My subject today is “ Law of Limited Liability Partnership in India”. Before I jump to my topic and start discussing the various provisions, let me first discuss the historical background of Limited Liability Partnership.
Historical Background of limited liability partnership :
The first limited liability partnership was formed in the aftermath of collapse of real Estate and energy prices in Texas in United States of America in the year 1980. This collapse led to a large wave of Bank failures as well as savings and loan failures. The amounts recoverable from the bank was small and efforts were made to recover assets from lawyers and accountants that advised the banks. Law firms and accounting firms were subject to the possibility of huge claims which could bankrupt them personally and as a result the first limited liability partnership laws were passed to shield the innocent members of these partnerships from liability. (For a detailed study, please refer Robert W. Hamilton (1995) on “Registered limited liability partnership”). After, Texas, New York enacted limited liability partnership laws and then followed other states in America. After USA, United Kingdom passed limited liability partnership laws as “ limited liability partnership Act, 2000 ( in England & Wales & Scotland) and “ limited liability partnership Act ( Northern Ireland) 2002” in Northern Ireland. Afterwards, Japan, Singapore, China, Canada, Germany, Greece, Kazakhstan, Poland also enacted the LLP Laws.
Historical Background of limited liability partnership in India :
In our country, several expert groups have examined the need for such a concept & recommended from time to time , the enactment of a law that would enable the setting up and functioning of The limited liability partnerships. These include the Abid Hussain Committee 1997, The Naresh Chandra Committee on Audit & Corporate Governance 2003 and Dr. J.J. Irani Committee on Company Law in 2005. After considering all these recommendations, the Ministry of Company Affairs, Govt. of India issued a concept paper on limited liability partnership on 2nd November, 2005 calling for comments and suggestions on the topic. In the introduction of the concept paper, it was observed that the regime of LLP would provide a platform to small & medium enterprises & professional firms of Chartered Accountants, Company Secretaries, advocates etc. to conduct their business operation efficiently which would in turn increase their global competitiveness. It has been remarked in the concept paper that the unlimited liability of the partners has been the chief reason as to why the partnership firms of professionals have not grown in size to successfully meet the challenges thrown open by international competition enabled through WTO, GATT etc. After considering the comments and suggestions on the concept paper, the Govt. of India finally introduced the “limited liability partnership Bill’2006” in the Rajya Sabha on 15th December, 2006. This Bill was referred to the Parliamentary Standing Committee on finance headed by Ananth Kumar. The Standing Committee submitted its report on 27th November, 2007. Taking into consideration the suggestions made by the august committee, the revised Bill, namely, “The limited liability partnership Bill, 2008”was introduced in the Rajya Sabha on 21st October, 2008. The House passed it on 24th October, 2008. After that as soon as parliament resumed its function in December, 2008, the bill was presented in Lok Sabha and on a very good Friday, 12th December, 2008, Lok Sabha passed the Bill.
Friends, Updating knowledge in professional life is an endless pursuit yet we have to exercise the same on a routine basis. We know the hallmark of a professional is his adaptability to changes. So friends, before the Bill gets President’s assent, before the Act is printed and touches millions of hands and before a new baby is born and start crying in our field of practice , Lets see how we can feed it, help it in its growth and find ways how it can add to our professional opportunities and finally innovate ways how it can help in our strive for a big leap in our kitties.
Limited liability partnership Bill, 2008 :
LLP Bill is a mini company Law. It has 14 Chapters containing 81 clauses and 4 Schedules.
Meaning of limited liability partnership : The concept of limited liability partnership was introduced to adopt a corporate form which combines the organizational flexibility of Partnership firm with the advantage of limited liability of its partners. A limited liability partnership has elements of partnership and corporations. The LLP format is an alternative corporate business vehicle that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement as is the case in a partnership.
Clause 3 defines a LLP as :
• Body corporate
• Formed ®istered u/this Act
• Is separate legal entity from its partners
• Having Perpetual succession
• Change in partners shall not affect existence, rights, liabilities
Clause 4- Non –applicability of Indian Partnership Act, 1932
Clause 5- Who can be Partners in a LLP :
•An individual or a body corporate may become a member
• LLP Bill 2008 has indicated the disqualifications that will prevent an individual
from becoming a member. Accordingly, an individual shall not be capable of
becoming a partner of a limited liability partnership, if—
(a) He has been found to be of unsound mind by a Court of competent jurisdiction
and the finding is in force;
(b) He is an undischarged insolvent; or
(c) He has applied to be adjudicated as an insolvent and his application is
pending
Formation of LLP : Any two or more persons can form a LLP. Even a limited co., a foreign co., A LLP, A foreign LLP or a non-resident can be a partner in a LLP. If the number of partners fall below 2, the existing partner shall have to admit at least one partner within 6 months. If he fails to do so, his liability would become unlimited.
Designated Partners : Every LLP shall have at least 2 designated partners who are individuals and at least 1 should be resident in India. In a LLP in which all the partners are bodies corporate, at least two individuals who are nominees of corporate bodies will act as designated partners.
• Individual should have given his consent to act as a designated partner in the form
and manner prescribed
• Particulars of every partner who has consented to act as such shall be filed with the Registrar within thirty days of his appointment
• The Incorporation document can specify the names of the designated partners and
if so, they will become designated partners
• The Incorporation Document can also state that every person who from time to time is Partner will be Designated Partner.
• Every designated partner shall obtain a Designated Partner Identification Number [ DPIN] from the Central Government and the provisions of section 266A to 266G 9both inclusive) of the Companies Act, 1956 shall apply mutatis mutandis for the said purpose.
Clause 8- Liabilities of designated partners :
• Answerable for doing of all acts, matters & things as are required to be done by
LLP pursuant to the Act
• Responsible for filing of document, return, statement and the like report pursuant to
the provisions of this Act and as may be specified in the LLP agreement
• Are liable to all penalties imposed on the LLP for any contravention of the
specified provisions
Clause 9- Changes in designated partners
• If vacancy arises in office of designated partner, then duty of LLP to appoint a DP
within 30 days.
• However, if no designated partner appointed OR if at any time there’s only 1
designated partner, then each Partner will be deemed to be designated partner.
INCORPORATION OF LIMITED LIABILITY PARTNERSHIP :
Clause 11- Incorporation document
• Two or more persons associated for carrying on a lawful business with a view to
profit can subscribe their names to an incorporation document.
• The Incorporation document shall be filed with the registrar of the State in which
the registered office of the limited liability partnership is to be situated with
prescribed fees
• Along with the Incorporation document there shall be filed a statement
o in the prescribed form,
o made by an advocate or company secretary or chartered accountant engaged in the formation of the LLP AND by anyone who has signed the incorporation document. stating that all the requirements of the LLP Act and the related rules have been complied with, in respect of incorporation and other matters
precedent and incidental to it.
Requirements regarding the incorporation document:
The Incorporation document shall be in such form as may be prescribed and shall include the following particulars :
b) to state the name of the limited liability partnership;
c) to state the proposed business of the limited liability partnership;
d) to state the address of the registered office of the limited liability partnership;
e) to state the name and address of each of the persons who are to be partners of the limited liability partnership on incorporation;
f) to state the name and address of the persons who are to be designated partners of
the limited liability partnership on incorporation;
g) to contain such other information concerning the proposed limited liability
partnership as may be prescribed
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