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FAQ on Limited Liability Partnership (LLP)
Introduction
In order to cope with and conform to the rapid changes taking place in the industry and business, a form of business organization combining the vital aspects of a partnership firm and the advantages of a limited liability company was essential. This need gave birth to the new form of organization called“Limited Liability Partnership”, which is more popularly known as LLP.
LLP is an alternative business vehicle that gives the benefits of limited liability company and the flexibility of a partnership firm. Since, LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’; LLP is many a times termed as a hybrid of a company and a partnership.
The LLP is a separate legal entity which can continue its existence irrespective of changes in its partners
The LLP structure seems most suited for partnership concerns set up by professionals such as company secretaries in practice and others, by offering them the benefits of limited liability on one hand and the flexibility in internal management that is akin to partnerships on the other. Venture capitalists might also be attracted to the LLP structure owing to the ability of the partners to participate in management without the risk of losing limited liability, the absence of capital maintenance rules and the likely advantageous tax position. The laws of U.S.A., U.K., Singapore and Australia permit formation of LLPs.
Who can be a partner of a limited liability partnership?
Any person can be a ‘partner’ in the limited liability partnership in accordance with the LLP agreement.
Every LLP shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. Provided that in case of a limited liability partnership in which all the partners are body corporates, at least two partners shall nominate their respective individuals who are to act as “designated partners” and one of the nominees shall be a resident of India.
As per clause (q) Section 2(1) of the Act, a “partner”, in relation to a limited liability partnership, means any person who becomes a partner in the limited liability partnership in accordance with the limited liability partnership agreement. As per Section 5 of the Limited Liability Partnership Act, 2008, any individual or body corporate can be a partner in a limited liability partnership.
However, that individual shall not be capable of becoming a partner of a limited liability partnership, if –
- he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;
- he is an undischarged insolvent; or
- he has applied to be adjudicated as an insolvent and his application is pending.
Can a body corporate be a partner to a limited liability partnership? What is the meaning of ‘Body Corporate’ as per Limited Liability Act, 2008?
Yes, a body corporate can be a partner to a limited liability partnership firm as per Section 5 of the Act. As per clause (d) of Section 2(1) of the,
a “body corporate” means a company as defined in section 3 of the Companies Act, 1956 and it 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 –
- a corporation sole;
- a co-operative society registered under any law for the time being in force; and
- any other body corporate (not being a company as defined in section 3 of the Companies Act, 1956 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.’
Whether Hindu Undivided Family (HUF) / its Karta can become partner / designated Partner in Limited Liability Partnership (LLP).
As per section 5 of the Act, only an individual or body corporate may be a partner in a Limited Liability Partnership. It is further clarified vide MCA General Circular No. 13/2013, dated 29th July, 2013, read with MCA General Circular No. 2/16 dated 15th January, 2016, that an HUF cannot be treated as a body corporate for the purposes of LLP Act, 2008.
Therefore, a HUF or its Karta cannot become a partner or designated partner in LLP.
Whether a trust or a trustee can become a partner in a LLP?
General Circular No. 37/2014, dated 14th October, 2014, clarified that the trustee being a body corporate and representing a trust in case of “Real Estate Investment Trust” (REIT) or “Infrastructure Investment Trust” (InvITs) or such other trusts set up under the regulations prescribed under the Securities & Exchange Board of India Act, 1992, is not barred to hold partnership in a LLP in its name without the addition of the statement that it is a trustee.
What are the rights and liabilities of Partners and Designated Partners?
The role of designated partners in case of LLP is on same footage as of Directors in the case of a Company. The designated partners as provided in Section 8 are directly responsible for the compliances of all provisions provided under LLP Act and the provisions specified in the LLP Agreement. Unlike normal partners, designated partners are responsible for doing all acts, matters, and things as are required to be done by LLP in respect of compliances of the provisions of the LLP Act.A designated partner shall be liable to all penalties imposed on an LLP for any contravention of those provisions. Responsibility for compliances under other acts and laws is to be determined as per the agreement between the partners. However, the designated partners shall be solely responsible for all compliances and penalties under the LLP Act.
What is a “foreign limited liability partnership”?
As per Section 2(1)(m) of the Act, a “foreign limited liability partnership” means a limited liability partnership formed, incorporated or registered outside India which establishes a place of business within India.
What are the registration formalities relating to LLPs?
Name reservation: The first step to incorporate Limited liability partnership (LLP) is reservation of name of LLP. Applicant has to file eForm 1, for ascertaining availability and reservation of the name of a LLP business.
Incorporate LLP: After reserving a name, user has to file eForm 2 for incorporating a new Limited Liability Partnership (LLP).
eForm 2 contains the details of LLP proposed to be incorporated, partners’/ designated partners’ details and consent of the partners/ designated partners to act as partners/ designated partners.
LLP Agreement: Execution of LLP Agreement is mandatory as per Section 23 of the Act. LLP Agreement is required to be filed with the registrar in eForm 3 within 30 days of incorporation of LLP.
Can a partnership firm be converted into LLP?
Yes, an existing partnership firm can be converted into LLP by complying with the Provisions of clause 58 and Schedule II of the LLP Act. Form 17 needs to be filed along with Form 2 for such conversion and incorporation of LLP.
Can a existing private company be converted into LLP?
Yes, any existing private company or existing unlisted public company can be converted into LLP by complying with the Provisions of clause 58 and Schedule III and IV of the LLP Act. Form 18 needs to be filed with the registrar along with Form 2 for such conversion.Only private / unlisted public company can be converted into LLP.
Can a service of documents to a limited liability partnership take place on an address other than its registered office?
A limited liability partnership shall give an address for service of documents within the jurisdiction of the Registrar where its registered office is situated. Such address shall include the postal code and e-mail address.
As per sub-section (2) of Section 13 of the Act read with Rule 16, a limited liability partnership, in addition to the registered office address, declare any other address as its address for service of documents, in the manner laid down in the limited liability partnership agreement with consent of all partners (where no such manner defined in limited liability partnership agreement) The intimation of other address for service of documents to LLP shall be given to the Registrar in Form 12, within thirty days of complying with the requirements along with the fee as mentioned in Annexure ‘A’ of the Rules.
Whether a LLP can be registered whose one of their objects is to carry on the profession of Chartered Accountant, Cost Accountant, Architect, Company Secretary etc.?
As per General Circular No. 2/2012, dated the 1st March, 2012, at the time of incorporation of companies or LLP’s where one of the objects is to carry on the business of Banking, Insurance or to practice the profession of Chartered Accountancy, Cost Accountancy & Company Secretaries, then the concerned Registrar of Companies / Registrar of LLP shall incorporate the same only on production of in-principle approval / NOC from the concerned regulator / professional Institutes. Where one of the objects is to carry on the business / profession of Architecture, then the concerned Registrar of Companies / Registrar of LLP shall incorporate the same only on production of in-principle approval / NOC from the concerned regulator.
What all documents an LLP is required to file annually?
LLP is required to file Statement of Account & Solvency and Annual Return annually on prescribed forms LLP Form 8 and Form 11 respectively. As per the norms, Annual Return has to be filed within 60 days of end of financial year and Statement of Accounts & Solvency to be filed within 30 days from the end of six months of the financial year to which it relates.
what is the stamp duty payable on LLp Agreement?
Stamp duty on LLP agreement is amended by MAHARASHTRA ACT No. XX OF 2015 and this act may be called Maharashtra Stamp Amendment Act, 2015 notified on 24.04.2015.
- if contribution in LLP does not exceed 50,000 then stamp duty payable is Rupees Five hundred.
- if contribution in LLP does exceed 50,000 then stamp duty payable is 1% of the amount of contribution subject to maximum of Rupees fifteen thousand.
