Limited Liability Partnership

Article explains provisions related to Limited Liability Partnership (LLP) under Limited Liability Partnership Act, 2008 Along With Rules Thereof.

Meaning of Partner under Section Section 2(q)

“Partner” in relation to a LLP, means any person who becomes a partner in the LLP in accordance with the LLP agreement.

Section-5

Any individual or body corporate may become the partner in a LLP.

Provided that an individual shall not be capable of becoming a partner, if

• found to be unsound mind;
• undischarged insolvent; or
• applied to be adjudicated as an insolvent and his application is pending.

Body Corporate shall exclude: –

• a corporation sole, means a public office established by act of parliament, a sole officeholder;
• a co-operative society; and
• any other body corporate not being a company as defined under Companies Act, 2013.
• NBFCs prohibited to be partner of LLPs. (as per noti. Issued by RBI)

Whether following become partner of LLP?

• A Company incorporated outside India can also become a partner.
• A LLP can become partner in another LLP.
• A trust cannot become a partner of LLP.
• A trustee can become a partner of a LLP in his “individual capacity” but not in a representative capacity of trust}
• An HUF cannot become a partner of a LLP. But Karta of HUF can become a partner of a LLP in his ‘individual capacity’ and not in a representative capacity of HUF}

MINIMUM NUMBER OF PARTNER

Section-6

1. Every LLP shall have at least two partners.

2. If at any time number of partners of a LLP reduce below the two and LLP carries its business for the period of more than 6 months than such partner shall be personally liable for the obligation of the LLP incurred during that period.

(Section 64(b) of the LLP Act, provides that if the number of partner is reduced below the two and LLP carries it business for the period of more than 6 months, then the LLP may be wound up by the Tribunal. (Not yet in operational)

DESIGNATED PARTNER

Section 7

1) Every LLP shall have at least two designated partners who are individuals & at least one of them is a resident in India. (Resident means a person who stayed in India in Previous year not less than 182 days);

2) In case, the partner is Body Corporate than nominees of such body Corporate shall considered as designated partner;

3) One become the designated partner if the incorporation document

• Specifies such person/s; or
• States that each of the partners from time to time of a LLP is to be a designated partner, then every partner shall be a designated partner;

4) Any partner may become the designated partner or cease to be a designated partner, in accordance with the LLP agreement;

5) An Individual shall not become a designated partner unless he has given his prior consent (through Form 9);

6) Every LLP shall file with ROC the particulars of every Individual who has given his consent to act as designated partner, within 30 days of his appointment (Form 2; in case of New LLP or Form 4; in case of existing LLP);

7) To become a designated Partner one must satisfy the condition and requirement as may be prescribed.

8) A person shall not be capable of being appointed as a designated partner of LLP, if he {Rule 9(1)}

• At any time within the preceding five years, has been adjudged insolvent;
• Suspends at any time within the preceding five years, suspends payment to his creditors and has not, at any time in preceding five year, made a composition with them;
• Has convicted any offence involving moral turpitude and sentenced to imprisonment for not less than six months;
• Has been convicted by Court for an offence involving section 30 of the LLP Act;

CG may by notification in the OZ, remove the disqualification incurred by any person on account of clause (a) or (b) of Rule 9(1) either generally or specifically.

9) Every designated partner shall obtain the Designated Partner Identification Number (DPIN) from CG and provision of Section 153 to 159 of the Companies Act, 2013;

• One shall apply for DPIN in Form DIR-3 under Companies (Appointment and Qualification of Director) Rules, 2014 to CG{Rule 10(1)}
• If a person holds both DIN and DPIN then his DPIN shall stand cancelled and DIN shall be sufficient for being appointed as Designated Partner {Rule 10(2)}
• One must give his consent to act as a designated partner and DPIN in Form 9 to LLP and LLP shall intimate such DPIN to Registrar in Form 4; {Rule 10(3)}
• Every designated Partner shall in the event of any changes as stated in Form 10 or DIR-3, intimate the CG in Form DIR-6 under Companies (Appointment and Qualification of Directors) Rules, 2014; {Rule 10(4)(i)}
• The concerned designated partner shall fill-in the relevant changes to the LLP on which he is a designated partner within 30 days of such changes; {Rule 10(4)(ii)}

LIABILITIES OF DESIGNATED PARTNER

Section 8

A designated Partner shall be-

• Responsible for the doing all acts, matters and things including filing of any document, return, statement and the like report as mentioned under this Act and may specified in the LLP agreement; and
• Liable to all penalties imposed on the LLP for contravention of those provisions.

CHANGES IN DESIGNATION/VACANCY

Section-9

A LLP may appoint a designated partner within 30 days of a vacancy arising for any reason and provision of section 7 (4) and (5);

Provided if no Designated Partner appointed within 30 days of vacancy then each partner shall be deemed as designated partner;

If number of designated partner at any time reduced below the two then all partner shall deemed to be a designated partner.

Section 64 (b) of the LLP Act, provides that if number of partner reduced below the two and LLP continues, as same, for more than 6 months then the LLP may be wound up by the Tribunal.

PUNISHMENT

Section-10

1. If contravenes the provisions of sub-section (1) of section 7, LLP and its every partner shall be punishable with fine not less than 10000 but extent to Rs. 5 lakhs;

2. If contravenes Section 7(4) or 7(5) or 8 or 9, then the LLP and its every partner punishable with fine not less than Rs.10,000 but extend to Rs. 1,00,000.

CHANGE IN REGISTERED OFFICE OF A LLP

Section 13(3)

Provides that a LLP may change its place of registered office

• Within the same state; or
• From one state to another.

However file the Notice of such change with the Registrar in Form-15 within 30 days of approval of changes by partners. The changes shall take effect only upon such filing.

Change in the registered office within the same state

Rule 17(1) of the LLP Rules, provides the Change in Registered office of a LLP by following the procedure mentioned in the LLP agreement;

Where LLP agreement is silent then consent of all partners required for such changes.

Rule 17(2) of LLP Rules, provides filing of Notice of the change in the place of registered office to the ROC in Form-15 within 30 days from the date of approval of such changes by partners;

Rule 17(3) provides if any

-Conviction;

-Ruling;

-SCN

-Order; or

-judgment of any court, Tribunal or other Authority;

Pronounced against the LLP then, such matters, as above, shall be mentioned in the notice filed with the ROC.

Change in the registered office from one state to another state

Rule 17(1) of the LLP Rules, provides the Change in Registered office of a LLP by following the procedure mentioned in the LLP agreement;

Where LLP agreement is silent then consent of all partners required for such changes.

The LLP shall also required to obtain the consent of secured creditors, if any;

Rule 17(4) provides that the LLP shall publish general notice, at least 21 days before filing any notice with the ROC, in a daily newspaper in

-English; and

-Principal language of district where the registered office is situated.

From the jurisdiction of one ROC to another ROC within the same state or from one state to another state

Rule 17(5) provide that, either of the above case, the LLP shall file a notice of change of address in Form 15 with the

-ROC where the LLP situated, presently; and

-ROC where the LLP proposed to be situated.

PUNISHMENT

The LLP and its every partner liable with fine not less than Rs.2000 but which may extent to Rs.25000.

CHANGE OF REGISTERED NAME

Section-19

Any LLP may change its name registered with the ROC by filing a notice of such changes.

Rule 20(1) provides that, procedure for such changes shall be as such mentioned in the LLP agreement.

Where LLP agreement does not provide any procedure, then consent of all Partner shall be required for changing the name.

Rule 20(2) provides that notice of changes in name shall be given to ROC in Form 5 within 30 days of complying with requirement of Rule 20(1).

Rule 20(3) provides that the ROC shall issue fresh Certificate of Incorporation with the new name and the new name shall be effective from the date of issue of such COI.

PUBLICATION OF NAME

Section 21

Every LLP shall ensure that its invoices, official correspondence and publication bear the following, namely:-

–Name of LLP;

–Registered office address of LLP;

–Registration Number of LLP; and

-a statement that it is registered with limited liability.

Eligibility to be Partner

Section-22

An individual or body corporate could become partner(s) in a LLP in any of the following situations;

At the time of incorporation of LLP: By being a subscriber to the incorporation document

At any time after incorporation of LLP: In accordance with the LLP Agreement.

Relationship of Partners

Section-23

1. The mutual rights and duties of:

• Partners; and
• LLP and its partners

Shall be governed by LLP agreement executed between:

• Partners; or
• LLP and its partners

2. Any changes in LLP Agreement shall be filed with ROC in Form 3 within 30 days of such changes along with fees.

3. Pre-incorporation agreement executed by partner/s shall be impose obligation upon the LLP only if such pre-incorporation agreement rectified by all partners after incorporation of LLP.

4. In the absence of LLP agreement, the mutual rights and duties of partners and the LLP & its partners shall be determined by First Schedule.

CESSATION OF PARTNERSHIP

Section-24

1. There is two ways in which a partner would cease to be a partner in a LLP, namely:

• If there is LLP agreement then in accordance with such agreement;
• If there is no agreement, then by sending notice in writing of not less than 30 days to the other partners of his intention to resign as partner.

2. A person shall cease to be a partner of a LLP, in following circumstances:

• On his death;
• Dissolution of LLP;
• declared unsound mind by a competent court; or
• adjudged as an insolvent

3. Partner (hereinafter called as “Former partner”) who cease from the LLP, shall be considered as partner until;

• The person has notice that the former partner has ceased to be a partner of the LLP; or
• A notice to the effect that the former partner has cease to be partner of the LLP has been delivered to the Registrar. (Notice shall be filed with ROC within 30 days from the date of his cessation)

4. Even after ceasing to be a partner, he shall continue to be liable for any obligation

• To the LLP; or
• To the other partner; or
• To another person

Which he incurred while being a partner of the LLP.

5. The former partner or a person entitled to his share consequences of the death or insolvency of the former partner shall be entitled to receive from the LLP:

• An amount equal to the capital contribution of the former partner actually made to the LLP; and
• His right to share in the accumulated profits of the LLP;

after the deduction of accumulated losses of the LLP, determined on the date when the former partner ceased to be a partner.

6. A former partner or a person entitled to his share in consequence of the death or insolvency of the former partner shall not have any right to interfere in the management of LLP.

REGISTRATION OF CHANGES IN PARTNER

Section-25

1. Every partner shall inform the LLP of any changes in his name and address within a period of 15 days of such changes in form 6.

2. A LLP shall:

• File a notice with the ROC within 30 days from the date when the partner becomes or ceases to be a partner in Form 4; and
• File a notice with the ROC within 30 days of any changes in name and address of partner in Form 4.

3. Any person who ceases to be a partner of a LLP may himself file a notice with the ROC, if reasonable cause to believe that LLP may not file notice with the ROC and in that case, the ROC shall obtain the confirmation to this effect from the LLP unless the LLP shall also filed such notice:

Provided that where no confirmation given by LLP within 15 days, the registrar shall register the notice made by the partner.

PARTNER AS AGENT

Section-26

Every partner of LLP is, for the purpose of business of LLP, the agent of LLP but not of other partners.

EXTENT OF LIABILITY OF LLP

Section-27

1. A LLP is not be liable for anything done by the partner in dealing with a person, if–

• the partner has no authority to act
• the person knows that he has no authority or does not know or believe him to be partner of LLP

2. The LLP is liable if a partner is liable to any person as a result of a his wrongful act or omission in the course of business of LLP

3. An obligation of LLP shall be solely the obligation of the LLP.

4. The liabilities of LLP shall be met out of the property of the LLP.

EXTENT OF LIABILITY OF PARTNER

Section-28

1. The partner is not personally liable for the obligation of the LLP;

2. The personal liability of a partner shall not affect for the act of LLP or of the other partner.

HOLDING OUT

Section-29

1. If any person holds himself as a partner of LLP either by words spoken or by words written or by conduct and any outsider acting on such representation extend credit to the LLP. In that case, the person holding himself out as a partner shall be personally liable to the person who has extended credit to the LLP on the basis of such representation.

2. Where after the death of the partner, if the business continued with the same name (of the LLP) or of the deceased partner’s name then it shall not make the legal representative of the partner or his estate liable for any act of the LLP done after his death.

UNLIMITED LIABILITY IN CASE OF FRAUD

Section-30

1. The liability of the LLP and partner shall be unlimited for all or any of the debts or other liabilities arising of;

• intent to defraud creditors of the LLP;
• For any fraudulent purpose

2. Every person who knows the act done in above sub-section (1) shall be punishable with imprisonment for term which may to two years and fine not less than 50000 but which may extend to Rs.500000.

3. Where the affairs of LLP is conducted in a fraudulent manner, then the LLP or the partner or designated partner or employee shall be liable to pay compensation to any person who has suffered any loss or damage due to such act, without prejudice to any criminal proceeding mentioned under any law for the time being in force.

WHISTLE BLOWING

Section-31

1. The court or Tribunal may reduce or waive the penalty levied on partner or employee, if

• Such partner or employee provide necessary information during investigation of LLP
• Such information leads to a LLP or any partner or employee thereof being convicted under the LLP Act or any other Act.

2. The LLP Act provides statutory shelter to any partner or employee of a LLP, who becomes a whistle blower.

MAINTENANCE OF BOOKS OF ACCOUNT, OTHER RECORDS AND AUDIT, ETC.

Section-34

1. Every LLP shall maintain its proper books of account on double entry system of accounting; and shall be prepared either on

(i) cash basic; or

(ii) accrual basic

Every LLP shall keep books of account which are sufficient to show and explain the LLP’s transaction and are such as to;

• Disclose with reasonable accuracy in the financial position of the LLP
• Designated partner to ensure that any Statement of Account and solvency shall complied with the requirement of LLP act.

Books of account contains: –

• Particulars of sums of money received and expanded by LLP and their purpose too;
• Record of assets and liabilities of LLP;
• Statement of cost of goods purchased;
• Statement of inventories;
• Statement of work-in-progress & finished goods;
• Statement of cost of goods sold
• Any other as may be decided between partners

Such books of accounts shall be preserved for 8 years;

STATEMENT OF ACCOUNT AND SOLVENCY

• The Statement of Account and Solvency has to be prepared by every LLP in the prescribed FORM 8.
• The Statement of Account and Solvency shall be signed by the designated partners of the LLP.
• Every LLP shall prepare the Statement of Account and Solvency within the period of 6 months from the end of financial year as at the last day of the said financial year in FORM 8.
• Filing of Statement of Accounts and Solvency with the ROC within a period of 30 days from the end of 6 months of the financial year to which the Statement of Accounts and Solvency relates.

AUDIT

LLPs are not required to get their account audited if

• Turnover does not exceed 40 lakhs; or
• Contribution criteria does not exceed 25 lakhs.

TAX AUDIT

Every person shall require to have the tax audit if; (Chapter-17)

• Total sales, turnover or gross receipt, as the case may be, in business exceeds one crore rupees in any previous years; or
• Gross receipt of professional exceeds 50 lakhs.

AUDITOR

Qualification

A person shall not be qualified for appointment as an auditor of the LLP unless he is a Chartered Accountant in practice. “Chartered Accountant in practice” here in inclusive of Individuals CA or a firm or LLP of CAs.

Auditor’s appointment to be made for each financial year;

Auditor or auditors of LLP shall be appointed/re-appointed for each financial year of the LLP for auditing its accounts.

Designated partners to appoint the auditor(s)

First Financial Year:

In the first financial year, the appointment of the auditors has to be made at any time before the end of the first financial year.

Subsequent Financial Year:

The appointment of the auditor has to be made at least 30 days before the end of each financial year

Filling of casual vacancy of an auditor

The designated partner may appoint an auditor(s) to fill a casual vacancy in the office of the auditor.

In case designated partner fails appoint the auditor, then the partner may appoint an auditor(s).

Tenure of office of an auditor

An auditor or auditors of LLP shall hold office in accordance with the terms of his or their appointment and if no term mentioned then, shall continue to hold such office till the period:

• The new auditors are appointed; or
• They are re-appointed.

Rule 24(10) of the LLP Rules prescribes that an auditor or auditors of a LLP shall be appointed for each financial year of the LLP for auditing its accounts (as in the case of Companies).

First financial year

In the first financial year, the appointment of the auditors has to be made at any time before the end of the first financial year.

Subsequent financial years

For the subsequent financial years (other than the first financial year), the appointment of an auditor has to be made at least 30 days before the end of the each financial year. For instance, if the financial year of a LLP close on 30^th September, then the appointment of the auditor has to be made by 31^st August of that year.

If the auditor not appointed in any financial year then the existing auditor shall be deemed to be re-appointed. The re-appointment shall not be deemed if;

• The LLP agreement requires that auditors shall be re-appointed every year;
• Majority of partners have decided that existing auditor shall not be re-appointed.

Remuneration of Auditor

The remuneration of auditor shall be fixed by designated partner or following the procedure mentioned in the LLP agreement.

Removal of auditor

The removal of auditor shall be made by following the procedure mentioned in the LLP agreement. If no such procedure mentioned in the agreement, then auditor shall be removed with the consent of all partners.

Resignation of auditor

An auditor may resign from his office by depositing a notice in writing, along with the statement of circumstances, at the LLP’s registered office.

Auditor’s term to end on the date of deposit of the notice or a later date specified

ANNUAL RETURN

Section-35

1. Every LLP shall file an annual return with the ROC within 60 days of closure of its financial year in FORM-11 and accompanied by such fees as may be prescribed.

2. If defaults in sub-section (1), as above, then LLP shall punishable with fine which shall not be less than Rs. 25000 but which may extend to 500000 (five lakh rupees).

3. While the designated partner shall be punishable with fine which shall not be less then 10000 but which may extend to one lakh rupees (Rs.100000)

COMPOUNDING OF OFFFENCES

Section-39

The Central Government may compound any offence under this Act which is punishable with fine only, on payment of a sum which may extend to the amount of the maximum fine prescribed for such offence.

Application for the compounding shall be made in FORM 31 to the ROC who shall forward the same, along with his comment, to the Central Government.

Where any offence is compounded under section 39, intimation thereof shall be given by the LLP to the Registrar in FORM 22 within 7 days from the date on which the offence is so compounded.

COMPLIANCES:

A. Annual Compliances

B. Event Based Compliances

A. ANNUAL COMPLIANCES

Statement of Account and Solvency

(1). For the purposes of sub-section (3) of section 34 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 6 months of the financial year to which the Statement of Account and Solvency relates.

(2). The LLP’s Statement of Account and Solvency shall be signed on behalf of the LLP by its designated partners. (As per agreement, signed by each partner in addition to the signing thereof by the designated partners of the LLP)

(3). The books of account which a LLP is required to keep shall be preserved for eight years from the date on which they are made.

Annual return: (Section 35 of the LLP Act 2008)

(1) Every LLP shall file an annual return duly authenticated with the Registrar within sixty days of closure of its financial year in such form and manner and accompanied by such fee as may be prescribed. (FORM# 11)

(2) Any LLP which fails to comply with the provisions of this section shall be punishable with fine which shall not be less than Rs.25000 but which may extend to Rs. 500000.

(3) If the LLP contravenes the provisions of this section, the designated partner of such LLP shall be punishable with fine which shall not be less than Rs. 10000 but which may extend to Rs. 100000.

B. EVENT BASED COMPLIANCES

1. FORM-3: Information with regard to LLP agreement and changes, if any, made therein

• Within 30 days of the date of incorporation filed with ROC.
• In case of any change in agreement in future then again FORM# 3 is to be filed within 30 days of such change filed with ROC

2. FORM-4: Notice of appointment, cessation, change in name/ address/designation of a designated partner or partner and consent to become a partner/designated partner shall be filed with ROC:

• Within 30 days of appointment/cessation, as the case may be.

3. FORM-5: Notice for change of name of LLP under Section 19 read with Rule 20(2) shall be filed with ROC:

• Within 30 days from obtaining the consent from all the partners

4. FORM-15: Notice for change of place of registered office of LLP under Section 13 read with rule 17, shall be filed with the ROC:

• Within 30 days from taking the consent from all the partners or as per agreement.