Wednesday, 13 February 2019

LIMITED LIABILITY PARTNERSHIP Act 2008


LIMITED LIABILITY PARTNERSHIP ACT 2008

CONCEPT
Existing in other countries.
J. J Irani Committee – 2005
Introduced in Rajya Sabha – 24th October 2008
Passed on – 12th December 2008
Presidents assent – 27th January 2009
Came into force on 31st March 2009

Definition : Section 2(n)
“A partnership formed and registered under the Limited Liability Partnership Act 2008”

Section 3 – Nature of Limited Liability Partnership.
“A body corporate formed and incorporated under the Limited Liability Partnership Act 2008 and a legal entity saperate from its partners.
The term "body corporate" is defined in Section 2(11) of the Companies Act, 2013. This includes a private company, public company, one personal company, small company, Limited Liability Partnerships, foreign company etc.
“body corporate” or “corporation” also includes a company incorporated outside India.
However, body corporate does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in the Companies Act 2013), which the Central Government may, by notification, specify in this behalf;

CHARACTERISTICS        
     
NATURE AND SALIENT FEATURES
1.       Body corporate.
2.       Rights and duties – agreement.
3.       Separate legal entity.
4.       Two partners / Two partners – Designated partners.
5.       Maintain Annual Account.
6.       Central Government – Power to investigate.
7.       A firm, private company or unlisted public company – LLP.
8.       Winding up – voluntary / by tribunal.
9.       Power – Government to apply provisions of Companies Act 2013.
10.   Indian Partnership Act 1932

ADVANTAGES AND DISADVANTAGES

ADVANTAGES

1.       Separate legal entity.
2.       Easy to establish.
3.       Procedural flexibility & requirements.
4.       Perpetual existence.
5.       Globally accepted form of business.
6.       No requirement of minimum capital contribution.
7.       No restriction as to maximum number of partners.
8.       Partners are not liable for the negligent or fraudulent act of other partners.
9.       LLP & its partners are separate from one another.
10.   Personal partners are considered only in case of fraudulent acts of the partners.
11.   Only books of accounts are required to be maintained. No other statutory requirement are imposed.
12.   Less cost of formation of LLP.

DISADVANTAGES

1.       Cannot raise from the public.
2.       Any act of the partner without the other may bind the LLP.
3.       No separation of management from the owners.
4.       Under certain circumstances the liability may extend to the personal property of the designated partners.

PROCEDURE FOR INCORPORATION
INCORPORATION PROCESS OF LLP
1.       PRE – REQUISITES :
a.       Acquire DSC for Designated Partners.
b.      Obtain DIN for Designated Partners.
2.       Incorporation process
a.       Name approval application.
b.      Application for certificate of incorporation.
c.       Registration of LLP agreement.
d.      On approval of the same.




EXTENT OF LLP –
CONVERSION OF LLP

Process of Conversion of LLP into Company
 
♦ Publish newspaper notice in form URC-2 A notice seeking objections for conversion of LLP into company must be published in form URC-2 in atleast 2 newspapers one in local language wherein registered office is situated and another in english language newspaper. 

♦ File RUN Name Approval has to be obtained from the ROC by submitting an application in RUN. Object clause of Company must be attached. 

♦ Filing form No URC – 1 & SPICe & SPICe MOA and SPICe AOA After getting the approval of name from Registrar of Companies and after 21 days from the publication of newspaper advertisement, the applicant should file the form No URC-1 & SPICe along with the following documents. 

Attachments to URC-1 
1. List of the members with details viz. names, address, occupation, shares held by them appropriately, etc.
2. List of the first directors of the private company with details viz. names, address, the DIN etc. 
3. An affidavit from every person proposed as first directors, that he is not banned to be a director under section-164 
4. A list including the names & addresses of partners of LLP 
5. A copy of LLP agreement & certificate of registration duly verified by two designated partners 
6. A statement indicating the following specifications 
a) the nominal share capital of firm & the number of shares into which it is separated 
b) the number of shares taken & the amount paid for every share 
c) the name of the firm, with the addition of word Limited or private limited is required. 
7. A written consent of all partners of LLP 
8. A written consent or No objection certificate from all creditors. 
9. Copy of newspaper advertisement, 
10. Statement of accounts of the company which must not be 30 days preceding the date of the application and it must be duly certified by the auditor. 
11. A copy of latest income tax return 
12. Undertaking by proposed first directors with regard to compliance with Stamp Act 

Attachments to SPICe 
1. Consent & Declaration by first Directors in form DIR-2; (On Plain Paper) 
2. Self-Declaration by first directors and subscribers in form INC-9; (On Plain Paper) 
3. ID Proof and Address Proof of Directors; (PAN card and Aadhar card) 
4. Resolution of Partners for conversion of LLP into Company; 
5. Proof of regd. Office like Rent Agreement/Sale deed 
6. Latest Electricity bill (Not older than 2 Months) 
7. NOC of Owner of Office, If Regd office is rented. 

♦ Issue Share Certificates to the members. 

Conclusion Recently, Government slashed the corporate tax rate of Companies from 30% to 22% while tax rate on LLPs are unchanged and continue to attract tax @ 30%. So, many existing LLPs are now planning to convert themselves into Companies for multiple reasons like Growth and Expansion, Infusing equity capital, reducing tax liabilities, receiving foreign investment, attracting VCs and HNIs etc.

Source : https://taxguru.in/company-law/process-conversion-llp-company.html






MUTUAL RIGHTS AND DUTIES OF PARTNERS
Chapter IV - Partners And their Relationships


Summary
  • The mutual rights and duties of the partners of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partners, shall be governed by the limited liability partnership agreement.
  • In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that matter as are set out in the First Schedule.
  • LLP Agreement can also be amended.
  • A partner can also cease to be partner of the firm
  • Cessations , not by itself discharge the partner from any obligation to the limited liability partnership or to the other partners or to any other person which he incurred while being a partner the obligation for acts.
  • Partner to notify change in address or name to the LLP , which in turn will notify the same to the Registrar
  • Consent is necessary to become a partner in LLP
  • Any person ceasing to be partner of the LLP, can himself file the intimation of his cessation to the Registrar of Companies

23. (1) Save as otherwise provided by this Act, the mutual rights and duties of the partners of a limited liability partnership, and the mutual rights and duties of a limited liability partner­ship and its partners, shall be governed by the limited liability partnership agreement between the partners, or between the limit­ed liability partnership and its partners.
(2) The limited liability partnership agreement and any changes, if any, made therein shall be filed with the Registrar in such form, manner and accompanied by such fees as may be prescribed.
(3) An agreement in writing made before the incorporation of a limited liability partnership between the persons who subscribe their names to the incorporation document may impose obligations on the limited liability partnership, provided such agreement is ratified by all the partners after the incorporation of the limited liability partnership.
(4) In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that matter as are set out in the First Schedule
http://www.llponline.in/llp_chapter4.php

WINDING UP OF LLP

1.       Winding up and dissolution Voluntary or by tribunal.
2.       Winding up voluntarily under three circumstances.
a.       Expiry of period.
b.      Happening of specified event.
c.       LLP passes special resolution.
3.       Winding up by the tribunal under six circumstances.
a.       LLP decides.
b.      Six months – below two.
c.       Unable to pay debts.
d.      Acted against the interest of the sovereignty and integrity of India.
e.      Default in filing of accounts.
f.        Just and equitable..
4.       A petition to the tribunal for winding up by it.
a.       LLP or any of its partners
b.      Any creditor
c.       The registrar of companies.
d.      The central / State government.
Tribunal – 90 days

DISTINCTION BETWEEN LLP AND PARTNERSHIP

1.       Governing Act.
2.       Traditional or New.
3.       No. Of Partners.
4.       Separate Legal Entity.
5.       Body Corporate.
6.       Administrative Authority.
7.       Designated Partners.
8.       Liability for Statutory Provisions.
9.       Property in whose name ?
10.   Filing of Accounts Statement.
11.   Mutual Agency.
12.   Liability.
13.   Giving of Loans.
14.   Dissolution.


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Indian Partnership Act 1932 (remaining)


RIGHTS AND DUTIES OF PARTNERS
Rights of Partners
1.      Right of Profit.
2.      Right of Opinion.
3.      Right of Inspection.
4.      Right of management.
5.      Right to Exercise Power.
6.      Right to Exercise Power.
7.      Right of Retirement.
8.      Right of Existence.
9.      Right of Admission.
10.  Right of Interest.
Duties of Partners.
1.      To be Sincere and Faithful.
2.      Maintenance of True Accounts.
3.      Common Advantage.
4.      To keep the secrecy.
5.      Use of Firm Property.
6.      Provide all information’s.
7.      To carry on other business.
8.      Profit should be paid to the firm.
9.      Compensation for loss.
10.  Distribution of loss.
11.  Use of powers within limits.
12.  To Abide the Decision.

DISTINGUISH BETWEEN PARTNERSHIP AND HINDU UNDIVIDED FAMILY
1.      Mode of creation.
2.      Acquisition of Interest.
3.      Admission of New Members.
4.      Limit over number of Members.
5.      Authority of Members.
6.      Liability of Members.
7.      Right of Members to Demand Account.
8.      Right to Dissolution or Partition.
9.      Need of Registration.
10.  Effect of Death of a Member.


DISSOLUTION – CONCEPT
Section 39
Dissolution of a Firm.
Dissolution of a Partnership.


MODES OF DISSOLUTION OF A FIRM

MODES OF DISSOLUTION OF A FIRM
By voluntary acts of Partners themselves  By operation of Law  By intervention of a Court
Compulsory Dissolution        On happening of Certain Contingencies
By Consent                 Insolvency of all or all                                   By expiry of term
except one
By Agreement                        Some event making                          By Completion of undertaking
partnership business Unlawful        
By Notice                    Some event making business                       By death of partner
unlawful if carried on in
partnership                                        By insolvency of partner


Insanity of Partner
Permanent Incapacity of Partner
Misconduct of Partner Affecting Business
Wilful or persistent Breach of Agreement
Transfer or Sale of Whole Interest of Partner
Business working at a loss
Just and Equitable Ground


CONSEQUENCES OF DISSOLUTION OF A FIRM
1.      Appointment of Receiver by the Court.
2.      Liabilities of a Partner on Dissolution of a Firm.
a.      Liabilities of Acts done by Partners, done after dissolution.
b.      Continuing Authority of Partners for purposes of winding up.
3.      Rights of the partners on Dissolution of a Firm.
a.      Rights of Partners to have Business Wound up.
b.      Continuing authority of the partner for the purpose of winding up.
c.       To Account for Personal Profits after Dissolution.
d.      Right to restrain from use of Firm name or Firm Property.
e.      Agreement in restraint of trade.



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