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The arrival of the much-desired and long awaited LLP on the Indian business and professional scene marks yet another significant step in our decade gold journey towards globalization of the Indian economy.Main benefits of LLP: This new entity combines the benefits of managerial and financial flexibility of the partnership firm registered under the Indian Partnership Act of 1932 with the limited liability and perpetual succession of a company incorporated under the Companies Act. LLP is a new corporate form of doing any lawful business of profit. Apart from perpetual succession, any change in the partners of a LLP shall not effect the existence, rights or liabilities of the LLP. Who may form an LLP? Any two or more persons –individuals and bodies corporate (except corporation sole, cooperative society and others notified by the Government) whether resident or non resident may form an LLP as partners. Bodies Corporate includes companies and LLPs incorporated in India or abroad but does not include corporation sole, cooperative society and any other body corporate notified by the Central Government as ineligible to be a partner of LLP. Individuals have to be of sound mind and solvent. There shall however be two “designated partners” in an LLP who shall be responsible for all acts, matters such as filing of returns, documents etc under the LLP Act. One of the designated partners shall be Indian resident ( one who stayed in India for not less than 182 days during the immediately preceding year).
Distinguishing Features of LLP:
LLP being an incorporated body, its existence is not effected by any change in the partners due to retirement, resignation, death etc. The Indian Partnership Act, 1932 shall not apply to an LLP.
- The two Designated Partners as aforesaid shall obtain an identification Number (DPIN). In the event of there being only one designated partner, each partner shall be deemed to be a Designated Partner. A Designated Partner has no implied authority to conduct day to day business of LLP, it may be given through LLP Agreement only.
Every LLP shall suffix the words “Limited Liability Partnership” or “LLP” to its name.
- Every LLP shall have a Limited Liability Partnership Agreement that determines the mutual rights and duties between the partners. In the absence of such an Agreement the provisions of First Schedule to the LLP Act shall apply if an LLP agreement had been executed before the registration of LLP, then such agreement the partners have to ratify the same after incorporation and file the same with ROC.
Obligations & liabilities of Partners:
Every partner of LLP is an agent of LLP but not of other partners. Only the LLP will be liable for a wrongful act of a partner in the ordinary course of business. Obligations of LLP shall be met only out of the property of LLP.
Holding Out- If a person wrongfully represents himself as partner of an LLP, he will render himself liable to a person who acts in good faith on the basis of such wrongful representation.
In case of an act of LLP or its partner with intent to defraud its creditors or other person or any fraudulent purpose, the liability of LLP and the concerned partner shall be unlimited.
Winding up & Dissolution:
Winding up of an LLP may be either voluntary or by an order of a tribunal. An LLP may be wound up in the following circumstances:
if LLP decides that it should be wound up;
if the number of partners is reduced below two (2) for a period of more than six (6) months;
if LLP is unable to pay its debts;
if LLP has acted against the sovereignty & integrity of India;
if LLP has made default in filing financial disclosures for five consecutive financial years
Conversion to LLP:
The Act provides for conversions of our erstwhile Partnership firm, a private limited company and an unlisted public company into LLP in accordance with the LLP Rules and the Schedules.Conversion of Partnership to LLP: A partnership firm may convert itself into LLP in accordance with the terms and conditions and procedure set out in Schedule II to the LLP Act. Importantly, all the partners in the partnership firm should comprise all the partners (and no one else) in the emerging LLP. Any changes in partners may be made after conversion. Effects of Conversion: On conversion, the partnership firm stands ipso facto dissolved and all the properties and assets, interests, rights, privileges, liabilities and obligations of the firm and also its legal proceedings, if any stand transferred to the LLP. Any approval, permit, licence etc held by the firm also stand vested in the LLP automatically. Likewise, personal liabilities, if any, of the erstwhile firm to partners also continue. Conclusion: Thus, the LLP form, as it was meant to be, is an important enactment for professionals. Limiting the liability of partners is expected to go a long way in an age where reliance on professionals work is ever increasing. In time to come, company secretaries also are expected to play a significant role as socially relevant corporate governance professionals. Hence, company secretaries may evaluate the option of transforming themselves in LLPs.