DIVISION
ONE
DIVISION TWO
LIABILITY PARTNERSHIP (WINDING UP AND DISSOLUTION) RULES, 2012
LIMITED LIABILITY PARTNERSHIP (SIGNIFICANT BENEFICIAL OWNERS) RULES, 2023
Rules 2(af), 6 and Schedule VI of Foreign Exchange
GUIDE TO LIMITED LIABILITY PARTNERSHIP ACT, 2008
1. Introduction
Major forms of business organisation are proprietary firm, partnership firm under Indian Partnership Act and company under Companies Act. Proprietary firm has limitation in growth and does not have perpetual succession.
Partnership form of organisation provides flexibility of operations and limited growth potential. However, its basic disadvantage is unlimited liability and the fact that partners are agents of partnership firm as well as other partners, since act of partner binds partnership firm which in turn binds other partners also.
2. Rigidity in Companies Act
Companies Act does remove defect of unlimited liability but over the years, lot of rigidity has entered the Companies Act. There are many restrictions on managerial remuneration, loans, investments, guarantees, selling agents, contracts where directors are related etc. Many procedural formalities like registration of charges, periodic meetings and filing of numerous documents with ROC is required. Many statutory registers and records are to be maintained.
This rigidity is acceptable and indeed required when public money is involved i.e. in case of listed companies. However, in case of private companies and small public companies, these restrictions reduce flexibility in operations and increase administration costs.
Solution - The solution is provided in form of LLP, major portion of which has become effective from 1-4-2009.
3. LLP is ideal blend of partnership and company
You mix Companies Act and Indian Partnership Act, remove all defects of traditional partnership firm, remove all procedural hassles and rigidity in Companies Act, keep good points of both Indian Partnership Act and Companies Act and what you have is Limited Liability Partnership! This, in brief, is the description of Limited Liability Partnership Act, 2008.
LLP is excellent hybrid of Partnership Act and Companies Act. LLP is a very good substitute to formation of a private limited company.
LLP may not be a good substitute for small family owned partnerships, but will be excellent tool for professional or purely business partnerships.
Even in case of small partnerships, in certain situations, LLP may be a good option. If the proposed activity is of manufacture, service providers, import/export etc.; there can be a sudden huge tax liability. if some unexpected tax demand comes. In such cases, LLP gives protection.
LLP is also a good alternative for partnerships where some of the partners are willing to provide finance but do not want to be saddled with unlimited liability which can accrue in case of traditional partnership firm.
Higher cost compared to normal partnership – Costs of running LLP are high compared to traditional partnership under Indian Partnership Act. Various documents are to be filed periodically with Registrar of LLP (Mostly, he is Registrar of Companies also) and accounts and records have to be maintained and audited.
Much fewer procedures - Procedures are much fewer compared to Companies Act. However, there is scope for further reduction in procedures.
4. Overview of contents of LLP Act
The overview of contents of LLP Act, 2008 are as follows -
Chapter I Preliminary
Chapter II Nature of Limited Liability Partnership
Chapter III Incorporation of LLP and matters incidental thereto
Chapter IV Partners and their relations
Chapter V Extent and limitation of Liability of LLP and partners
Chapter VI Contributions
Chapter VII Financial Disclosures
Sections 1 to 2
Sections 3 to 10
Sections 11 to 21
Sections 22 to 25
Sections 26 to 31
Sections 32 to 33
Sections 34 to 41
Chapter VIII Assignment and Transfer of Partnership rights
Chapter IX Investigation
Chapter X Conversion into LLP
Section 42
Sections 43 to 54
Sections 55 to 58
Chapter XI Foreign limited liability partnerships Section 59
Chapter XII Compromise, arrangement or reconstruction of limited liability partnerships
Chapter XIII Winding up and dissolution
Chapter XIV Miscellaneous
Sections 60 to 62
Sections 63 to 65
Sections 66 to 80
First Schedule Provisions regarding matters relating to mutual rights and duties of partners and LLP -
Second Schedule
Third Schedule
Fourth Schedule
Conversion from firm into LLP -
Conversion from private company into LLP -
Conversion from unlisted public company into LLP -
LLP Rules, 2009 - ‘Limited Liability Partnership Rules, 2009’ are notified effective from 1-4-2009. These rules also contain provisions relating to conversion of firm or company to LLP [rules 32, 33, 38, 39 and 40]. These rules have also been made effective from 31-5-2009.
Annexure to the Rules prescribe fees payable for registration, filing of documents etc.
LLP (Winding up and Dissolution) Rules, 2012 notified on 10-7-2012 make provision for winding up and dissolution of LLP.
Recent Amendments in LLP Law – LLP (Amendment) Act, 2021 has been notified and made effective from 1-4-2022. The amendments are mainly to align provisions of LLP Act with Companies Act. Correspondingly, LLP Rules have been amended. Some procedural changes have been made by amending LLP Rules on 4-3-2022.
Some provisions of Companies Act have been made applicable to LLP w.e.f. 11-2-2022.
5. LLP at a glance
LLP is Good hybrid of partnership and company form of organisation
I-9 GUIDE TO LIMITED LIABILITY PARTNERSHIP ACT, 2008
Removes defects of unlimited liability under partnership and rigidity of provisions as prevalent under Company Law.
LLP has limited liability and perpetual succession.
LLP is a ‘body corporate’ having legal entity different from its partners. It can hold property in its own name
Maximum flexibility in respect of internal management, remuneration to partners, specific powers like management power or veto powers to some partners.
LLP can be formed for carrying out any lawful business with a view to profit. Thus ideal for medium businesses, professionals, joint ventures but not available for charitable organisations.
A partner can bind LLP but cannot bind other partners. LLP Agreement can curtail powers, duties and liabilities of some partners.
A company, LLP, foreign LLP and foreign company can be partner of LLP [However, there would be difficulties in repatriation of profits or capital, unless FEMA provisions are amended].
Minimum two partners. No limit on maximum number of partners. No restriction on number of LLPs of which a person can become a partner.
Minimum two partners should be nominated as ‘designated partners’ to fulfil statutory obligations under LLP Act. Other partners will not be normally held liable, except in case of fraud. Procedure for incorporation of LLP is similar to incorporation of Company.
Incorporation document (parallel to memorandum) and LLP agreement (parallel to Articles of Association) is required to be filed electronically.
No formalities of board meetings, general meetings, registration of charges, restrictions on managerial remuneration, issue and transfer of shares, election of directors, restrictions on powers of Board etc.
Accounts are to be maintained but small LLP may be exempt from audit provisions.
Electronic Filing of annual return, statement of accounts and solvency is required.
Change in partners is required to be reported within 30 days.
Concept of ‘holding out’ by partner incorporated.
Provisions of reconstruction, amalgamation and compromise, winding up, inspection and investigation are similar to those under Companies Act.
Existing partnership firms, private companies and unlisted companies can convert themselves into LLP. There will be no capital gains on such conversion to company or its shareholders if conditions as specified in section 47(xiib) of Income Tax Act are satisfied. Further, issue relating to stamp duty is a cause of worry. LLP will be taxed the same way as a partnership. The exception is that a partner of partnership firm is liable personally for income tax liability of firm. In case of LLP, all partners are jointly and severally liable for income tax liability, but a partner can escape the liability if he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of any duty on his part.
Visit www.mca.gov.in for registration, filing of documents, instruction kit, write up on LLP etc.
6. Basic features of LLP
Basic features of LLP are as follows -
Limited liability and perpetual succession - LLP is a body corporate having perpetual succession [Section 3(1) of LLP Act, 2008]. It is a legal entity separate from its partners [Section 3(2) of LLP Act, 2008].
Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership [Section 3(3) of LLP Act, 2008].
No partner is personally liable to liabilities of LLP except in case of fraud [Sections 27 and 28 of LLP Act, 2008]. Liability of LLP is not liability of individual partners.
LLP can be appointed as auditor, though LLP is ‘body corporate’ - A body corporate other than a Limited Liability Partnership registered under the LLP Act cannot be appointed as auditor - section 141(3) of Companies Act, 2013.
Partner of LLP is agent of LLP but not of other partners - Every partner of LLP is agent of LLP but not of other partners. Thus, he can bind LLP by his acts but cannot bind other partners.
Flexibility in operations of LLP - The LLP Act provides great flexibility in management and operations of LLP. In many of the cases, provision as contained in LLP Agreement prevails.
Accounts and annual returns - Each LLP will have to maintain accounts. It will have to prepare Statement of Account and Solvency. This statement and Annual Return is required to be filed with Registrar of LLP. The. LLP having turnover/contribution beyond prescribed limits will have to get their accounts audited by Chartered Accountant.
Ministry of Corporate Affairs is administrating ministry - Ministry of Corporate Affairs, Government of India is the administrating ministry. Registrar of LLP ((Mostly, he is Registrar of Companies also) of respective State is the administrative authority where all documents are to be filed. All thinking and concepts of company law have come in LLP since administrative ministry is same. Procedures regarding incorporation of LLP, e-filing of returns, inspection and investigation, reconstruction and amalgamation, compromise, winding up etc. are identical or similar to Companies Act.
Indian Partnership Act does not apply - Provisions of Indian Partnership Act will not apply to LLP [Section 4 of LLP Act, 2008].
7. Small Limited Liability Partnership
“Small limited liability partnership” means a limited liability partnership— (i) the contribution of which, does not exceed Rs. 25 lakh or such higher amount, not exceeding Rs. five crore, 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 – section 2(1)(ta) of LLP Act, inserted vide LLP Amendment Act, 2021 w.e.f. 1-4-2022.
The purpose is to provide relief in case of certain procedures. The penalty imposed on small LLP will be 50% of normal penalty under section 76A(3) (a) of LLP Act, inserted vide LLP (Amendment) Act, 2021 w.e.f. 1-4-2022.
8. Comparison between traditional partnership and LLP
Traditional Partnership
Limited Liability Partnership
Distinctions
Unlimited personal liability of each partner for dues of the partnership firm. Personal property of each partner also liable.
No personal liability of partner, except in case of fraud or if LLP Agreement specifically provides.
Traditional Partnership
Limited Liability Partnership
Written agreement not essential. Incorporation document essential.
Partnership can be registered under Partnership Act. Registration is not mandatory.
Not a legal entity separate from its partners
Property cannot be held in name of partnership firm.
Partnership deed/agreement is executed. Even verbal agreement is valid.
Documents are required to be filed with Registrar of Firms (of respective State)
Death of partner dissolves a firm, in absence of agreement
Minimum two and maximum fifty partners
Each partner can take part in business of firm.
All partners are liable for statutory compliances under Partnership Act
Partner cannot enter into business with firm, though he can give loan to firm.
Every partner of firm is agent of firm and also of other partners. He can bind partnership firm as well as other partners by his acts.
Filing of accounts, statement of solvency and annual return not required.
Partnership can be ‘at will’ i.e. any partner can resign or dissolve firm
Death of partner dissolves partnership unless there is contract to contrary
LLP is incorporated under LLP Act. Incorporation is mandatory.
It is a legal entity separate from its partners, having perpetual succession
Property can be held in name of LLP.
‘Incorporation Document’ is required to be executed. In addition, LLP Agreement is required in almost all cases, though such LLP agreement is not mandatory.
Registrar of LLP (Mostly, he is Registrar of Companies also) is the administrating authority.
Death of partner does not dissolve LLP.
Minimum two partners. No limit on maximum number of partners
Each partner can take part in business of firm, but LLP Agreement can provide to the contrary.
Only designated partners are liable for statutory compliances as are required under LLP Act (not necessarily in respect of other Acts).
Partner of LLP can enter into business with LLP. He can also give loans to LLP.
Every partner of LLP is agent of LLP but not of other partners. Thus, he can bind LLP by his acts but not other partners. However, LLP agreement can restrict powers of individual partner.
Filing of accounts, statement of solvency and annual return not required.
Individual partner can resign but cannot dissolve the LLP.
Death of partner does not dissolve LLP.
Traditional Partnership
Public notice is required for retirement of a partner.
Limited Liability Partnership
Filing of return of retirement of partner with ROC is required, but no provision for public notice of retirement of partner.
Partnership firm can be dissolved. LLP can be would up.
No specific provision to enter into compromise, arrangement, amalgamation, reconstruction etc. This can be done only under civil laws.
Minor can be admitted to benefit of partnership.
LLP can enter into compromise, arrangement, amalgamation, reconstruction etc.
There is no specific provision to admit minor to benefit of partnership. Though there is no specific prohibition, it is doubtful if this can be done, as a minor cannot enter into any agreement.
Similarities
Partner is not employee of firm Partner is not employee of LLP.
Liability of a person for ‘holding out’, i.e. representing himself as partner, though he is not
Partner of firm entitled to remuneration only if partnership agreement so provides
New partner can be introduced only with consent of all existing partners
Insolvent person cannot continue as partner of firm.
Liability of a person for ‘holding out’ i.e. representing himself as partner, though he is not [Section 29 of LLP Act, 2008]
Partner of LLP entitled to remuneration only if LLP agreement so provides
New partner can be introduced only with consent of all existing partners, unless LLP Agreement provides otherwise.
Insolvent person cannot continue as partner of LLP.
Rights of partnership can be assigned. Rights of partnership can be assigned.
Partner liable to firm for any personal profits made by him by use of property, name or business connection of firm.
Partner cannot undertake competing business without consent of other partners
Partner liable to firm if he commits fraud.
Partner liable to LLP for any personal profits made by him by use of property, name or business connection of LLP
Partner cannot undertake competing business without consent of LLP. Otherwise, liable to account for and pay profits to LLP
Partner liable to LLP if he commits fraud.
I-15
Traditional Partnership
Limited Liability Partnership
Income tax provisions are similar. Income tax provisions are similar.
9. Comparison between company and LLP
Company under Companies Act
Limited Liability Partnership
Distinctions
As per section 6 of Companies Act, 2013, any provision under Memorandum or Articles or resolution is void if it is against provisions of Companies Act.
No parallel provision in LLP Act
Memorandum is to be filed with ROC Incorporation Document is required to be filed.
Memorandum should contain State in which incorporated.
Name to contain ‘Limited’ or ‘Private Limited’ as suffix
Incorporation Document is not required to contain State in which incorporated. Thus, registered office can be changed to any place in India just by informing ROC subject to prescribed conditions.
Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix Company can be constituted for any legal purpose LLP can be constituted for purpose of business only
Articles are to be filed at the time of incorporation. Private company must have Articles. In case of public company, provisions of Schedule I of Companies Act, 2013 [Table A of Companies Act, 1956] apply if there are no Articles.
Managing Director and Wholetime Director to look after day to day administration.
LLP Agreement is required to be filed later. In absence of LLP Agreement, mutual rights and duties will be as specified in first schedule to LLP Act. Thus, practically, each LLP must have LLP Agreement, though not mandatory.
Designated Partner to look after statutory compliances. Otherwise, all partners can look into affairs of the LLP. However, LLP can delegate powers to some partners who may be designated as ‘Managing Partner’, or ‘Executive Partner’ or any other name.
Individual director or member does not have authority in conduct of business of company.
Restrictions on remuneration to director as per Companies Act, 2013
Every partner has authority to conduct business of LLP, unless the LLP Agreement provides to contrary.
No restriction on remuneration to partner.
Notice of change of director is to be given by company as well as director. A partner who has resigned from LLP can himself file notice of his resignation to ROC. LLP also has to file details.
Company under Companies Act
Share, share certificate, register of members, transfer and transmission of shares etc. required.
Board meetings, general meetings are required.
Charges are required to be registered
Elaborate records and registers are required to be maintained
Restrictions on Board regarding some specified contracts, contracts in which directors interested, investments, loans and guarantees to other companies
Disclosures required of contracts where directors are interested
Elaborate provision relating to redressal in case of oppression and mismanagement
Specific provisions relating to nidhis, NBFC
Income tax provisions are as applicable to company.
Limited Liability Partnership
No requirement of share and share certificate. Hence, no question of its issue, allotment, transfer, rectification of register etc.
No provision for regular meeting of Board and members. Partners can decide when and how to meet, delegation of powers etc. Provision is made that LLP should maintain minute book
No provision for registration of charges.
No records and registers have been prescribed.
Partners are free to enter into any contract.
No requirement of disclosures required of contracts where partners are interested, unless specified in LLP Agreement.
No provision relating to redressal in case of oppression and mismanagement
No specific provisions relating to nidhis, NBFC
Income tax provisions are as applicable to a partnership firm.
Similarities
Limited liability and perpetual succession
Common seal is optional
Provision of approval of name, change of name are similar.
Limited liability and perpetual succession
Common seal is optional
Provision of approval of name, change of name are similar.
ROC is the administrative authority Registrar is the administrative authority
Provisions of vacation of office, disqualification and restriction on numbers are same for company and LLP
Provisions of significant beneficial owners applies to Company and LLP
No personal liability of individual director or member [except of director of private company in some cases like income tax and sales tax dues].
Provisions of vacation of office, disqualification and restriction on numbers are same for company and LLP
Provisions of significant beneficial owners applies to Company and LLP
No personal liability of partner, except in case of fraud.
Company under Companies Act
Complicated procedure for change of registered office, particularly when change is to other State
Memorandum and Articles, details of directors, accounts, annual return, special resolutions etc. filed by LLP with ROC will be available for public inspection
Powers to Central Government to inspect records of company and to order investigation
Provisions of compromise, arrangement or reconstruction of companies are similar
Company can be would up voluntarily or by order of NCLT
ROC can strike off name of defunct company.
Limited Liability Partnership
Simple procedure to change registered office of LLP anywhere in India just by informing ROC and following prescribed conditions.
Incorporation document, details of partners, accounts, statement of solvency and annual return filed by LLP with Registrar will be available for public inspection [Section 36 of LLP Act, 2008]
Powers to Central Government to inspect records of company and to order investigation
Provisions of compromise, arrangement or reconstruction of LLP [Sections 60 to 62 of LLP Act, 2008]
LLP can be would up voluntarily or by order of NCLT
ROC can strike off name of defunct LLP.
10. Procedure for Incorporation of LLP at a glance
Two partners to be designated as ‘designated partners’ should apply and get DIN (Director Identification Number) from Central Government by applying electronically
The designated partners should obtain Digital Signature Certificate (DSC) Class II or above from a Certification Agency (CA).
User registration - Register DIN and DSC with LLP by visiting www.mca.gov.in.
Check name availability which is available on the aforesaid website. Name should not be similar to other LLP/Company or in violation of trade mark provisions or undesirable.
Apply for reservation of name in RUN-LLP. Alternatively, application for reservation of name can be made along with incorporation document in form FiLLiP [Form for incorporation of Limited Liability Partnership]
After obtaining reservation of name, fill up e-form FiLLiP [Form for incorporation of Limited Liability Partnership]. It has to be digitally signed by designated partner and a professional (advocate/practising CA/CS/CMA). Upload the form and pay fees electronically.
LLP will be incorporated by Registrar and registration certificate will be granted by Registrar of LLP in form No. 16
File form 3 (Information with regard to LLP Agreement) and form 4 (Notice of appointment of partner/designated partner) electronically with fees. The form can be submitted either with form FiLLiP [Form for incorporation of Limited Liability Partnership] itself or within 30 days of date of incorporation. If not submitted within 30 days, additional fee would be payable Send LLP Agreement which should be duly stamped. LLP is now ready for commencing business.
11. Incorporation of LLP
Two or more persons can associate for carrying out any lawful business with a view to profit. They have to file ‘incorporation document’ [similar to Memorandum of Association of a company], containing prescribed details like name, proposed business, address of registered office, name and address of partners, name and address of designated partners and other information as may be prescribed by rules [Section 11(2) of LLP Act, 2008].
The incorporation document should be filed electronically with Registrar having jurisdiction over the registered office of LLP in form FiLLiP [Form for incorporation of Limited Liability Partnership] [Rule 11 of LLP Rules, 2009].
First step is obtaining name approval. Second step is to file documents for incorporation.
12. Name of LLP
Last words of name shall be LLP or ‘Limited Liability Partnership’. LLP should have name which should not be similar to name of other entity or trade mark of other person.
Every limited liability partnership shall have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name – section 15(1) of LLP Act.
Name should not be undesirable. [Section 15(2)(a) of LLP Act, 2008].
Name should not identical or too nearly resembling to that of any other limited liability partnership or a company or a registered trade mark of any other person under the Trade Marks Act, 1999 – Section 15(2)(b) of LLP Act, amended vide LLP (Amendment) Act, 2021 w.e.f. 1-4-2022.
LLP LAW MANUAL
AUTHOR : TAXMANN'S EDITORIAL BOARD
PUBLISHER : TAXMANN
DATE OF PUBLICATION : DECEMBER 2024
EDITION : 14TH EDITION
ISBN NO : 9789364553575
NO. OF PAGES : 664
BINDING TYPE : PAPERBACK
1,195
DESCRIPTION
This book is a guide to India's legal framework and compliance requirements for Limited Liability Partnerships (LLPs). This comprehensive manual offers detailed coverage of the Limited Liability Partnership Act, 2008, as amended by the Limited Liability Partnership (Amendment) Act, 2021, along with related rules, circulars, notifications, and foreign investment provisions. It is an essential resource for legal practitioners, corporate professionals, academicians, and anyone involved in LLP formation and governance.
The Present Publication is the 14th Edition | 2025 and is amended up to 25th November 2024. It covers the amended and updated text of LLP laws, including:
• Limited Liability Partnership Act
• Limited Liability Partnership Rules
• Circulars and Notifications
• Foreign Direct Investment (FDI) in LLPs
• Guide/Short Commentary on the LLP Act (30+ Pages)