ICAI Notes- The Limited Liability Partnership, 2008 | Business Laws for CA Foundation PDF Download

 Page 1


LEARNING OUTCOMES 
THE LIMITED LIABILITY  
 PARTNERSHIP ACT, 2008  
After studying this chapter, you would be able to understand- 
? The meaning of the term ‘Limited Liability Partnership’, its need, 
scope and advantages 
? About Incorporation of LLP  
? Differences between ‘Limited Liability Partnership’ and other forms 
of organisation 
LLP
Introduction
Essential 
features
Characteristics 
of LLP
Incorporation
Difference with 
other forms of 
organizations
CHAPTER 
5 
   
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
Page 2


LEARNING OUTCOMES 
THE LIMITED LIABILITY  
 PARTNERSHIP ACT, 2008  
After studying this chapter, you would be able to understand- 
? The meaning of the term ‘Limited Liability Partnership’, its need, 
scope and advantages 
? About Incorporation of LLP  
? Differences between ‘Limited Liability Partnership’ and other forms 
of organisation 
LLP
Introduction
Essential 
features
Characteristics 
of LLP
Incorporation
Difference with 
other forms of 
organizations
CHAPTER 
5 
   
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
  BUSINESS LAWS 
5.2 
INTRODUCTION
The Ministry of Law and Justice on 9
th
 January 2007 notified the Limited Liability Partnership 
Act, 2008. 
The Parliament passed the Limited Liability Partnership Bill on 12
th
 December, 2008 and the 
President of India has assented the Bill on 7
th
 January, 2009 and called as the Limited 
Liability Partnership Act, 2008. 
The LLP Act, 2008 is applicable to the whole of India. 
This Act have been enacted to make provisions for the formation and regulation of Limited 
Liability Partnerships and for matters connected there with or incidental thereto.  
The LLP Act, 2008 has 81 sections and 4 schedules. 
The First Schedule deals with mutual rights and duties of partners, as well limited liability 
partnership and its partners where there is absence of a formal agreement with respect to 
them. 
The Second Schedule deals with conversion of a firm into LLP. 
The Third Schedule deals with conversion of a private company into LLP. 
The Fourth Schedule deals with conversion of unlisted public company into LLP. 
The Ministry of Corporate Affairs and the Registrar of Companies (ROC) are entrusted with 
the task of administrating the LLP Act, 2008.  The Central Government has the authority to 
frame the Rules with regard to the LLP Act, 2008, and can amend them by notifications in 
the Official Gazette, from time to time. 
It is also to be noted that the Indian Partnership Act, 1932 is not applicable to LLPs. 
The Limited Liability Act, 2008 has been amended through the Limited Liability 
Partnership (Amendment) Act, 2021 dated 13th August, 2021. 
Need of new form of Limited Liability Partnership 
The lawmakers envisaged the need for bringing out a new legislation for creation of the 
Limited Liability Partnership to meet with the contemporary growth of the Indian economy. 
A need has been felt for a new corporate form that would provide 
an alternative to the traditional partnership with unlimited personal 
liability on the one hand and the statute-based governance 
structure of the limited liability company on the other hand. In 
order to enable professional expertise and entrepreneurial 
initiative and combine, organize and operate in flexible, innovative and efficient manner, the 
LLP Act, 2008 was enacted.  
© The Institute of Chartered Accountants of India
Page 3


LEARNING OUTCOMES 
THE LIMITED LIABILITY  
 PARTNERSHIP ACT, 2008  
After studying this chapter, you would be able to understand- 
? The meaning of the term ‘Limited Liability Partnership’, its need, 
scope and advantages 
? About Incorporation of LLP  
? Differences between ‘Limited Liability Partnership’ and other forms 
of organisation 
LLP
Introduction
Essential 
features
Characteristics 
of LLP
Incorporation
Difference with 
other forms of 
organizations
CHAPTER 
5 
   
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
  BUSINESS LAWS 
5.2 
INTRODUCTION
The Ministry of Law and Justice on 9
th
 January 2007 notified the Limited Liability Partnership 
Act, 2008. 
The Parliament passed the Limited Liability Partnership Bill on 12
th
 December, 2008 and the 
President of India has assented the Bill on 7
th
 January, 2009 and called as the Limited 
Liability Partnership Act, 2008. 
The LLP Act, 2008 is applicable to the whole of India. 
This Act have been enacted to make provisions for the formation and regulation of Limited 
Liability Partnerships and for matters connected there with or incidental thereto.  
The LLP Act, 2008 has 81 sections and 4 schedules. 
The First Schedule deals with mutual rights and duties of partners, as well limited liability 
partnership and its partners where there is absence of a formal agreement with respect to 
them. 
The Second Schedule deals with conversion of a firm into LLP. 
The Third Schedule deals with conversion of a private company into LLP. 
The Fourth Schedule deals with conversion of unlisted public company into LLP. 
The Ministry of Corporate Affairs and the Registrar of Companies (ROC) are entrusted with 
the task of administrating the LLP Act, 2008.  The Central Government has the authority to 
frame the Rules with regard to the LLP Act, 2008, and can amend them by notifications in 
the Official Gazette, from time to time. 
It is also to be noted that the Indian Partnership Act, 1932 is not applicable to LLPs. 
The Limited Liability Act, 2008 has been amended through the Limited Liability 
Partnership (Amendment) Act, 2021 dated 13th August, 2021. 
Need of new form of Limited Liability Partnership 
The lawmakers envisaged the need for bringing out a new legislation for creation of the 
Limited Liability Partnership to meet with the contemporary growth of the Indian economy. 
A need has been felt for a new corporate form that would provide 
an alternative to the traditional partnership with unlimited personal 
liability on the one hand and the statute-based governance 
structure of the limited liability company on the other hand. In 
order to enable professional expertise and entrepreneurial 
initiative and combine, organize and operate in flexible, innovative and efficient manner, the 
LLP Act, 2008 was enacted.  
© The Institute of Chartered Accountants of India
5.3 
THE LIMITED LIABILITY PARTNERSHIP ACT, 2008 
 
Thus, LLP as a form of business organization is an alternative corporate business vehicle. It 
provides the benefits of limited liability but allows its members the flexibility of organizing 
their internal structure as a partnership based on a mutually arrived agreement. The LLP 
form enables entrepreneurs, professionals and enterprises providing services of any kind or 
engaged in scientific and technical disciplines, to form commercially efficient vehicles suited 
to their requirements. Owing to flexibility in its structure and operation, the LLP is a suitable 
vehicle for small enterprises and for investment by venture capital. 
1.  LIMITED LIABILITY PARTNERSHIP- MEANING 
 AND CONCEPT 
Meaning: A LLP is a new form of legal business entity with limited liability. 
It is an alternative corporate business vehicle that not only gives the 
benefits of limited liability at low compliance cost but allows its partners 
the flexibility of organising their internal structure as a traditional 
partnership. The LLP is a separate legal entity and, while the LLP itself will 
be liable for the full extent of its assets, the liability of the partners will be limited. 
LLP as a separate legal entity and business organisation is an alternative corporate business 
form that gives the benefits of limited liability of a company and the flexibility of a partnership. 
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. 
 
 
LLP
New form of 
legal business 
entity with 
limited liability
Alternative 
corporate 
business vehicle
Allow the partners 
the flexibility of 
organising their 
internal structure
LLP itself will be 
liable for the full 
extent of its 
assets
Liability of the 
partners will be 
limited
© The Institute of Chartered Accountants of India
Page 4


LEARNING OUTCOMES 
THE LIMITED LIABILITY  
 PARTNERSHIP ACT, 2008  
After studying this chapter, you would be able to understand- 
? The meaning of the term ‘Limited Liability Partnership’, its need, 
scope and advantages 
? About Incorporation of LLP  
? Differences between ‘Limited Liability Partnership’ and other forms 
of organisation 
LLP
Introduction
Essential 
features
Characteristics 
of LLP
Incorporation
Difference with 
other forms of 
organizations
CHAPTER 
5 
   
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
  BUSINESS LAWS 
5.2 
INTRODUCTION
The Ministry of Law and Justice on 9
th
 January 2007 notified the Limited Liability Partnership 
Act, 2008. 
The Parliament passed the Limited Liability Partnership Bill on 12
th
 December, 2008 and the 
President of India has assented the Bill on 7
th
 January, 2009 and called as the Limited 
Liability Partnership Act, 2008. 
The LLP Act, 2008 is applicable to the whole of India. 
This Act have been enacted to make provisions for the formation and regulation of Limited 
Liability Partnerships and for matters connected there with or incidental thereto.  
The LLP Act, 2008 has 81 sections and 4 schedules. 
The First Schedule deals with mutual rights and duties of partners, as well limited liability 
partnership and its partners where there is absence of a formal agreement with respect to 
them. 
The Second Schedule deals with conversion of a firm into LLP. 
The Third Schedule deals with conversion of a private company into LLP. 
The Fourth Schedule deals with conversion of unlisted public company into LLP. 
The Ministry of Corporate Affairs and the Registrar of Companies (ROC) are entrusted with 
the task of administrating the LLP Act, 2008.  The Central Government has the authority to 
frame the Rules with regard to the LLP Act, 2008, and can amend them by notifications in 
the Official Gazette, from time to time. 
It is also to be noted that the Indian Partnership Act, 1932 is not applicable to LLPs. 
The Limited Liability Act, 2008 has been amended through the Limited Liability 
Partnership (Amendment) Act, 2021 dated 13th August, 2021. 
Need of new form of Limited Liability Partnership 
The lawmakers envisaged the need for bringing out a new legislation for creation of the 
Limited Liability Partnership to meet with the contemporary growth of the Indian economy. 
A need has been felt for a new corporate form that would provide 
an alternative to the traditional partnership with unlimited personal 
liability on the one hand and the statute-based governance 
structure of the limited liability company on the other hand. In 
order to enable professional expertise and entrepreneurial 
initiative and combine, organize and operate in flexible, innovative and efficient manner, the 
LLP Act, 2008 was enacted.  
© The Institute of Chartered Accountants of India
5.3 
THE LIMITED LIABILITY PARTNERSHIP ACT, 2008 
 
Thus, LLP as a form of business organization is an alternative corporate business vehicle. It 
provides the benefits of limited liability but allows its members the flexibility of organizing 
their internal structure as a partnership based on a mutually arrived agreement. The LLP 
form enables entrepreneurs, professionals and enterprises providing services of any kind or 
engaged in scientific and technical disciplines, to form commercially efficient vehicles suited 
to their requirements. Owing to flexibility in its structure and operation, the LLP is a suitable 
vehicle for small enterprises and for investment by venture capital. 
1.  LIMITED LIABILITY PARTNERSHIP- MEANING 
 AND CONCEPT 
Meaning: A LLP is a new form of legal business entity with limited liability. 
It is an alternative corporate business vehicle that not only gives the 
benefits of limited liability at low compliance cost but allows its partners 
the flexibility of organising their internal structure as a traditional 
partnership. The LLP is a separate legal entity and, while the LLP itself will 
be liable for the full extent of its assets, the liability of the partners will be limited. 
LLP as a separate legal entity and business organisation is an alternative corporate business 
form that gives the benefits of limited liability of a company and the flexibility of a partnership. 
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. 
 
 
LLP
New form of 
legal business 
entity with 
limited liability
Alternative 
corporate 
business vehicle
Allow the partners 
the flexibility of 
organising their 
internal structure
LLP itself will be 
liable for the full 
extent of its 
assets
Liability of the 
partners will be 
limited
© The Institute of Chartered Accountants of India
  BUSINESS LAWS 
5.4 
Important Definitions 
1. Body Corporate [(Section 2(1)(d)]: It means a company as defined in clause (20) of 
section 2 of the Companies Act, 2013 and 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 
(i)  a corporation sole; 
(ii)  a co-operative society registered under any law for the time being in force; 
and 
(iii)  any other body corporate (not being a company as defined in clause (20) of 
section 2 of the Companies Act, 2013 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. 
2. Business [Section 2(1)(e)]: “Business” includes every trade, profession, service and 
occupation except any activity which the Central Government may, by notification, 
exclude.  
3. Designated Partner [Section 2(1)(j)]: “Designated partner” means any partner 
designated as such pursuant to section 7. 
4. Entity [Section 2(1)(k)]: “Entity” means any body corporate and includes, for the 
purposes of sections 18, 46, 47, 48, 49, 50, 52 and 53, a firm setup under the Indian 
Partnership Act, 1932.  
5. Financial Year [Section 2(1)(l)]: “Financial year”, in relation to a LLP, means the 
period from the 1st day of April of a year to the 31st day of March of the following 
year.  
However, in the case of a LLP incorporated after the 30th day of September of a year, 
the financial year may end on the 31st day of March of the year next following that 
year.  
Example 1: If a LLP has been incorporated on 15th October, 2019, then its financial 
year may be from 15th October, 2019 to 31st March, 2021.  
The Income Tax department has prescribed uniform financial year from 1st April to 
31st March of next year. In keeping with the Income tax law, the financial year for LLP 
should always be from 1st April to 31st March each year.  
© The Institute of Chartered Accountants of India
Page 5


LEARNING OUTCOMES 
THE LIMITED LIABILITY  
 PARTNERSHIP ACT, 2008  
After studying this chapter, you would be able to understand- 
? The meaning of the term ‘Limited Liability Partnership’, its need, 
scope and advantages 
? About Incorporation of LLP  
? Differences between ‘Limited Liability Partnership’ and other forms 
of organisation 
LLP
Introduction
Essential 
features
Characteristics 
of LLP
Incorporation
Difference with 
other forms of 
organizations
CHAPTER 
5 
   
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
  BUSINESS LAWS 
5.2 
INTRODUCTION
The Ministry of Law and Justice on 9
th
 January 2007 notified the Limited Liability Partnership 
Act, 2008. 
The Parliament passed the Limited Liability Partnership Bill on 12
th
 December, 2008 and the 
President of India has assented the Bill on 7
th
 January, 2009 and called as the Limited 
Liability Partnership Act, 2008. 
The LLP Act, 2008 is applicable to the whole of India. 
This Act have been enacted to make provisions for the formation and regulation of Limited 
Liability Partnerships and for matters connected there with or incidental thereto.  
The LLP Act, 2008 has 81 sections and 4 schedules. 
The First Schedule deals with mutual rights and duties of partners, as well limited liability 
partnership and its partners where there is absence of a formal agreement with respect to 
them. 
The Second Schedule deals with conversion of a firm into LLP. 
The Third Schedule deals with conversion of a private company into LLP. 
The Fourth Schedule deals with conversion of unlisted public company into LLP. 
The Ministry of Corporate Affairs and the Registrar of Companies (ROC) are entrusted with 
the task of administrating the LLP Act, 2008.  The Central Government has the authority to 
frame the Rules with regard to the LLP Act, 2008, and can amend them by notifications in 
the Official Gazette, from time to time. 
It is also to be noted that the Indian Partnership Act, 1932 is not applicable to LLPs. 
The Limited Liability Act, 2008 has been amended through the Limited Liability 
Partnership (Amendment) Act, 2021 dated 13th August, 2021. 
Need of new form of Limited Liability Partnership 
The lawmakers envisaged the need for bringing out a new legislation for creation of the 
Limited Liability Partnership to meet with the contemporary growth of the Indian economy. 
A need has been felt for a new corporate form that would provide 
an alternative to the traditional partnership with unlimited personal 
liability on the one hand and the statute-based governance 
structure of the limited liability company on the other hand. In 
order to enable professional expertise and entrepreneurial 
initiative and combine, organize and operate in flexible, innovative and efficient manner, the 
LLP Act, 2008 was enacted.  
© The Institute of Chartered Accountants of India
5.3 
THE LIMITED LIABILITY PARTNERSHIP ACT, 2008 
 
Thus, LLP as a form of business organization is an alternative corporate business vehicle. It 
provides the benefits of limited liability but allows its members the flexibility of organizing 
their internal structure as a partnership based on a mutually arrived agreement. The LLP 
form enables entrepreneurs, professionals and enterprises providing services of any kind or 
engaged in scientific and technical disciplines, to form commercially efficient vehicles suited 
to their requirements. Owing to flexibility in its structure and operation, the LLP is a suitable 
vehicle for small enterprises and for investment by venture capital. 
1.  LIMITED LIABILITY PARTNERSHIP- MEANING 
 AND CONCEPT 
Meaning: A LLP is a new form of legal business entity with limited liability. 
It is an alternative corporate business vehicle that not only gives the 
benefits of limited liability at low compliance cost but allows its partners 
the flexibility of organising their internal structure as a traditional 
partnership. The LLP is a separate legal entity and, while the LLP itself will 
be liable for the full extent of its assets, the liability of the partners will be limited. 
LLP as a separate legal entity and business organisation is an alternative corporate business 
form that gives the benefits of limited liability of a company and the flexibility of a partnership. 
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. 
 
 
LLP
New form of 
legal business 
entity with 
limited liability
Alternative 
corporate 
business vehicle
Allow the partners 
the flexibility of 
organising their 
internal structure
LLP itself will be 
liable for the full 
extent of its 
assets
Liability of the 
partners will be 
limited
© The Institute of Chartered Accountants of India
  BUSINESS LAWS 
5.4 
Important Definitions 
1. Body Corporate [(Section 2(1)(d)]: It means a company as defined in clause (20) of 
section 2 of the Companies Act, 2013 and 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 
(i)  a corporation sole; 
(ii)  a co-operative society registered under any law for the time being in force; 
and 
(iii)  any other body corporate (not being a company as defined in clause (20) of 
section 2 of the Companies Act, 2013 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. 
2. Business [Section 2(1)(e)]: “Business” includes every trade, profession, service and 
occupation except any activity which the Central Government may, by notification, 
exclude.  
3. Designated Partner [Section 2(1)(j)]: “Designated partner” means any partner 
designated as such pursuant to section 7. 
4. Entity [Section 2(1)(k)]: “Entity” means any body corporate and includes, for the 
purposes of sections 18, 46, 47, 48, 49, 50, 52 and 53, a firm setup under the Indian 
Partnership Act, 1932.  
5. Financial Year [Section 2(1)(l)]: “Financial year”, in relation to a LLP, means the 
period from the 1st day of April of a year to the 31st day of March of the following 
year.  
However, in the case of a LLP incorporated after the 30th day of September of a year, 
the financial year may end on the 31st day of March of the year next following that 
year.  
Example 1: If a LLP has been incorporated on 15th October, 2019, then its financial 
year may be from 15th October, 2019 to 31st March, 2021.  
The Income Tax department has prescribed uniform financial year from 1st April to 
31st March of next year. In keeping with the Income tax law, the financial year for LLP 
should always be from 1st April to 31st March each year.  
© The Institute of Chartered Accountants of India
5.5 
THE LIMITED LIABILITY PARTNERSHIP ACT, 2008 
 
6. Foreign LLP [section 2(1)(m)]: It means a LLP formed, incorporated or registered 
outside India which establishes a place of business within India. 
7. Limited liability partnership [Section 2(1)(n)]: Limited Liability Partnership means 
a partnership formed and registered under this Act.  
8. Limited Liability partnership agreement [Section 2(1)(o)]: It means any written 
agreement between the partners of the LLP or between the LLP and its partners 
which determines the mutual rights and duties of the partners and their rights and 
duties in relation to that LLP. 
9. Partner [Section 2(1)(q)]: Partner, in relation to a LLP, means any person who 
becomes a partner in the LLP in accordance with the LLP agreement.  
10. Small Limited Liability Partnership [Section 2(1)(ta)]: It means a limited liability 
partnership— 
(i)  the contribution of which, does not exceed twenty-five lakh rupees or such 
higher amount, not exceeding five crore rupees, as may be prescribed; and 
(ii)  the turnover of which, as per the Statement of Accounts and Solvency for the 
immediately preceding financial year, does not exceed forty lakh rupees or 
such higher amount, not exceeding fifty crore rupees, as may be prescribed; 
or 
(iii)  which meets such other requirements as may be prescribed, and fulfils such 
terms and conditions as may be prescribed. 
Non-applicability of the Indian Partnership Act, 1932 (Section 4): Save as otherwise 
provided, the provisions of the Indian Partnership Act, 1932 shall not apply to a LLP. 
Partners (Section 5): Any individual or body corporate may be a partner in a LLP. However, 
an individual shall not be capable of becoming a partner of a LLP, if—  
(a) he has been found to be of unsound mind by a Court of competent jurisdiction and 
the finding is in force;  
(b) he is an undischarged insolvent; or  
(c) he has applied to be adjudicated as an insolvent and his application is pending.  
Minimum number of partners (Section 6): 
(i) Every LLP shall have at least two partners.   
(ii) If at any time the number of partners of a LLP is reduced below two and the LLP 
carries on business for more than six months while the number is so reduced, the 
person, who is the only partner of the LLP during the time that it so carries on 
© The Institute of Chartered Accountants of India