![Business Law Unit IV: Partnership Laws B) The Limited Liability Partnership Act, 2008 Notes [Gauhati University FYUGP BCom 3rd Sem]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLV86sfs_x-THwdXyzgllI3zsOZ5Kidq788MM7P946y_V2iRqibXL4kQ4tgJzvUaLQ6I-6aMQzsxePthkG137eEMWkT0oD1A9QYXuSrYoCMU3Y-Kjxz-SHlRRC7m1xdi21h-4Hro3rgYyS98Kxacb8X9UO-ePVNSGlJkfvRrWJUrnCQ873DAGNGIC-eXm1/w523-h294-rw/1000359069.webp "Business Law Unit IV: Partnership Laws B) The Limited Liability Partnership Act, 2008 Notes [Gauhati University FYUGP BCom 3rd Sem]")
1. Define Limited Liability Partnership. (GU BCom 2023)
Answer: A Limited Liability Partnership (LLP) is a form of business organization where partners have limited liability, meaning they are not personally liable for the debts of the firm beyond their agreed contribution. It combines the features of both a partnership and a company.
2. State two features of LLP.
Answer:
i) LLP has a separate legal entity distinct from its partners.
ii) The liability of partners is limited to their capital contribution.
3. Who are designated partners?
Answer: Designated partners are those partners who are responsible for the compliance, administration, and filing of documents under the LLP Act. Every LLP must have at least two designated partners.
4. What is an LLP Agreement?
Answer: An LLP Agreement is a written agreement between the partners of an LLP that defines their mutual rights, duties, and obligations, as well as the management structure of the LLP.
5. What is incorporation document of LLP?
Answer: The incorporation document is a form filed with the Registrar of Companies containing details such as the name of the LLP, partners’ details, and registered office address to legally register the LLP under the LLP Act, 2008.
6. State any two differences between LLP and Partnership.
Answer:
i) LLP has a separate legal entity, whereas a partnership firm does not.
ii) The liability of partners in LLP is limited, but in partnership, partners have unlimited liability.
7. State any two differences between LLP and Company.
Answer:
i) LLP is governed by the LLP Act, 2008, while a company is governed by the Companies Act, 2013.
ii) In LLP, partners manage the business directly, whereas in a company, directors manage on behalf of shareholders.
8. Write two advantages of LLP. (GU BCom 2019, 2021, 2023)
Answer:
i) Limited liability protects the personal assets of partners.
ii) LLP enjoys perpetual succession and is easy to form and manage compared to a company.
9. State two liabilities of partners in an LLP. (GU BCom 2023)
Answer:
i) Partners are liable only to the extent of their contribution.
ii) A partner is personally liable for his own wrongful acts or omissions but not for those of other partners.
10. What is the minimum number of partners in LLP?
Answer: The minimum number of partners required to form an LLP is two.
11. Can a minor be a partner in LLP?
Answer: No, a minor cannot be a partner in a Limited Liability Partnership.
12. State two similarities between partnership and LLP.
Answer:
i) Both are formed by an agreement between partners.
ii) Both share profits and losses among partners as per the agreement.
13. Mention the governing law of LLP in India.
Answer: The governing law of LLP in India is the Limited Liability Partnership Act, 2008.
14. What is perpetual succession in LLP?
Answer: Perpetual succession in LLP means that the LLP continues to exist even if partners change, die, or retire. The existence of LLP is not affected by changes in its partners.
15. Define "Incorporation by registration."
Answer: Incorporation by registration means the legal process of forming and registering an LLP under the Limited Liability Partnership Act, 2008 by filing the required incorporation documents with the Registrar of Companies.
5 Marks Questions (Short Notes / Brief Explanations)
1. Distinguish between Partnership and LLP. (GU BCom 2020, 2021, 2024)
Answer: Hence, LLP provides a more secure and flexible business structure compared to a traditional partnership, combining the benefits of limited liability with the operational flexibility of a partnership.
2. Distinguish between LLP and Company. (GU BCom 2021, 2024)
Answer: Thus, an LLP is more suitable for professionals and small businesses requiring limited liability with minimal compliance, whereas a company suits larger enterprises needing higher credibility and scalability.
3. State the salient features of LLP. (GU BCom 2019, 2021)
Answer: The salient features of a Limited Liability Partnership (LLP) are as follows:
i) Separate Legal Entity: LLP is a separate legal entity distinct from its partners. It can own property, enter into contracts, and sue or be sued in its own name.
ii) Limited Liability: The liability of each partner is limited to the extent of his agreed contribution. Personal assets of partners are protected from business liabilities.
iii) Perpetual Succession: LLP continues to exist irrespective of the death, retirement, or insolvency of any partner.
iv) Minimum and Maximum Partners: LLP requires a minimum of two partners to be formed, and there is no upper limit on the number of partners.
v) LLP Agreement: The rights, duties, and responsibilities of partners are governed by a written LLP Agreement.
vi) Designated Partners: Every LLP must have at least two designated partners who are responsible for statutory compliance and filings.
vii) Flexibility in Management: LLP combines the benefits of a company and partnership, providing managerial flexibility like a traditional partnership.
viii) Lesser Compliance: Compared to companies, LLPs have fewer legal compliances and formalities.
ix) Taxation: LLPs are taxed similarly to partnership firms under the Income Tax Act, 1961.
x) Audit Requirement: Audit of accounts is required only when the annual turnover or contribution exceeds the prescribed limit.
Hence, LLP is an ideal form of business for professionals and small entrepreneurs seeking limited liability with flexible operations.
4. What are the advantages of LLP? (GU BCom 2019, 2021, 2023)
Answer: The main advantages of a Limited Liability Partnership (LLP) are as follows:
i) Limited Liability: Partners are not personally liable for business debts and obligations beyond their contribution. This provides financial protection.
ii) Separate Legal Entity: LLP has an independent legal existence, meaning it can own assets, enter into contracts, and sue or be sued in its own name.
iii) Perpetual Succession: The existence of an LLP is not affected by changes in partners, ensuring business continuity.
iv) Flexible Management Structure: Partners have the freedom to manage business affairs directly through an LLP Agreement without rigid corporate formalities.
v) Low Cost of Formation: The cost of formation and maintenance of an LLP is comparatively lower than that of a company.
vi) Lesser Compliance Burden: LLPs are subject to fewer legal and procedural requirements compared to companies, making them easier to operate.
vii) Tax Benefits: LLPs are taxed like partnership firms, and there is no requirement to pay dividend distribution tax.
viii) No Limit on Partners: There is no maximum limit on the number of partners in an LLP.
ix) Easy Conversion: Existing partnership firms can be easily converted into LLPs.
x) Attracts Professionals: LLP is suitable for professionals like Chartered Accountants, Company Secretaries, and Advocates who wish to operate jointly with limited liability.
Thus, LLP provides a balance between the flexibility of partnership and the limited liability advantage of a company, making it a popular choice for modern business enterprises
5. Discuss the liabilities of partners in LLP. (GU BCom 2023)
Answer: The liabilities of partners in a Limited Liability Partnership (LLP) are defined under the Limited Liability Partnership Act, 2008. The following points explain the nature and extent of partner’s liabilities:
i) Limited Liability: Each partner’s liability is limited to the extent of their capital contribution as agreed in the LLP Agreement. Their personal assets are not used to pay business debts.
ii) Liability for Own Wrongful Acts: A partner is personally liable for his own wrongful acts or omissions. However, he is not liable for the wrongful acts of other partners.
iii) No Joint Liability: Unlike a traditional partnership firm, partners in an LLP are not jointly liable for the misconduct or negligence of another partner.
iv) Liability to Third Parties: The LLP is liable to third parties for obligations incurred during the course of business, and not the individual partners.
v) Unlimited Liability in Case of Fraud: If a partner acts with intent to defraud creditors or for any fraudulent purpose, his liability becomes unlimited, and he may face legal consequences.
vi) Liability in Respect of Contractual Obligations: The LLP, and not its partners, is responsible for fulfilling all contractual obligations unless a partner has given a personal guarantee.
vii) Contribution Liability: Each partner is liable to contribute the agreed amount to the LLP as mentioned in the LLP Agreement.
In conclusion, the LLP structure provides significant protection to partners by limiting their liability while ensuring accountability for individual misconduct or fraud. This feature makes LLP a safe and transparent form of business organization.
6. Explain the role of designated partners in LLP.
Answer: In a Limited Liability Partnership (LLP), designated partners play a vital role in managing and ensuring the legal compliance of the firm. As per the Limited Liability Partnership Act, 2008, every LLP must have at least two designated partners, and at least one of them must be a resident in India. Their main roles and responsibilities are as follows:
i) Compliance and Filings: Designated partners are responsible for ensuring that all statutory returns, statements, and documents are filed with the Registrar of Companies within the prescribed time.
ii) Administration and Management: They take an active part in the day-to-day management and decision-making of the LLP’s business activities.
iii) Maintenance of Accounts: Designated partners ensure that the books of accounts, statements of solvency, and annual returns are properly maintained and submitted.
iv) Statutory Duties: They are responsible for compliance with various laws, such as the LLP Act, Income Tax Act, and other regulatory provisions.
v) Legal Responsibility: In case of any default or non-compliance, the designated partners are personally responsible and may be liable for penalties.
vi) Authority to Act on Behalf of LLP: Designated partners act as the agents of the LLP in all legal and contractual matters.
vii) Fiduciary Duty: They are required to act honestly, in good faith, and in the best interest of the LLP and its partners.
Thus, designated partners are the key managerial persons who ensure that the LLP operates smoothly, efficiently, and in accordance with the law.
7. What is an incorporation document? Discuss.
Answer: An incorporation document is a formal document that contains essential information required for the legal formation of a Limited Liability Partnership (LLP). It is submitted to the Registrar of Companies (ROC) under Section 11 of the Limited Liability Partnership Act, 2008, at the time of registration.
The main contents of an incorporation document are:
i) Name of the LLP: The approved name of the LLP as reserved under the Act.
ii) Registered Office Address: The address where all communications and notices to the LLP are to be sent.
iii) Details of Partners: Names, addresses, and identification details of all partners and designated partners.
iv) Nature of Business: A brief description of the business activities the LLP intends to carry on.
v) Contribution of Partners: The total amount of capital contribution agreed upon by each partner.
vi) Statement of Compliance: A declaration signed by an advocate, company secretary, chartered accountant, or cost accountant that all requirements of the Act have been complied with.
vii) Digital Signatures: The document must be digitally signed by all designated partners before submission.
8. Explain incorporation by registration.
Answer: Incorporation by registration refers to the legal process through which a Limited Liability Partnership (LLP) is brought into existence under the Limited Liability Partnership Act, 2008. It involves filing prescribed documents and information with the Registrar of Companies (ROC) and obtaining a Certificate of Incorporation.
The main steps in incorporation by registration are:
i) Reservation of Name: The proposed name of the LLP must be approved by the Registrar through the MCA portal using the RUN-LLP service.
ii) Filing of Incorporation Document: The incorporation form (Form FiLLiP) is filed with the Registrar along with details such as the name of the LLP, registered office address, partners’ details, and business nature.
iii) Submission of Required Documents: The incorporation document must be accompanied by proof of address, identity, and consent of partners.
iv) Statement of Compliance: A declaration is submitted by a professional certifying that all legal requirements have been fulfilled.
v) Payment of Fees: Prescribed government fees must be paid along with the application.
vi) Certificate of Incorporation: Once the Registrar is satisfied, a Certificate of Incorporation is issued, which serves as conclusive evidence of the formation of the LLP.
Significance: Incorporation by registration gives the LLP a separate legal identity, perpetual succession, and the right to own property, enter into contracts, and sue or be sued in its own name. It marks the beginning of the LLP’s legal existence.
9. Distinguish between General Partnership and LLP Agreement.
10. Write the steps in conversion of a firm into LLP.
Answer: A partnership firm can be converted into a Limited Liability Partnership (LLP) under Section 55 of the LLP Act, 2008 read with the Second Schedule of the Act. The following are the steps involved in the conversion process:
i) Consent of Partners: All existing partners of the firm must give their consent to the conversion into LLP.
ii) Name Approval: The proposed name of the LLP must be approved by the Registrar through the MCA portal (RUN-LLP service).
iii) Digital Signatures: All designated partners must obtain Digital Signature Certificates (DSCs) to file forms electronically.
iv) Director Identification Number (DIN): Every designated partner must have a valid DIN before registration.
v) Filing of Form 17: The application for conversion of the firm into LLP is made through Form 17 along with incorporation documents in Form FiLLiP to the Registrar of Companies.
vi) Attachments Required: Documents like the statement of partners’ consent, list of partners, statement of assets and liabilities, and approval from tax authorities are attached.
vii) Verification by Registrar: The Registrar reviews the application and documents for completeness and compliance with the LLP Act.
viii) Issue of Certificate of Registration: Upon satisfaction, the Registrar issues a Certificate of Registration, confirming the firm’s conversion into an LLP.
ix) Intimation to Registrar of Firms: The newly formed LLP must inform the Registrar of Firms about the conversion within 15 days of registration.
x) Effect of Conversion: All assets, liabilities, rights, and obligations of the firm automatically vest in the LLP, and the partnership firm stands dissolved.
Conclusion: The conversion of a partnership firm into an LLP allows the business to enjoy the advantages of limited liability, perpetual succession, and a separate legal identity while maintaining operational flexibility.
10 Marks Questions (Long / Essay Type)
1. Discuss the salient features of LLP with advantages. (GU BCom 2019, 2021, 2023)
Answer: A Limited Liability Partnership (LLP) is a modern form of business organization that combines the features of both a partnership firm and a limited company. It provides the flexibility of partnership and the limited liability feature of a company. The Limited Liability Partnership Act, 2008 governs the formation and functioning of LLPs in India. LLPs are particularly popular among professionals and entrepreneurs due to their simple structure and lesser compliance burden.
Salient Features of LLP:
i) Separate Legal Entity: LLP is a separate legal entity distinct from its partners. It can own property, enter into contracts, and sue or be sued in its own name. The existence of the LLP is not affected by changes in partners.
ii) Limited Liability: The liability of each partner is limited to the extent of their capital contribution. Partners are not personally liable for the debts and obligations of the LLP except in cases of fraud or wrongful acts.
iii) Perpetual Succession: An LLP continues to exist even if one or more partners die, retire, or become insolvent. This ensures business continuity and stability.
iv) Minimum and Maximum Partners: A minimum of two partners is required to form an LLP, and there is no maximum limit on the number of partners.
v) LLP Agreement: The rights and duties of the partners are governed by a written LLP Agreement which is registered with the Registrar of Companies. In absence of such an agreement, the First Schedule of the LLP Act applies.
vi) Designated Partners: Every LLP must have at least two designated partners, responsible for regulatory and legal compliances. At least one designated partner must be a resident of India.
vii) Flexibility in Management: LLPs enjoy flexibility in their internal management, as partners can manage the firm directly and decide mutual rights through an agreement without rigid formalities.
viii) Lesser Compliance Requirements: Compared to companies, LLPs have fewer compliance obligations and procedural requirements, making them easy to operate.
ix) Taxation Benefits: LLPs are taxed like partnership firms under the Income Tax Act, 1961. There is no dividend distribution tax (DDT) applicable, unlike in companies.
x) Audit Requirements: Audit of accounts is mandatory only if annual turnover exceeds ₹40 lakh or capital contribution exceeds ₹25 lakh.
xi) Easy Conversion: Existing partnership firms and private limited companies can easily be converted into LLPs under the provisions of the LLP Act.
xii) No Minimum Capital Requirement: There is no minimum capital contribution prescribed for forming an LLP. Partners may contribute any amount agreed among themselves.
Advantages of LLP:
i) Limited Liability Protection: Partners are not personally liable for business debts, offering security and peace of mind.
ii) Separate Legal Identity: The LLP can own property, borrow money, and enter contracts in its own name, ensuring legal continuity.
iii) Ease of Formation: LLPs are easier to form and manage compared to companies due to lesser legal formalities.
iv) Continuity of Business: The LLP continues despite changes in partners, ensuring smooth business operations.
v) Low Cost and Compliance: The cost of incorporation and annual maintenance is comparatively lower than that of a private limited company.
vi) Tax Efficiency: LLPs are taxed at a flat rate and are exempted from dividend tax, reducing tax burden.
vii) Operational Flexibility: The partners enjoy flexibility in managing business affairs without rigid corporate governance rules.
viii) Suitable for Professionals: LLPs are ideal for professionals like chartered accountants, company secretaries, lawyers, etc., who prefer limited liability with partnership flexibility.
Conclusion: LLP is an innovative business structure offering the benefits of limited liability and a separate legal identity while retaining the operational flexibility of partnerships. Due to its simplicity, tax efficiency, and protection of partners’ interests, it has become a preferred choice among small and medium enterprises and professionals in India.
2. Distinguish between LLP and Partnership, LLP and Company. (GU BCom 2020, 2021, 2024)
Answer: A Limited Liability Partnership (LLP) stands midway between a traditional partnership and a company. It takes the operational flexibility of a partnership and combines it with the limited liability benefits of a company. The following tables show the distinctions:
A. Difference between Partnership and LLP:
B. Difference between LLP and Company:
Conclusion: An LLP is best suited for small and medium enterprises that desire flexibility and limited liability, whereas a company structure is more appropriate for larger organizations requiring heavy investment, credibility, and stricter regulation.
3. Discuss the incorporation of LLP with required documents. (GU BCom 2020)
Answer: The incorporation of a Limited Liability Partnership (LLP) refers to the legal process of registering an LLP with the Registrar of Companies (ROC) under the Limited Liability Partnership Act, 2008. The process ensures that the LLP attains a separate legal identity and can commence its business legally.
Steps in Incorporation of LLP:
i) Reservation of Name: The first step is to reserve the proposed name of the LLP through the MCA portal using the RUN-LLP (Reserve Unique Name) service. The name must include the words “Limited Liability Partnership” or the abbreviation “LLP.”
ii) Digital Signature Certificate (DSC): All designated partners must obtain DSCs to sign the documents electronically.
iii) Director Identification Number (DIN): Each designated partner must have a valid DIN before being appointed.
iv) Filing of Incorporation Form (FiLLiP): The incorporation application is filed in Form FiLLiP (Form for Incorporation of LLP) with the ROC, including all necessary details and documents.
v) Submission of Required Documents:
The following documents are submitted with Form FiLLiP:
a) Proof of registered office address.
b) Identity and address proof of partners.
c) Consent letters from partners.
d) Subscriber’s sheet and declaration of compliance.
e) Details of designated partners with their DIN and DSC.
vi) Statement of Compliance: A statement declaring that all provisions of the LLP Act and related rules have been complied with, signed by a practicing professional such as a Company Secretary, Chartered Accountant, or Advocate.
vii) Payment of Fees: Prescribed government fees must be paid depending on the capital contribution.
viii) Scrutiny by Registrar: The Registrar verifies the application and documents for correctness and compliance.
ix) Issue of Certificate of Incorporation: Once satisfied, the Registrar issues a Certificate of Incorporation, which acts as conclusive evidence that the LLP has been duly incorporated.
Documents Required for Incorporation:
Proof of registered office (rent agreement or ownership deed).
Utility bills (electricity, water, or gas) not older than two months.
Identity proof (PAN card, passport, voter ID, or Aadhaar card).
Passport-sized photographs of partners.
Consent letters of partners and designated partners.
Subscriber’s sheet and digital signature certificate.
Conclusion: The incorporation process legally establishes an LLP, granting it a separate identity and limited liability status. Once incorporated, the LLP can begin its business operations and enjoy all rights and privileges of a legal entity.
4. Explain the rights and duties of partners in LLP.
Answer: In an LLP, the relationship between partners is governed by the LLP Agreement and the Limited Liability Partnership Act, 2008. Partners enjoy certain rights and are bound by specific duties necessary for smooth functioning and transparency of the business.
Rights of Partners:
i) Right to Participate in Management: Every partner has the right to take part in the management and decision-making of the LLP.
ii) Right to Share Profits: Partners are entitled to share profits and losses as per the LLP Agreement.
iii) Right to Access Books and Records: Partners can inspect and copy the books of account and records of the LLP.
iv) Right to be Indemnified: Partners are entitled to indemnification by the LLP for payments made or liabilities incurred in the ordinary course of business.
v) Right to Remuneration: If provided in the LLP Agreement, partners can draw remuneration or commission for their work.
vi) Right to Transfer Economic Interest: Partners can transfer their share of profits or losses, subject to the terms of the LLP Agreement.
vii) Right to Continue the Business: The LLP continues despite the death, retirement, or insolvency of a partner due to perpetual succession.
Duties of Partners:
i) Duty to Act in Good Faith: Partners must act honestly and in the best interests of the LLP.
ii) Duty to Carry on Business Diligently: Partners should conduct business with care and diligence.
iii) Duty to Maintain Confidentiality: Partners must not disclose the LLP’s confidential information to outsiders.
iv) Duty to Account for Personal Gains: A partner must not make secret profits from business activities and must account for personal gains made using LLP property.
v) Duty to Avoid Conflict of Interest: Partners must not engage in competing business activities that conflict with the LLP’s interests.
vi) Duty to Contribute Capital: Each partner must contribute the agreed amount of capital or property to the LLP.
vii) Duty to Indemnify for Wrongful Acts: A partner is personally liable for losses caused by his own wrongful acts or omissions.
Conclusion: The rights and duties of partners ensure mutual trust, transparency, and accountability in LLP operations. A balanced framework of rights and obligations contributes to the smooth and efficient management of the firm.
5. Discuss the relationship of partners in LLP.
Answer: The relationship of partners in a Limited Liability Partnership (LLP) is governed by the LLP Agreement and, in its absence, by the First Schedule of the Limited Liability Partnership Act, 2008. This relationship defines how partners interact, share responsibilities, and manage the firm.
1. Relationship Defined by Agreement: The LLP Agreement is a written contract specifying the rights, duties, and obligations of partners. It regulates:
Profit-sharing ratios.
Capital contribution.
Decision-making procedures.
Admission, retirement, or expulsion of partners.
Dispute resolution mechanisms.
2. Relationship Between Partners and LLP: Partners act as agents of the LLP, not of each other. Their actions bind the LLP when done within the scope of their authority. However, a partner cannot bind another partner by his actions.
3. Relationship Among Partners:
i) Mutual Rights and Duties: Partners are entitled to equal rights in managing the LLP and must discharge their duties in good faith and mutual trust.
ii) Sharing of Profits and Losses: Unless otherwise stated, profits and losses are shared equally among partners.
iii) Participation in Management: Every partner has an equal right to participate in the management of the LLP unless restricted by the LLP Agreement.
iv) Access to Books of Accounts: Each partner can inspect and copy the books and documents of the LLP during business hours.
v) Indemnification: The LLP indemnifies partners for liabilities incurred during the proper conduct of business.
vi) Admission and Cessation of Partnership: A new partner may be admitted only with the consent of all existing partners. Similarly, a partner may resign by giving notice as per the LLP Agreement.
vii) Personal Liability: A partner is not personally liable for the acts of other partners but is liable for his own wrongful acts or omissions.
viii) Fiduciary Relationship: Partners must act honestly and maintain loyalty and confidentiality in all business dealings.
4. Relationship with Third Parties: An LLP, being a separate legal entity, is responsible for all liabilities and contracts entered into by its partners in the course of business. Partners are agents of the LLP but not of each other in relation to third parties.
Conclusion: The relationship of partners in an LLP is based on mutual agreement, trust, and cooperation. The LLP Agreement serves as the cornerstone of this relationship, ensuring that all partners operate harmoniously within a framework of limited liability, shared responsibility, and transparency.
6. Explain the concept of LLP Agreement and its importance.
Answer: A Limited Liability Partnership (LLP) Agreement is a written contract that defines the mutual rights, duties, and obligations of the partners inter se and between the LLP and its partners. It serves as the most important document governing the internal management and administration of the LLP. The agreement is executed under Section 23 of the Limited Liability Partnership Act, 2008, and must be filed with the Registrar of Companies (ROC) in Form 3 within 30 days of incorporation.
Contents of an LLP Agreement:
i) Name and Business of LLP: The official name and the type of business carried on by the LLP.
ii) Details of Partners: Names, addresses, and designations of all partners and designated partners.
iii) Capital Contribution: The amount and form of capital contributed by each partner.
iv) Profit-Sharing Ratio: The ratio in which profits and losses will be shared among the partners.
v) Management and Decision-Making: Provisions relating to meetings, voting rights, and managerial responsibilities.
vi) Admission, Retirement, and Expulsion of Partners: Rules regarding induction or removal of partners.
vii) Duties and Liabilities of Partners: Roles and accountability of each partner in the LLP.
viii) Dispute Resolution: Method for resolving internal disputes or conflicts.
ix) Duration and Dissolution: Terms and conditions related to winding up or termination of LLP.
Importance of LLP Agreement:
i) Defines Legal Framework: It acts as a legal foundation governing the working and management of the LLP.
ii) Clarifies Roles and Responsibilities: Prevents disputes by defining each partner’s role and authority.
iii) Ensures Smooth Operation: Provides operational clarity and establishes decision-making procedures.
iv) Protects Partner’s Interests: Safeguards the rights of partners and avoids misuse of authority.
v) Statutory Compliance: Filing of the agreement with ROC ensures compliance with the LLP Act.
vi) Flexibility: Partners can customize clauses as per their mutual understanding, unlike rigid company laws.
vii) Legal Evidence: Serves as written evidence in case of legal disputes among partners.
Conclusion: Thus, the LLP Agreement is a vital document that ensures the transparent, smooth, and lawful functioning of the LLP. It provides clarity in internal management and safeguards the rights and interests of all partners.
7. Explain incorporation document and procedure for registration of LLP.
Answer: The incorporation of a Limited Liability Partnership (LLP) marks its legal creation under the Limited Liability Partnership Act, 2008. The LLP comes into existence only after proper filing of documents with the Registrar of Companies (ROC) and issuance of a Certificate of Incorporation.
Incorporation Document (Section 11): An incorporation document is a formal document containing the following particulars:
i) Name of the LLP.
ii) Proposed business of the LLP.
iii) Address of the registered office.
iv) Names, addresses, and identification of partners and designated partners.
v) Statement of partners’ contributions.
vi) Duration of the LLP (if applicable).
vii) Statement of compliance signed by a practicing professional (CA/CS/CMA/Advocate).
Procedure for Registration of LLP:
i) Reservation of Name: The first step is to reserve the proposed name using the RUN-LLP (Reserve Unique Name) service available on the MCA portal. The name should end with “LLP” or “Limited Liability Partnership”.
ii) Filing of Incorporation Document: Once the name is approved, the applicant must file the incorporation form FiLLiP (Form for Incorporation of LLP) along with the incorporation document, partner details, and address proof.
iii) Digital Signatures and DIN: All designated partners must have a valid Digital Signature Certificate (DSC) and Designated Partner Identification Number (DPIN).
iv) Statement of Compliance: A declaration from a professional must be filed, confirming that all the provisions of the LLP Act and rules have been complied with.
v) Verification and Scrutiny: The ROC verifies the documents and may ask for additional information if required.
vi) Certificate of Incorporation: Once the Registrar is satisfied, the Certificate of Incorporation is issued in Form 16, which acts as conclusive evidence that the LLP has been legally formed.
Conclusion: After incorporation, the LLP becomes a separate legal entity with perpetual succession, the ability to own property, enter contracts, and sue or be sued in its own name.
8. Explain the differences in liability structure of LLP vs Partnership.
Answer: The most distinguishing feature between a Limited Liability Partnership (LLP) and a traditional Partnership firm lies in their liability structure. Under the Indian Partnership Act, 1932, partners have unlimited liability, whereas in an LLP, partners enjoy limited liability protection under the LLP Act, 2008.
Conclusion: Hence, the LLP offers a modern structure that limits financial risk for partners, making it a safer and more suitable business form compared to the traditional partnership model.
9. Discuss the conversion of partnership firm into LLP.
Answer: A Partnership firm may be converted into a Limited Liability Partnership (LLP) under the provisions of Section 55 of the LLP Act, 2008, read with the Second Schedule of the Act. The main objective of such conversion is to gain the advantages of limited liability and a separate legal entity.
Steps in Conversion Process:
i) Consent of Partners: All existing partners of the firm must agree to the conversion and become partners of the LLP.
ii) Name Approval: An application for reservation of name is made through the RUN-LLP service on the MCA portal. The proposed name should be unique and end with “LLP”.
iii) Digital Signatures: All designated partners must obtain a Digital Signature Certificate (DSC) to digitally sign the e-forms.
iv) Filing of Form 17: The application for conversion is filed using Form 17 along with the incorporation form FiLLiP, including all necessary documents.
v) Required Attachments:
a) Statement of consent of all partners.
b) List of all partners with their contributions.
c) Statement of assets and liabilities certified by a Chartered Accountant.
d) Approval or No-Objection Certificate from concerned authorities (if required).
vi) Verification by Registrar:The ROC examines the application and documents submitted.
vii) Certificate of Registration: Upon satisfaction, the Registrar issues a Certificate of Registration, confirming the conversion of the firm into an LLP.
viii) Intimation to Registrar of Firms: Within 15 days, the LLP must inform the Registrar of Firms about the conversion.
Effects of Conversion:
i) All assets, liabilities, rights, and obligations of the firm automatically vest in the LLP.
ii) The firm is deemed to be dissolved.
iii) Partners of the firm become partners of the LLP.
Conclusion: Conversion into LLP provides the benefits of limited liability, perpetual succession, and enhanced credibility, making it a preferred structure for small and medium businesses.
10. State the advantages and disadvantages of LLP.
Answer:
Advantages of LLP:
i) Limited Liability: The liability of partners is limited to the extent of their contribution, protecting their personal assets.
ii) Separate Legal Entity: An LLP has an independent legal existence, distinct from its partners, and can own property or enter into contracts in its own name.
iii) Perpetual Succession: The existence of an LLP is not affected by the death, insolvency, or retirement of a partner.
iv) Operational Flexibility: The internal structure and management of the LLP are governed by the LLP Agreement, offering flexibility in operations.
v) No Minimum Capital Requirement: There is no statutory requirement for minimum capital contribution at the time of formation.
vi) Less Compliance Burden: Compared to companies, LLPs have simpler compliance requirements and fewer formalities.
vii) Tax Benefits: LLPs are not subject to dividend distribution tax, making them tax-efficient.
viii) Credibility and Recognition: Registration with ROC enhances legal recognition and trust among clients and financial institutions.
Disadvantages of LLP:
i) Limited Access to Capital: LLPs cannot raise funds from the public as they cannot issue shares.
ii) Restrictions on Transfer of Ownership: Partner’s interests are not easily transferable.
iii) Higher Penalties for Non-Compliance: Failure to file annual returns or financial statements attracts heavy penalties.
iv) Lack of Confidentiality: Basic information of LLPs is available on public records through the MCA portal.
v) Limited Growth Opportunities: Investors and venture capitalists generally prefer private limited companies over LLPs.
vi) Compulsory Audit in Certain Cases: If turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh, audit becomes mandatory.
Conclusion: LLPs combine the advantages of a partnership and a company by offering limited liability and operational flexibility. However, despite some limitations, LLPs are increasingly popular for professionals, small businesses, and entrepreneurs seeking a secure and cost-effective business structure.
-0000-
![Business Law Unit IV: Partnership Laws B) The Limited Liability Partnership Act, 2008 Notes [Gauhati University FYUGP BCom 3rd Sem]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLV86sfs_x-THwdXyzgllI3zsOZ5Kidq788MM7P946y_V2iRqibXL4kQ4tgJzvUaLQ6I-6aMQzsxePthkG137eEMWkT0oD1A9QYXuSrYoCMU3Y-Kjxz-SHlRRC7m1xdi21h-4Hro3rgYyS98Kxacb8X9UO-ePVNSGlJkfvRrWJUrnCQ873DAGNGIC-eXm1/w200-h200-p-k-no-nu/1000359069.webp)