A LLP is a special type of partnership that can be used by business organizations owned by certain type of professionals such as Company Secretaries, Chartered Accountants, Cost Accountants, Lawyers, Engineers, Doctors, and Consultants etc., who are not allowed to use corporation form of entity to limit their liability. LLP is generally set up for carrying on a partnership consisting of partners carrying on practice in one or more eligible professions, etc.
Since India has witnessed considerable growth in services sector and the quality of our professionals have been acknowledged internationally, It was necessary that entrepreneurship knowledge and risk capital combine to provide a further momentum to our impressive economic growth. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would offer a menu of solutions to international clients. In view of all this, the concept of LLP came into existence. LLP framework could be used for many enterprises, such as:
• Persons providing services of any kind.
• Enterprises in new knowledge and technology based fields where the corporate form is not suited.
• For professionals such as Chartered Accountants (CA), Cost and Management Accountants (CMA), Company Secretaries (CS) and Advocates, etc.
TEST YOUR KNOWLEDGE
Multiple Choice Questions
1. Ministry of Corporate Affairs enforced the LLP Act, with effect from-
(a) 31st March, 2008
(b) 1st April, 2008
(c) 31st March, 2009
(d) 1st April, 2009
2. Whether partnership law applies to the LLP-
3. State which of the statement is correct under the Limited Liability Partnership Act, 2008-
(a) All partners have unlimited liability
(b) All partners have limited liability
Answers to MCQ's
Question 1: Examine the concept of LLP.
Question 2: Enumerate the various characteristics of the LLP.
Question 3: State the necessities required for incorporation of the LLP.
Answer to the Theoretical Question
1. Meaning- A LLP is a new form of legal business entity with limited liability. It is an alternative corporate business vehicle that gives the benefits of limited liability 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.
Concept of “limited liability partnership”
• The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
• The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
• Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
2. LLP registered with the Registrar under the LLP Act, 2008 has the following characteristics:
• Body Corporate
• Perpetual Succession
• Separate legal entity
• Mutual Agency
• LLP Agreement
• Artificial Legal person
• Common Seal
• Limited liability
• Management of business
• Minimum and maximum number of members
• Business for profit only
• Compromise or Arrangement
• Converison into LLP
• E-filing of documents
• Foreign LLPs
3. Limited Liability Partnerships are bodies corporate and must be registered with the Registrar of LLP appointed under the LLP Act, 2008 after following the provisions specified in the LLP Act, in a similar way to setting up a company with distinct name. The LLP cannot have the same name with any other LLP, Partnership Firm or Company.
To create a LLP proper formation documents must be filed with the registrar along with the necessary filing fees.
Steps to incorporate LLP-
(i) Name reservation
• The first step to incorporate Limited Liability Partnership (LLP) is reservation of name of LLP.
• Applicant has to file e-Form 1, for ascertaining availability and reservation of the name of a LLP business.
(ii) Incorporate LLP
• After reserving a name, user has to file e-Form 2 for incorporating a new Limited Liability Partnership (LLP).
• e-Form 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.
(iii) 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 e- Form 3 within 30 days of incorporation of LLP.