1. Concept of LLP
Limited
Liability Partnerships (LLPs) are commercial vehicles which combine the
features of partnership and company form of business .The concept of Limited
Liability Partnership (LLP) has been introduced in India by way of Limited
Liability Partnership Act, 2008 (notified on 31st March 2008).
A
Limited Liability Partnership combines the advantages of both the Company and
Partnership into a single form of organization. In an LLP one partner is not
responsible or liable for another partner's misconduct or negligence. In an
LLP, all partners have limited liability for each individual's protection
within the partnership, similar to that of the shareholders of a limited
company. However, unlike the company shareholders, the partners have the right
to manage the business directly. An LLP also limits the personal liability of a
partner for the errors, omissions, incompetence, or negligence of the LLP's
employees or other agents.
2. LLP
- A Separate Legal entity
LLP
is a separate legal entity, liable to the full extent of its assets; the
liability of the partners would be limited to their agreed contribution in the
LLP. Further, no partner would be liable on account of the independent or
un-authorized actions of other partners, thus allowing individual partners to
be shielded from joint liability created by another partner's wrongful business
decisions or misconduct.
3.
Advantages and Disadvantages of LLP
Advantages
- Separate legal
entity
- Easy to
establish
- Flexibility
without imposing detailed legal and procedural requirements
- Perpetual
existence irrespective of changes in partners
- Internationally
renowned form of business in comparison to Company
- No requirement
of minimum capital contribution
- No restrictions
as to maximum number of partners
- LLP & its
partners are distinct from each other
- Partners are not
liable for Act of other partners.
- Personal assets
of the partners are not exposed except in case of fraud.
- Easy to dissolve
or wind-up
- Professionals
like CS / CA / CWA / Lawyers can form Multi-disciplinary Professional LLP
- No requirement
to maintain statutory records except Books of Accounts
- Less Cost of
formation (Compared to a company)
Disadvantages
- LLP cannot raise
funds from Public
- Any act of the
partner without the other may bind the LLP.
- Under some
cases, liability may extend to personal assets of partners.
- No separation of
Management from owners
4.
Partners / Designated Partners of LLP
An
LLP should have minimum 2 partners. Every LLP should have minimum 2 designated
partners who are individuals and at least one of them should be residing in
India.
Partners
of LLP can be of
a) Companies incorporated in and outside India
b) LLP incorporated in and outside India
c) Individuals residing in and outside India
a) Companies incorporated in and outside India
b) LLP incorporated in and outside India
c) Individuals residing in and outside India
Designated
Partner of LLP shall be responsible for the doing of all acts and things that
are required to be carried out by the LLP and is responsible for the compliance
of the provisions and filing of document / returns/ statements of LLP Act and
as may be specified in the LLP agreement
Designated
Partner shall be liable to all penalties imposed on the LLP for any
contravention of provisions of LLP Act.
5.
Designated Partner Identification Number (DPIN)
A
person or nominee of a body corporate, intending to be appointed as who is
appointed as designated partner of LLP should hold a Designated Partner
Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.
IMPORTANT
NOTE: Director Identification Number (DIN) allotted under the Companies Act and
DPIN are not same. DIN holder has to make a separate application for DPIN with
his/her DIN. On submission of documents for verification, the DPIN status will
be confirmed.
6.
Management of LLP
Day
to day operations of Limited Liability Partnership will be managed by
Designated Partners, who are responsible for ensuring the compliances of all
applicable laws.
Limited
Liability Partnership is managed as per the LLP Agreement, however in the absence
of such agreement the LLP would be governed by the framework provided in
Schedule 1 of Limited Liability Partnership Act, 2008 which describe the
matters relating to mutual rights and duties of partners of the LLP and of the
limited liability partnership and its partners.
7.
Capital Contribution to LLP
Unlike
in the case of a company, there is no requirement for minimum capital
contribution for a LLP. However, the registration cost for LLP is determined on
the basis of amount of contribution.
8. FDI
in LLP
The
Government of India has not notified the policy for Foreign Direct Investment
in LLP.
9.
Reservation of Name by a LLP registered outside India
A
foreign LLP or a foreign company can reserve its existing name by which it is
registered in the country of its incorporation by making an application to
Ministry of Corporate Affairs. The reservation will be valid initially for
three years and is renewable thereafter.
10.
Branch office of Foreign LLP
A
LLP registered outside India can establish an office in India and has to comply
with the provisions of LLP Act 2008.
11. LLP
Name - Guidelines
The
guidelines for the availability of LLP names are prescribed by the LLP Act
- The name of the
limited liability partnership shall not be one prohibited under the
Emblems and Names (Prevention of Improper Use) Act, 1950
- A Name shall not
generally be reserved, if -
- Offensive
Names: It
includes any word or words which are offensive to any section of the
people;
- Translation: The
proposed name is the exact Hindi or English translation of the name of an
existing limited liability partnership in English or Hindi, as the case
may be; Phonetic Resemblance: The proposed name has a close phonetic
resemblance to the name of a LLP in existence, for example, J.K. LLP.,
Jay Kay LLP;
- Co-operative
Sector: It
includes the word Co-operative, Sahakari or the equivalent of word
'co-operative' in the regional languages of the country;
- Government
Patronage: It
connotes the participation or patronage of the Central or State
Government, unless circumstances justify to, e.g., a name may be deemed
undesirable in certain context if it includes any of the words such as
National, Union, Central, Federal, Republic, President, Rashtrapati, etc;
- The proposed
name contains the words 'British India';
- Assocation with
Embassy: The
proposed name implies association or connection with any Embassy or
Consulate or of a foreign government which suggests connection with local
authorities such as Municipal, Panchayat, Zila Parishad or any other body
connected with the Union or State Government;
- Vague Names: The
proposed name is vague like D.I.M.O. Limited liability partnership or
I.V.N.R. Limited liability partnership or S.S.R.P Limited liability
partnership;
- Close
Similarity: It
is different from the name or names of the existing limited liability
partnership only to the extent of having the name of a place within
brackets before the word 'limited liability partnership', for example,
Indian Press (Delhi) LLP should not be allowed in view of the existence
of the LLP named Indian Press LLP;
- Trade mark: It
includes name of registered Trade mark, unless the consent of the owner
of the trade mark has been produced;
- Identical
Names: The
proposed name is identical with or too nearly resembles the name of a
firm or LLP or company incorporated outside India and reserved by such
firm, LLP or company with the registrar in accordance with these rules;
- It is identical
with or too nearly resembles the name of the limited liability
partnership or a company in liquidation or it is identical with or too
nearly resembles names of the LLP or a company which is struck off, up to
the period of 5 years;
- Name Requiring
Approval: It
includes words like 'Bank', 'Insurance' and 'Banking', 'Venture capital'
or 'mutual fund' or such similar names without the approval of the
regulatory authority;
- Misleading
Names: It
is intended or likely to produce a misleading impression regarding the
scope or scale of its activities which would be beyond the resources at
its disposal;
- Countries
Names: The
proposed name includes words like French, British, German etc., unless
the partners satisfy that there is some form of collaboration and
connection with the foreigners of that particular country or place, the
name of which is incorporated in the name;
- Professional
Names: The
proposed name of limited liability partnership includes the words company
secretary, chartered accountant, advocates or such similar words as
indicative of a profession, as part of the proposed name, the same shall
be allowed only after obtaining approval from the Council governing such
profession or such authority as may be nominated by the Central
Government, in this behalf.
- Prohibited
Words: The
Ministry of Corporate Affairs of India has prescribed certain words,
which should not form part of the name of LLP intended to be incorporated
in India, such words are prohibited under The Emblems and Names
(Prevention of improper use) Act, 1950.
