Making Limited Liability Partnerships a reality in India
The Limited Liability Partnership Bill was passed by the Parliament in December, 2008 and received assent of the President in January, 2009. The Limited Liability Partnership Act, 2008 was notified on 31.3.09 and the Rules under the Act were notified on 1.4.09.
Limited Liability Partnership (LLP) is an alternative corporate business vehicle that 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 would enable 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 would also be a suitable vehicle for small enterprises and for investment by venture capital. Introduction of LLPs in India is a path breaking reform, perfectly in tune with the need of the hour – an efficient, flexible business tool, adapting fast to the changing environs.
Main Features of LLP Act, 2008
· The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession;
· Appointment of at least two “Designated Partners” to be mandatory in all LLPs. The Designated Partners shall be individuals and at least one of the Designated Partners shall be resident of India “Designated Partners” to be accountable for regulatory and legal compliances provided under the Act and as specified under LLP Agreement
· The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008. The act provides flexibility to devise the agreement as per their choice.
· The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP;
· The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government;
· LLP whose turnover does not exceed in any financial year Rs.40.00 lakh or whose contribution does not exceed Rs.25.00 lakh, is not required to get its accounts audited.
· The Central Government have powers to investigate the affairs of an LLP, if required, by appointment of competent Inspector for the purpose;
· A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP
· The winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court.
Advantages of LLP
· Alternative hybrid corporate business vehicle -between a Partnership and a Company.
· Body corporate with separate legal entity from its partners , with perpetual succession.
· Based on agreement between partners. Mutual rights and duties governed by it.
· Requirement: carrying on lawful business with a view to profit – Trusts/ Charitable Institutions excluded
· Individuals, body corporate can be partners-
· Foreign partners too..
· Benefit of limited liability (limited to agreed contribution);
· Allows flexibility of organizing internal structure as a partnership
· Minimal procedural requirements.
· No partner liable for independent, unauthorized actions of other partners.
· Very little paper work & documentation.
· Not restricted to any specific trade, business or profession
LLP is different from a Partnership firm. In a Partnership firm, partners are liable jointly with all the other partners and also severally for all acts of the firm done while as a partner whereas in LLP, partner is not affected by misconduct of other partners. In Partnership, Liability is unlimited while in LLP, partner’s liability is limited to his contribution. Number of partners limited to 20 in case of Partnership firms whereas in case of LLP, there should be minimum two partners but there is no other restriction on number of partners.
LLP is also different from a company in many aspects. In case of a company, internal governance structure is regulated by statute (Companies Act, 1956) whereas in case of LLP, internal governance structure is regulated through agreement among partners. Management-ownership divide is inherent in a company whereas there is no management-ownership divide in LLP. Company does not have flexibility while in LLP, there is more flexibility – No requirement of Boards, general meetings or resolutions, etc.
An e-governance system to provide services envisaged in the LLP Act was designed and implemented by the Ministry of Corporate Affairs in a record time of 2 months making it the 1st Act to be implemented in electronic mode from Day-1.
The Services are available to the stakeholders 24 hours throughout the year on the LLP portal. E Filing is available Any-where and Any-Time and is supported by Digital signature Certificate (DSC) which ensures validity of documents in court of law. The Ministry ensured that records are fully electronic and tamper proof from day-1. LLP fee can be paid online through credit card. (PIB Features)
*Deputy Director(M & C), PIB, New Delhi.