LLP Agreement - Limited Liability Partnerships, Company Law B Com Notes | EduRev

Company Law

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B Com : LLP Agreement - Limited Liability Partnerships, Company Law B Com Notes | EduRev

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LLP Agreement

No provision has been made for directors or a board structure on the lines of Company Law. The LLP agreement determines the mutual rights and duties of the partners and their rights and duties in relation to limited liability partnership. This LLP agreement is required to be filed with the Registrar.

It has been provided under Section 23 – Save as otherwise provided by this Act, the mutual rights and duties of the partners of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partners, shall be governed by the limited liability partnership agreement between the partners, or between the limited liability partnership and its partners.

Limited liability partnership agreement should be filed with the Registrar within 30 days of incorporation in form 3. A person becomes a Partner by virtue of LLP agreement. This means that the LLP agreement is a must and it serves as a basic document and, to a certain extent, takes the place of MOA and AOA applicable in the case of a company registered under the Companies Act, 1956. Any change in the LLP agreement is also required to be notified to the Registrar of Companies. The importance of the said document lies in the fact that it is a public document and it is open to public inspection being on the records of the Registrar.

In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that matter as are set out in the First Schedule.

Partners and Designated Partners

Any person can be a ‘partner’ in the limited liability partnership in accordance with the LLP agreement. Every LLP shall have atleast two designated partners who are individuals and at least one of them shall be a resident in India.

Section 5 provides that any individual or body corporate may be a partner in limited liability partnership. However, an individual shall not be capable of becoming a partner of a limited liability partnership, 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.

Section 7 provides that every limited liability partnership 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.

Every designated partner of a limited liability partnership shall obtain a Designated Partner Identification Number (PIN) from the Central Government and the provisions of Sections 266A to 266G (both inclusive) of the Companies Act, 1956 shall apply mutatis mutandis for the said purpose.

The Central Government, vide Notification No. GSR 506(E) dated 5th July, 2011, notified Limited Liability Partnership (amendment) Rules, 2011 whereby it has integrated the Director’s Identification Number (DIN) issued under Companies Act, 1956 with Designated Partnership Identification Number (DPIN) issued under Limited Liability Partnership (LLP) Act, 2008 with effect from 9.7.2011.

Pursuant to aforesaid notification with effect from 9.7.2011, no fresh DPIN will be issued. Any person, who desires to become a designated partner in a Limited Liability Partnership, has to obtain DIN by filing e-form DIN-1. If a person has been allotted DIN, the said DIN shall also be used as DPIN for all purposes under Limited Liability Partnership Act, 2008. If a person has been allotted DPIN, the said DPIN will also be used as DIN for all the purposes under Companies Act, 1956. If a person has been allotted both DIN and DPIN, his DPIN will stand cancelled and his DIN will be used as DIN as well as DPIN for all purposes under Limited Liability Partnership Act, 2008 and Companies Act, 1956. Every designated partner, shall intimate his consent to become a designated partner to the limited liability partnership and DPIN, in Form 9 and the LLP shall intimate such DPIN to Registrar in Form 4.

Disqualification of a designated partner

If he –

  • Has at any time within the preceding five years been adjudged insolvent; or
  • Suspends, or has at any time within the preceding five years suspended payment to his creditors and has not at any time within the preceding five years made, a composition with them;
  • has been convicted by a Court for any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months; or
  • has been convicted by a Court for an offence involving section 30 of the Act.

(Section 30 deals with punishment for carrying out acts by the LLP or its partners with intent to defraud its creditors or for a fraudulent purpose).

Responsibilities of Designated Partner - Where the LLP has contravened the provisions of LLP Act

Moreover, it would be seen from what has been stated above that as per the Act the designated partner would be liable to all penalties imposed on the LLP for the contravention of the provisions of the Act and as such the designated partner would be required to pay all the monetary fines imposed on the LLP. There is no provision in the Act providing for the reimbursement of such monetary penalties to him by the LLP. Further in the following instances apart from the LLP, the designated partner would also be imposed monetary penalties under the Act:-

— For non-compliance with the directions of the Central Government for change of name under Section 17 of the Act,

— For non-maintenance of books of accounts, non-filing of accounts, duly audited where such an audit is mandatory under Section 34 of the Act,

— For non-filing of the annual return of the LLP with the Registrar under Section 35 of the Act.

Partners’ Obligations

All partners, not just the designated partners, are agents of the LLP, but not of other partners. As such, all partners owe the duties of an agent to the LLP. The LLP shall not be bound by anything done by a partner in dealing with a person if that partner has no authority to act for LLP in doing a particular act and the person with whom he is dealing also knows that the partner has no authority for such act and to provide that an obligation of LLP, whether arising out of contract or otherwise will solely be the obligation of LLP. It is also provided that liabilities of LLP are to be met from the property of LLP. Further the LLP shall be liable for a wrongful act or omission by a partner in the course of the business of the LLP or with its authority. The obligation of a LLP shall not affect the personal liability of a partner for his own wrongful act or omission but a partner shall not be personally liable for wrongful act or omission of any other partner. No partner is personally liable directly or indirectly for an obligation of LLP solely by reason of his being a partner of the LLP.

Advantages & Disadvantages of LLP​

The advantages of a LLP include:

  • Separate legal entity: A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.
  • Perpetual Succession: A limited liability partnership shall have perpetual succession. In other words, partners may come and partners may go but a LLP will go on till the winding up of its affairs.
  • Limited Liability: reduced risk to personal wealth from creditors’ claims.
  • Internal flexibility: allows for participation in management and maintenance of ethos of partnership.

The disadvantages include:

  • Lack of privacy: Disclosure of financial information required under Section 34.
  • Requirement of a LLP agreement: A LLP agreement is a necessity so as to avoid the application of default provisions (First Schedule) and to provide for matters not covered in the default provisions.
  • Legal uncertainty: This being a newly introduced concept in the corporate world, it is yet to prove itself as a commercial entity.
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