Limited Liability Partnership Act 2008

1. MODULE 3 LIMITED LIABILITY
PARTNERSHIP

2. TOPICS
Limited Liability Partnership Act 2008
Characteristic features
Definition of LLP
Difference between LLP and partnership of 1932
Comparison between LLP and Company

3. TYPES OF BUSINESSES

5. LLP ACT 2008
Businesses were until recently, limited to being either a company,
partnership or sole proprietorship.
Each kind of organization had its own advantages and disadvantages;
for instance, Partnership and proprietorship were easier to form and
operate but did not have a limited liability which was a prominent
feature of a company.
The development in the way businesses function has resulted in the
formation of a Limited Liability Partnership (LLP) which could be
termed as a fusion between the benefits of a company and a

6. LLP
LLP is a fairly new concept in the world of businesses.
Section 3 of the Limited Liability Partnership Act, 2008 defines an LLP as
 “a body corporate formed and incorporated under this Act and is a
legal entity separate from that of its partners.”
In layman’s terms, it can be understood as an amalgamation of a company and
partnership due to its business model which allows the organization to reap the
benefits of limited liability to the partners at relatively low costs compared to
traditional models.
This form of organization is suitable for small and medium-size businesses.

7. LLP
LLPs are a flexible legal entities that allows partners to benefit from
economies of scale by working together while also reducing their
liability for the actions of other partners.
In short LLP is more formal than partnership firm and less formal than
private companies.

9. BODY CORPORATE
Under S3(1) of the LLP Act, 2008 it is stated that an LLP comes under
the head of a ‘corporate body’.
In simpler terms, it is a corporate entity that has a legal existence and
such legal existence is a result of the registration of incorporation
with a registered LLP office.
Being a corporate entity, the incoming and outgoing of the partners do not
affect the LLP.

10. PERPETUAL SUCCESSION S3(2)
LLP continues to exist perpetually, no matter if the partners are
changed in the long run.
It can only be formed and dissolved by a legal process.
This means that death, retirement, insolvency of any of the partners
won’t hinder the existence of the partnership.
This also implies that the assets and liabilities of the LLP belong to
itself irrespective of the retirement, insanity, insolvency or even death
of one or more partners.

11. SEPARATE LEGAL ENTITY S3(1)
LLP is a separate legal entity, means it has a separate corporate
identity in the eyes of law.
This characteristic makes it distinct from its partners, as well as it can
enter into contracts and hold property in its own name.
The term separate legal entity was discussed in the landmark case of
Salomon vs Salomon & Co. Ltd. (1897) wherein it was established that
an entity that has its own legal rights and obligations, separate from
those running the business operations.

12. PARTNERS ARE THE AGENTS OF
THE LLP
Unlike a traditional partnership, in an LLP the partners are agents of the LLP
only and so partners are not bound by the actions of other partners.
In this way, Individual partners are prevented from the joint liability arising
out of the wrongful decisions, default and misconduct of any other partner.
In the case of an LLP, there is no mutual agency unlike in a traditional
partnership firm.
All the partners simply serve as an agent to the LLP and the action of one
partner does not bind the other.

13. LLP AGREEMENT
There exists an agreement between the partners which states the
rights and duties of the partners, as well as the rights and duties
concerning the LLP.
Moreover, the partners have the freedom to compose the agreement
according to their choice.
However, if there is no such agreement amidst the partners, then
the provisions of the LLP Act, 2008 will prevail.

14. ARTIFICIAL LEGAL PERSON
LLP is regarded as an artificial legal person because it is founded with
a proper process stipulated by law. Hence, it has all the rights of a
natural person.
As an LLP is created by a legal process, it is assumed that it is a non-
fictitious legal person with all the rights bestowed upon an individual.
It however is deemed artificial as it has no physical existence, thereby
becoming invisible, intangible and immortal. It cannot hence exercise
rights like marrying and divorcing or be sentenced to jail or taking an

15. COMMON SEAL
LLP is an artificial legal person, and so its agents i.e. partners and
designated partners, acts on its behalf.
It can have a common seal, which remains under the charge of the
stipulated officer.
Further, two designated partners should be present while affixing the
seal.

16. LIMITED LIABILITY
Limited Liability is a significant feature of LLP, which says that the liability of
the partners will be confined to their agreed contribution.
Further, every partner is an agent of LLP for business purposes only and not
of other partners.
Section 26 of the Limited Liability Partnership Act, 2008 states that every
partner is regarded as an agent to an “LLP”, i.e., They share a relationship of
principal and agent.
In a nutshell, the liability of each partner is limited to the agreed amount in
the LLP agreement.

17. OTHER FEATURES
Management of Business: The business of the LLP is to be managed by the
partners. However, designated partners hall be held responsible for its legal
compliance.
Only for Profits: It is the requirement of the LLP to undertake a lawful business
with the purpose of earning profits. This implies that a Limited Liability
Partnership cannot be formed for organizations that are charitable or not-for-
profit in nature.
Partners: To create a partnership firm, two persons are required. So, the
minimum number of partners is two while there is no maximum limit of partners
in an LLP.

18. WHO CAN FORM LLPS?
In order to form a LLP, it is mandatory to have at least two persons with no
limitation to the maximum number of persons. The following ‘persons’ can
be involved as partners:-
 Individuals
 Limited Liability Partnerships
 Companies
 Foreign Limited Liability Partnerships
 Foreign Companies
However, it is mandatory that one of the partners is a resident in India.

19. WHO CANNOT FORM LLPS?
The only factors excluding an individual from being capable of
becoming a partner of an LLP are: –
 In case an individual has been found to be of unsound mind by
the Court of a competent jurisdiction and the same holds true
in present;
 In case an individual is an undischarged insolvent; or
 In case an individual has applied to be adjudicated as an
insolvent and his application is pending

22. OBTAINING DSC
Before initiating the process of registration, you must apply for the
digital signature of the designated partners of the proposed LLP.
This is because all the documents for LLP are filed online and are
required to be digitally signed.
So, the designated partner must obtain their digital signature
certificates from government recognized certifying agencies like E-
MUDRA, CDAC, NIC
 https://www.mca.gov.in/MinistryV2/certifyingauthorities.html

23. OBTAINING DPIN
The next step is to apply for the DPIN of all the designated partners
or those intending to be designated partners of the proposed LLP.
In an LLP a minimum of two partners should act as designated partners, who
must be individuals and one of them has to be the resident of India.
The application for the allotment of DPIN has to be made in Form
DIR-3.

24. APPROVAL OF NAME
A form by the name of Limited Liability Partnership-Reserve Unique Name (LLP-
RUN) has to be filed in order to get a name that is unique in nature. A total of
two names can be proposed in the form.
The uniqueness can be checked on the Ministry of Corporate Affairs (MCA) portal
by using the free name search facility as it does not resemble any existing
business organization or trademark.
The form will be then further processed by the Central Registration Centre under
Non-STP.
The fees have to be paid in accordance with Annexure A. A person has the
provision to resubmit the form in case of mistakes within 15 days.

25. FILE FOR INCORPORATION
The form used in incorporation is known as the Form for
incorporation of Limited Liability Partnership (FiLLiP).
This particular file has to be filed with the registrar of the state in
which the LLP is registered and as per Annexure A needs to be paid
for the same.
In cases where the name of the LLP has not yet been approved one
has to fill it with the proposed name.

26. FILING OF LLP AGREEMENT
LLP agreement governs the mutual rights and duties amongst the
partners and also between the LLP and its partners.
LLP agreement must be filed in form 3 online on MCA Portal.
Form 3 for the LLP agreement has to be filed within 30 days of the
date of incorporation.
The LLP Agreement has to be printed on Stamp Paper. The value of
Stamp Paper is different for every state.