The Limited Liability Partnership Act, 2008: A Concise Guide

The Limited Liability Partnership Act, 2008 (LLP Act), provides a legal framework for the formation and regulation of Limited Liability Partnerships (LLPs) in India. This Act combines the flexibility of a partnership with the limited liability of a company, making it a popular choice for professionals and entrepreneurs. This article summarizes the key provisions, important terms, and compliance penalties under the LLP Act.

Key Features of the LLP Act:

• Hybrid Structure: LLPs combine the benefits of a partnership and a company, offering flexibility and limited liability.

• Separate Legal Entity: An LLP is a body corporate and a separate legal entity from its partners.

• Perpetual Succession: An LLP has perpetual succession, meaning its existence is not affected by changes in its partners.

• Limited Liability: Partners’ liability is limited to their agreed contribution, protecting their personal assets from business debts.

• Flexibility: LLPs offer flexibility in management and operation, allowing partners to determine their rights and duties through an agreement.

Key Provisions of the Act:

• Nature of LLP (Section 3): An LLP is a body corporate and a separate legal entity with perpetual succession. Changes in partners do not affect its existence.

• Non-Applicability of Partnership Act (Section 4): The Indian Partnership Act, 1932, does not apply to LLPs.

• Partners (Section 5): Any individual or body corporate can be a partner, provided they are not of unsound mind, undischarged insolvents, or have a pending insolvency application.

• Minimum Number of Partners (Section 6): Every LLP must have at least two partners. If the number falls below two for more than six months, the sole partner is personally liable for obligations incurred during that period.

• Designated Partners (Section 7): Every LLP must have at least two designated partners who are individuals, with at least one being a resident in India. Designated partners are responsible for compliance.

• Liabilities of Designated Partners (Section 8): Designated partners are responsible for compliance and liable for penalties for contravention of the Act.

• Changes in Designated Partners (Section 9): An LLP can appoint a new designated partner within 30 days of a vacancy, and the new partner must consent to act.

• Punishment for Contravention (Section 10): Penalties for contravening Section 7 or 9 include fines, which can be substantial for continuing defaults.

• Incorporation Document (Section 11): To incorporate an LLP, two or more persons must subscribe to an incorporation document and file it with the Registrar.

• Incorporation by Registration (Section 12): Upon compliance with the requirements, the Registrar registers the LLP and issues a certificate of incorporation.

• Registered Office (Section 13): Every LLP must have a registered office for communication purposes.

• Effect of Registration (Section 14): Registration makes an LLP a body corporate capable of acquiring property, having a common seal (if desired), and suing and being sued.

• Name of LLP (Section 15): Every LLP must include the words “limited liability partnership” or the acronym “LLP” in its name.

• Reservation of Name (Section 16): A person may apply to the Registrar for reserving a name for a proposed LLP.

• Change of Name (Section 17): The Central Government can direct an LLP to change its name if it is undesirable or too similar to an existing entity.

• Penalty for Improper Use of Name (Section 20): Using the words “Limited Liability Partnership” or “LLP” improperly is punishable with fines.

• Publication of Name and Limited Liability (Section 21): Every LLP must ensure that its name, address, and registration number are displayed on its invoices, correspondence, and publications.

• Eligibility to be Partners (Section 22): Individuals or body corporates can be partners, unless they are of unsound mind, undischarged insolvents, or have a pending insolvency application.

• Relationship of Partners (Section 23): The mutual rights and duties of partners are governed by the LLP agreement.

• Cessation of Partnership Interest (Section 24): A partner may cease to be a partner as per the agreement, by giving notice, or due to death, insolvency, or unsound mind.

• Registration of Changes in Partners (Section 25): LLPs must notify the Registrar of any changes in partners’ names or addresses.

• Partner as Agent (Section 26): Every partner is an agent of the LLP but not of other partners.

• Extent of Liability of LLP (Section 27): An LLP is liable for a partner’s wrongful acts or omissions in the course of its business.

• Extent of Liability of a Partner (Section 28): A partner is not personally liable for the wrongful acts or omissions of other partners.

• Holding Out (Section 29): A person who represents themselves as a partner or allows themselves to be represented as a partner is liable as a partner.

• Unlimited Liability in Case of Fraud (Section 30): Partners are liable without limit for debts if the LLP or its partners act with intent to defraud creditors.

• Whistleblowing (Section 31): The Tribunal may reduce or waive penalties for partners or employees who provide useful information during investigations.

• Form of Contribution (Section 32): A partner’s contribution may consist of tangible, movable, or intangible property, or other benefits.

• Obligation to Contribute (Section 33): Partners must contribute as per the LLP agreement.

• Maintenance of Books of Account (Section 34): LLPs must maintain proper books of account and file an annual Statement of Account and Solvency.

• Annual Return (Section 35): Every LLP must file an annual return with the Registrar.

• Inspection of Documents (Section 36): Documents filed with the Registrar are available for public inspection.

• Penalty for False Statement (Section 37): Making false statements in documents is punishable with imprisonment and fines.

• Power of Registrar to Obtain Information (Section 38): The Registrar can require information from partners or designated partners.

• Compounding of Offences (Section 39): The Regional Director can compound certain offenses by collecting a sum of money.

• Destruction of Old Records (Section 40): The Registrar can destroy old documents as prescribed.

• Enforcement of Duty (Section 41): The Tribunal can direct an LLP or its partners to comply with filing requirements.

• Partners Transferable Interest (Section 42): A partner’s right to share profits and losses is transferable, but the transferee cannot interfere in the management.

• Investigation of Affairs (Section 43): The Central Government can appoint inspectors to investigate the affairs of an LLP.

• Application by Partners for Investigation (Section 44): Partners can apply for an investigation with supporting evidence.

• Firm Not to be Appointed as Inspector (Section 45): A firm cannot be appointed as an inspector.

• Power of Inspectors (Section 46): Inspectors have the power to investigate the affairs of related entities.

• Production of Documents (Section 47): Partners must produce documents and information to inspectors.

• Seizure of Documents (Section 48): Inspectors can seize documents with a magistrate’s order.

• Inspectors Report (Section 49): Inspectors must submit reports to the Central Government.

• Prosecution (Section 50): The Central Government can prosecute those guilty of offenses.

• Application for Winding Up (Section 51): The Central Government can apply to the Tribunal for winding up an LLP.

• Proceedings for Recovery (Section 52): The Central Government can initiate proceedings for the recovery of damages or property.

• Expenses of Investigation (Section 53): The Central Government can recover the expenses of an investigation.

• Inspectors Report as Evidence (Section 54): Inspectors’ reports are admissible as evidence in legal proceedings.

• Conversion from Firm into LLP (Section 55): A firm can convert into an LLP.

• Conversion from Private Company into LLP (Section 56): A private company can convert into an LLP.

• Conversion from Unlisted Public Company into LLP (Section 57): An unlisted public company can convert into an LLP.

• Registration and Effect of Conversion (Section 58): The Registrar registers the conversion and the LLP is bound by the provisions of the relevant schedule.

• Foreign Limited Liability Partnerships (Section 59): The Central Government can make rules for foreign LLPs establishing a place of business in India.

• Compromise, Arrangement, or Reconstruction (Section 60-62): The Tribunal can enforce compromises or arrangements between an LLP and its creditors or partners.

• Winding Up and Dissolution (Section 63-65): The Act outlines procedures for winding up and dissolution of LLPs.

• Business Transactions of Partner (Section 66): A partner can transact business with the LLP.

• Application of Companies Act (Section 67): The Central Government can apply provisions of the Companies Act, 2013, to LLPs.

• Establishment of Special Courts (Section 67A): The Central Government can establish special courts for speedy trials of offenses under the Act.

• Procedure and Powers of Special Courts (Section 67B): These courts have powers to try offenses under the Act.

• Appeal and Revision (Section 67C): Appeals from the Special Courts lie to the High Court.

• Electronic Filing of Documents (Section 68): Documents can be filed electronically with the Registrar.

• Registration Offices (Section 68A): The Central Government can establish registration offices.

• Payment of Additional Fee (Section 69): Additional fees are payable for delayed filings.

• Enhanced Punishment (Section 70): Enhanced punishments are prescribed for repeated offenses.

• Application of Other Laws Not Barred (Section 71): The provisions of the Act are in addition to other laws.

• Jurisdiction of Tribunal (Section 72): The National Company Law Tribunal has jurisdiction over matters under the Act.

• Penalty on Non-Compliance (Section 73): Penalties are prescribed for non-compliance with Tribunal orders.

• General Penalties (Section 74): General penalties are prescribed for contravention of the Act.

• Power of Registrar to Strike off Name (Section 75): The Registrar can strike off the name of an LLP not carrying on business.

• Offences by LLPs (Section 76): The Act specifies offenses by LLPs and their partners.

• Adjudication of Penalties (Section 76A): The Central Government can appoint adjudicating officers.

• Jurisdiction of Court (Section 77): The Special Courts have jurisdiction over offenses under the Act.

• Cognizance of Offences (Section 77A): Courts can only take cognizance of offenses based on complaints by the Registrar or an authorized officer.

• Power to Alter Schedules (Section 78): The Central Government can alter the schedules of the Act.

• Power to Make Rules (Section 79): The Central Government can make rules to carry out the purposes of the Act.

• Power to Remove Difficulties (Section 80): The Central Government can issue orders to remove difficulties in implementing the Act.

Compliance Penalties:

The Act prescribes penalties for various contraventions, including:

• Fines: Fines ranging from a few thousand to several lakh rupees.

• Imprisonment: Imprisonment for certain offenses, particularly those involving fraud or misrepresentation.

• Additional Fines: Continuing defaults may result in additional fines for each day of non-compliance.

• Disqualification: Designated partners may face disqualification for non-compliance.

Conclusion:

The Limited Liability Partnership Act, 2008, provides a flexible and modern legal framework for partnerships in India. It offers the benefits of limited liability and operational flexibility, making it a popular choice for professionals and entrepreneurs. Understanding the key provisions, compliance requirements, and penalties under the Act is essential for anyone considering forming or operating an LLP in India.