Quick overview about Limited Liability Partnership

Limited Liability Partnership Act, 2008, it extends to the whole of India.

Nature of LLP:

• It is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.
• It shall have perpetual succession;
• Any change in the partners shall not affect the existence, rights or liabilities of the limited liability partnership.

Note: the provisions of the Indian Partnership Act, 1932 shall not apply to a limited liability partnership.

Incorporation of LLP:
Two Forms are required to be filed to registrar:
Form LLP–RUN(Limited Liability Partnership-Reserve Unique Name) is filed for the reservation of name of proposed LLP which shall be processed by the Central Registration Centre (CRC).
The incorporation document i.e. Form FiLLiP with the Registrar having jurisdiction over the State in which the registered office of the limited liability partnership is to be situated alongwith fee.
If an individual required to be appointed as designated partner does not have a DPIN or DIN, application for allotment of DPIN shall be made in Form FiLLiP. The application for allotment of DPIN shall not be made by more than two individuals in Form FiLLiP.
Provided also that an application for reservation of name may be made through Form FiLLiP. But, where an applicant had applied for reservation of name under rule 18 in Form RUN-LLP and which has been approved, he may fill the reserved name as the proposed name of limited liability partnership.
After the successful processing of the documents the Certificate of Incorporation of limited liability partnership shall be issued by the Registrar in Form 16.

Note:
Financial Year, in relation to a limited liability partnerships, means the period from the 1st day of April of a year to the 31st day of March of the following year.
In the case of a limited liability partnership incorporated after the 30th day of September of a year, the financial year may end on the 31st day of March of the year next following that year.
For example: if LLP incorporated on 1st October 2020, then its F.Y. will be ending on 31st march 2022.

Who can be a partner in LLP ?
Any individual or body corporate may be a partner in a LLP.

Disqualifications:

• Who has at any time within the preceding 5 years been adjudged insolvent.
• suspends, or has at any time within the preceding 5 years suspended payment to his creditors and has not at any time within the preceding 5 years made, a composition with them.
• Who has been convicted by a Court for any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than 6 months
• Who has been convicted by a Court for an offence involving section 30 (unlimited liability in case of fraud) of the Act.

Note: The Central Government may, by notification in the Official Gazette, remove the disqualification incurred by any person, either generally or in relation to any limited liability partnership or limited liability partnerships specified in the notification.

Minimum no. of partners:
Every limited liability partnership shall have at least two partners.
If at any time the number of partners of a limited liability partnership is reduced below two and it carries on business for more than 6 months while the number is so reduced, the person, who is the only partner during the time that it so carries on business after those six months and has the knowledge of the fact that it is carrying on business with him alone, shall be liable personally for the obligations of the limited liability partnership incurred during that period.

Can only individual be a Designated partner ?

Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India*.
But in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.
* the term resident in India means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year.

Procedure to become a designated partner:

• An individual shall give his prior consent to the LLP in Form 9.
• Every LLP shall file with the Registrar the particulars of every individual who has given his consent to act as designated partner in in Form 4 along with fee within 30 days of his appointment.
• Every individual, who intends to be appointed as a designated partner of an existing LLP, shall make an application electronically in Form DIR-3 under the Companies (Appointment and Qualifications of Directors) Rules, 2014 for obtaining DPIN under the LLP Act, 2008 and such DIN shall be sufficient for being appointed as designated partner under the LLP Act, 2008.”.
• Every individual who has been allotted a DPIN or DIN, shall in the event of any change in his particulars, make an application in Form DIR-6 to intimate such change(s) to the Central Government within a period of 30 days of such change(s).
• Every designated partner shall intimate his consent to become a designated partner to the LLP and DPIN in Form 9 and the LLP shall intimate such DPIN to Registrar in Form 4.

Changes in designated partners:
A LLP may appoint a designated partner within thirty days of a vacancy arising for any reason. But in case if no designated partner is appointed, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner.

Punishment for contravention:
Case-I: If the LLP contravenes the provisions of sub-section (1) of section 7 (i.e minimum no. of Designated Partners) , the LLP and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 5,00,000/-.
Case-II: If the LLP contravenes the provisions of sub-section (4) and sub-section (5) of section 7 (i.e. Filing of consent to Registrar and Designated Partner’s disqualifications) , section 8 (Liabilities of designated partners) or section 9 (Changes in designated partners), the LLP and its every partner shall be punishable with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/-

Liabilities of designated partners:
Unless expressly provided otherwise in this Act, a designated partner shall be:
(a) for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and
(b) liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

Unlimited liability in case of fraud:
In the event of an act carried out by a limited liability partnership, or any of its partners, with intent to defraud creditors of the LLP or any other person, or for any fraudulent purpose, the liability of the LLP and partners who acted with intent to defraud creditors or for any fraudulent purpose shall be un-limited for all or any of the debts or other liabilities of the LLP.
Provided that in case any such act is carried out by a partner, the LLP is liable to the same extent as the partner unless it is established by the LLP that such act was without the knowledge or the authority of the LLP.

Where any business is carried on with such intent or for such purpose as mentioned above, every person who was knowingly a party to the carrying on of the business in the manner aforesaid shall be punishable with imprisonment for a term which may extend to 2 years and with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5,00,000.

Where a LLP or any partner or designated partner or employee of such LLP has conducted the affairs in a fraudulent manner, then without prejudice to any criminal proceedings which may arise under any law for the time being in force, the LLP and any such partner or designated partner or employee shall be liable to pay compensation to any person who has suffered any loss or damage by reason of such conduct.
Provided that such LLP shall not be liable if any such partner or designated partner or employee has acted fraudulently without knowledge of the LLP.

Financial Disclosures:
Every limited liability partnership shall keep books of accounts which are sufficient to show and explain the limited liability partnership’s transactions and are such as to:-

• Disclose with reasonable accuracy, at any time, the financial position of the limited liability partnership at that time.
• Enable the designated partners to ensure that any Statement of Account and Solvency.

Every LLP shall file the Statement of Account and Solvency in Form 8 with the Registrar, within a period of 30 days from the end of six months of the financial year to which the Statement of Account and Solvency relates

Books of Accounts of LLP:
The books of account shall contain the followings :-

• Particulars of all sums of money received and expended by the LLP and the matters in respect of which the receipt and expenditure takes place.
• A record of the assets and liabilities of the LLP.
• Statements of cost of goods purchased, inventories, work in- progress, finished goods and cost of goods sold.
• Any other particulars which the partners may decide

Note: The books of account which a limited liability partnership is required to keep shall be preserved for 8 years from the date on which they are made.

Annual Return:
Every LLP shall file an annual return with the Registrar within 60 days of closure of its financial year in Form 11 accompanied by such fee.
The annual return of an LLP having turnover upto Rs. 5 crore during the corresponding financial year or contribution (Total contribution made by Partners) upto Rs. 50 lakh shall be accompanied with a certificate from a designated partner, other than the signatory to the annual return, to the effect that annual return contains true and correct information.
In all other cases, the annual return shall be accompanied with a certificate from a Company Secretary in practice to the effect that he has verified the particulars from the books and records of the LLP and found them to be true and correct.

Audit of LLP:
LLP whose turnover does not exceed, in any financial year, Rs. 40 lakh, or whose contribution does not exceed Rs. 25 lakh shall not be required to get its accounts audited.
If partners of such LLP decide to get the accounts audited, the accounts shall be audited in accordance with rules.
Provided also that where the partners of such LLP do not decide for audit of the accounts of the LLP, such LLP shall include in the Statement of Account and Solvency a statement by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and the Rules with respect to preparation of books of account and a certificate in the form specified in Form 8 (Annual Filing form).
Note: A person shall not be qualified for appointment as an auditor of a LLP unless he is a Chartered Accountant in practice.

An auditor or auditors of a limited liability partnership shall be appointed for each financial year of the LLP for auditing its accounts.

The designated partners may appoint an auditor or auditors in the following cases:—

• At any time for the first financial year but before the end of the first financial year.
• At least 30 days prior to the end of the each financial year (other than the first financial year).
• To fill a casual vacancy in the office of auditor, including in the case when the turnover or contribution of a LLP exceeds the limits specified.
• To fill up the vacancy caused by removal of an auditor

Tenure and Re-appointment of an Auditor or Auditors:
An auditor or auditors of an LLP shall hold office in accordance with the terms of his or their appointment and shall continue to hold such office till the period —
(a) the new auditors are appointed, or
(b) they are re-appointed.

Where no auditor has been appointed, any auditor in office shall be deemed to be re-appointed, unless —
(a) The LLP agreement requires actual reappointment, or
(b) The majority of partners have determined that he should not be re-appointed and have given a notice to this effect to the LLP.