Limited Liability Partnerships

In Depth

Limited Liability Partnerships

Rakshika Kaul | December 2011

CONCEPT OF LIMITED LIABILITY PARTNERSHIPS (LLPS):

It’s a corporate business vehicle that enables:-

professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner,
benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.

HISTORY OF LEGISLATION:

Limited Liability Partnership Act 2008 was notified on March 31, 2009 and the Limited Liability Partnership Rules 2009 were notified on April 04, 2009. The LLP structure is available in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. The LLP Act is broadly based on LLP laws of United Kingdom and Singapore.
The first Limited Liability Partnership was registered on April 02, 2009. It is remarkable to note that within just two years of its coming into effect, 6439 Limited Liability Partnership’s have been registered as of October 03, 2011. Around 4,800 holding firms of Indian corporates across industries have been converted into LLPs as of May 2011. Moreover, viewing of public documents filed by Limited Liability Partnership’s has been facilitated with effect from September 15, 2011.

SALIENT FEATURES OF LLPS:

Any two or more persons associating for carrying on a lawful business with a view to profit may set up an LLP. Therefore, an entity with objectives like “charitable or other not for profit objectives” cannot set up under the Limited Liability Partnership Act 2008. There is no limit to the maximum number of partners
LLP is a body corporate with perpetual succession.
LLP comes as package that gives the benefits of limited liability of a company and the flexibility of a partnership and 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.
Irrespective of the changes in the constitution of the partners, the LLP can continue its existence. Therefore, it can enter into contracts and hold property in its own name.
LLP has 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.
None of the partner is liable on account of the independent or un-authorized actions of other partners. This attains importance as individual partners are protected from joint liability which accrues by another partner’s wrongful business decisions or misconduct.
Mutual rights and duties of the partners of an LLP are subject to an agreement between the partners and the LLP as the case may be.
The Act allows Foreign Nationals, Foreign Companies & LLPs to incorporate an 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.

PROCEDURE FOR INCORPORATING LLPS:

All designated partners of the proposed LLP shall obtain Designated Partners Identification Number (DPIN).
Designated partner of LLP/proposed LLP, whose signatures are to be affixed on the e-forms, has to obtain class 2 or class 3 Digital Signature Certificate (DSC) from any authorized certifying agency.
Any partner or designated partner in the proposed LLP may submit Form-1, append digital signatures, pay requisite fee and submit the e-form for reservation of name.
After the name is reserved by the Registrar, Form-2 “Incorporation Document and Statement” is required to be filed.
Statement in the e-form is to be digitally signed by a person named in the incorporation document as a designated partner having permanent DPIN and also to be digitally signed by an advocate/company secretary/chartered accountant/cost accountant in practice and engaged in the formation of LLP.
Upon successful submission of complete documents, the Registrar after satisfying himself about compliance with relevant provisions of the LLP Act will register the LLP in a maximum period within 14 days of filing of Form-2 and will issue a certificate of incorporation in Form-16.
One can check status of application by logging on to the portal.
Form-3 (Information with regard to LLP agreement and changes, if any made therein) and Form-4 (Notice of Appointment of Partner/Designate Partner, his consent etc.) may be filed with the prescribed fee simultaneously at the time of filing Form-2 or within 30 days of the date of incorporation or within 30 days of such subsequent changes.

CONCLUDING REMARKS

LLP form of business model is organized and operates on the basis of an agreement, provides flexibility without imposing detailed legal and procedural requirements and enables professional/technical expertise and initiative to combine financial risk taking capacity in an innovative and efficient manner. The Act is very fresh and will gain more popularity with the passage of time.