca.gov.in/MinistryV2/digitalsignaturecertificate.html accessed on 26th September 2020 at 7:02 pm

[9]Partnership Agreements, Latest Laws.Com, available at https://www.latestlaws.com/library/legal-documents/partnership-agreements/ accessed on 26th September 2020 at 9:53 pm

[10] Ankit Singhi, Why it makes sense to go for LLP, The Economic Times, updated on 23rd September 2015, available at https://economictimes.indiatimes.com/small-biz/legal/why-it-makes-sense-to-go-for-llp/articleshow/49070161.cms?from=mdr accessed on 27th September 2020 at 11:08 am

[11]Pooja Choudhary, East Guide to Convert LLP into Private Limited Company, available at https://blog.saginfotech.com/llp-convert-private-limited-company accessed on 27th September 2020 at 1:29 pm