Limited Liability Partnership - LLP

BINOY CHACKO (Co-Founder) (317 Points)

25 April 2009

Limited Liability Partnership - LLP

1. Concept of LLP

Limited Liability Partnerships (LLPs) are commercial vehicles which combine the features of partnership and company form of business .The concept of Limited Liability Partnership (LLP) has been introduced in India by way of Limited Liability Partnership Act, 2008 (notified on 31st March 2008).

A Limited Liability Partnership combines the advantages of both the Company and Partnership into a single form of organization. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. In an LLP, all partners have limited liability for each individual's protection within the partnership, similar to that of the shareholders of a limited company. However, unlike the company shareholders, the partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP's employees or other agents.

2. LLP – A Separate Legal entity

LLP is a separate legal entity, liable to the full extent of its assets; the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

3. Advantages and Disadvantages of LLP

Advantages

· Separate legal entity

· Easy to establish

· Flexibility without imposing detailed legal and procedural requirements

· Perpetual existence irrespective of changes in partners

· Internationally renowned form of business in comparison to Company

· No requirement of minimum capital contribution

· No restrictions as to maximum number of partners

· LLP & its partners are distinct from each other

· Partners are not liable for Act of other partners.

· Personal assets of the partners are not exposed except in case of fraud.

· Easy to dissolve or wind-up

· Professionals like CS / CA / CWA / Lawyers can form Multi-disciplinary Professional LLP

· No requirement to maintain statutory records except Books of Accounts

· Less Cost of formation (Compared to a company)

Disadvantages

· LLP cannot raise funds from Public

· Any act of the partner without the other may bind the LLP.

· Under some cases, liability may extend to personal assets of partners.

· No separation of Management from owners

4. Partners / Designated Partners of LLP

An LLP should have minimum 2 partners. Every LLP should have minimum 2 designated partners who are individuals and at least one of them should be resident in India.

Partner of LLP can be consisted of

a) Companies incorporated in and outside India

b) LLP incorporated in and outside India

c) Individuals Resident in and outside India

Designated Partner of LLP shall be responsible for the doing of all acts and things that are required to be carried out by the LLP and is responsible for the compliance of the provisions and filing of document / returns/ statements of LLP Act and as may be specified in the LLP agreement

Designated Partner shall be liable to all penalties imposed on the LLP for any contravention of provisions of LLP Act.

5. Designated Partner Identification Number (DPIN)

A person or nominee of a body corporate, intending to be appointed as who is appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.

IMPORTANT NOTE: Director Identification Number (DIN) allotted under the Companies Act and DPIN are not same. DIN holder has to make a separate application for DPIN with his/her DIN. On submission of documents for verification, the DPIN status will be confirmed.

6. Management of LLP

Day to day operations of Limited Liability Partnership will be managed by Designated Partners, who are responsible for ensuring the compliances of all applicable laws.

Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describe the matters relating to mutual rights and duties of partners of the LLP and of the limited liability partnership and its partners.

7. Capital Contribution to LLP

Unlike in the case of a company, there is no requirement for minimum capital contribution for a LLP. However, the registration cost for LLP is determined on the basis of amount of contribution.

8. FDI in LLP

The Government of India has not notified the policy for Foreign Direct Investment in LLP.

9. Reservation of Name by a LLP registered out side India

A foreign LLP or a foreign company can reserve its existing name by which it is registered in the country of its incorporation by making an application to Ministry of Corporate Affairs. The reservation will be valid initially for three years and is renewable thereafter.

10. Branch office of Foreign LLP

A LLP registered outside India can establish an office in India and has to comply wit the provisions of LLP Act 2008.

11. LLP Name – Guidelines

The guidelines for the availability of LLP names are prescribed by the LLP Act.

· The name of the limited liability partnership shall not be one prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950

· A Name shall not generally be reserved, if -

§ Offensive Names: It includes any word or words which are offensive to any section of the people;

§ Translation: The proposed name is the exact Hindi or English translation of the name of an existing limited liability partnership in English or Hindi, as the case may be;

§ Phonetic Resemblance: The proposed name has a close phonetic resemblance to the name of a LLP in existence, for example, J.K. LLP., Jay Kay LLP;

§ Co-operative Sector: It includes the word Co-operative, Sahakari or the equivalent of word 'co-operative' in the regional languages of the country;

§ Government Patronage: It connotes the participation or patronage of the Central or State Government, unless circumstances justify to, e.g., a name may be deemed undesirable in certain context if it includes any of the words such as National, Union, Central, Federal, Republic, President, Rashtrapati, etc;

§ The proposed name contains the words 'British India';

§ Assocation with Embassy: The proposed name implies association or connection with any Embassy or Consulate or of a foreign government which suggests connection with local authorities such as Municipal, Panchayat, Zila Parishad or any other body connected with the Union or State Government;

§ Vague Names: The proposed name is vague like D.I.M.O. Limited liability partnership or I.V.N.R. Limited liability partnership or S.S.R.P Limited liability partnership;

§ Close Similarity: It is different from the name or names of the existing limited liability partnership only to the extent of having the name of a place within brackets before the word ‘limited liability partnership’, for example, Indian Press (Delhi) LLP should not be allowed in view of the existence of the LLP named Indian Press LLP;

§ Trade mark: It includes name of registered Trade mark, unless the consent of the owner of the trade mark has been produced;

§ Identical Names: The proposed name is identical with or too nearly resembles the name of a firm or LLP or company incorporated outside India and reserved by such firm, LLP or company with the registrar in accordance with these rules;

§ It is identical with or too nearly resembles the name of the limited liability partnership or a company in liquidation or it is identical with or too nearly resembles names of the LLP or a company which is struck off, up to the period of 5 years;

§ Name Requiring Approval: It includes words like 'Bank', 'Insurance' and 'Banking', ‘Venture capital’ or ‘mutual fund’ or such similar names without the approval of the regulatory authority;

§ Misleading Names: It is intended or likely to produce a misleading impression regarding the scope or scale of its activities which would be beyond the resources at its disposal;

§ Countries Names: The proposed name includes words like French, British, German etc., unless the partners satisfy that there is some form of collaboration and connection with the foreigners of that particular country or place, the name of which is incorporated in the name;

§ Professional Names: The proposed name of limited liability partnership includes the words company secretary, chartered accountant, advocates or such similar words as indicative of a profession, as part of the proposed name, the same shall be allowed only after obtaining approval from the Council governing such profession or such authority as may be nominated by the Central Government, in this behalf.

Prohibited Words: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950.
Words Based on Approval: Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval.
Names reserved for Foreign LLP/Companies: In case Foreign LLP/Companies have reserved their name such names shall not be available for registration.

12. COMPARISON – LLP / Company / Partnership

S. No	Conditions	LLP	Company	Partnership
1.	Registration	To be registered with Registrar of LLP under LLP Act 2008	To be registered with Registrar of Companies under Companies Act 1956.	Registration is optional
2	Name	Name should contain 'Limited Liability Partnership' or 'LLP' as last words	Name should contain 'Limited' / 'Private Limited' as last words	Any name as per choice
3.	Legal entity	LLP is a separate legal entity registered under LLP Act	Company is a separate legal entity regisered under Companies Act, 1956	Not a separate legal entity
4.	Formation Cost	The cost of Formation is lesser that of formation of Company.	The cost of Formation is higher than that of formation of LLP	The Cost of Formation is negligible.
5.	Formation by Foreign Nationals	Foreign Nationals alone can not form a LLP.	Foreign Nationals alone can form a Company	Foreign Nationals can not form Partnership Firm in India.
6.	Minimum Number of Members	Minimum 2 partners	Minimum 2 in case of Private Company 7 in case of Public Company.	2
7.	Management Team	Minimum 2 Designated partners	Minimum 2 / 3 Directors	No requirements
8.	Administration.	Designated Partners are responsible for day to day operations and statutory compliances	Directors are responsible for day to day operations and statutory compliances	Partners are responsible for day to day operations and statutory compliances
9.	Remuneration to Managerial Personnel	Remuneration to partners will be determined on LLP Agreement	Remuneration to Directors of Public Companies are governed by Companies Act	The firm can pay remuneration to its partners
10.	Liability of Partners / Members	Limited to the extent of contribution towards LLP	Limited to the amount of share capital agreed to be contributed on each share	Partners have unlimited liability
11.	Capital Contribution	Determined by partners as per the LLP agreement.	Limited to the unpaid amount of share capital agreed to be contributed	Unlimited may extend to their personal assets
12.	Tax Liability	Notification from IT Department awaited	Income of Company is Taxed at a Flat rate of 30% Plus surcharge as applicable.	Income of Partnership is Taxed at a Flat rate of 30% Plus surcharge as applicable.
13.	Transfer of ownership Rights	Ownership transfer is governed by the LLP Agreement.	Ownership is easily transferable by transfer of shares	Not transferable.
14.	Statutory Meetings	There is no requirement to hold any meeting	Board Meetings and General Meetings are required to be conducted as per Companies Act	There is no provision in regard to holding of any meeting
15.	Maintenance of Statutory Records / Minutes Book	Required to maintain books of accounts.	Required to maintain books of accounts, statutory registers, minutes etc.	Required to maintain books of accounts as Tax laws
16.	Annual Filing	Annual Statement of accounts and Solvency & Annual Return needs to be filed every year.	Annual Accounts and Annual Return needs to be filed with the Registrar of Companies	No return except Tax returns
17.	Agreements / Contracts with Partners/Director	Partners are free to enter into any contract with LLP	There are restrictions for contracts in which directors are interested.	Partners are free to enter into any contract partnership
18.	Reputation	LLP enjoys higher reputation compared to Partnership as it is registered and regulated by LLP Act	Due to Stringent Compliances & disclosures under various laws, Companies enjoys high degree of creditworthiness	Creditworthiness of firm depends upon goodwill and creditworthiness of its partners
19.	Dissolution	Voluntary or by order of National Company Law Tribunal.	Voluntary or by order of National Company Law Tribunal.	By agreement, mutual consent, insolvency, certain contingencies, and by court order.