Lesson 29
Limited Liability Partnerships
LESSON OUTLINE
• Introduction
• Salient Features
• The important terms as per the Limited
Liability Partnership Act, 2008
• The important requirements for formation
of a Limited Liability Partnership
• Partners and Designated Partners
• Roles and responsibilities of Designated
Partners
• Limited Liability Partnership
Agreement.
• LLP for the professionals
• Statement of Account ad Solvency
• Audit of Limited Liability Partnership
• Filing of Annual Return
• Foreign Limited Liability Partnership
• Electronic filing of documents
• Investigation of the affairs of LLP
• Winding up of LLP.
LEARNING OBJECTIVES
In order to cope with and conform to the rapid
changes taking place in the industry and business, a
form of business organization combining the vital
aspects of a partnership firm and the advantages of a
limited liability company was essential. This need
gave birth to the new form of organization called
“Limited Liability Partnership”, which is more
popularly known as LLP.
LLP is an alternative business vehicle that gives the
benefits of limited liability company and the flexibility
(LLP) of a partnership firm. Since, LLP contains elements
of both ‘a corporate structure’ as well as ‘a
partnership firm structure’; LLP is many a times
termed as a hybrid of a company and a partnership.
The LLP is a separate legal entity which can continue
its existence irrespective of changes in its partners.
After reading this lesson you will be able to
understand the features of LLP, important
requirements for formation, role and responsibility of
designated partner and rules regarding winding up of
LLP and the difference between LLP and other forms
of business.
662 EP-CL

1. INTRODUCTION
Limited Liability Partnership (LLP) is an incorporated partnership formed and registered under the Limited
Liability Partnership Act 2008 with limited liability and perpetual succession. The Act came into force, for
most part, on 31st March 2009 followed by its Rules on 1st April 2009 and the registration of the first LLP on
2nd April 2009.

The arrival of the much-desired and long-awaited LLP Act was result of efforts of several expert committees
which recommended its introduction starting with the Bhatt Committee of 1972, Naik Committee of 1992,
Abid Hussain Committee of 1997, Gupta Committee of 2001, Naresh Chandra Committee of 2003 and the JJ
Irani Committee of 2005.

LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but
allows its partners the flexibility of organizing their internal structure as a partnership based on a mutually
arrived agreement.

The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or
engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their
requirements. Owing to flexibility in its structure and operation, the LLP would also be a suitable vehicle for
small and medium enterprises and for investment by venture capitalists.

REVIEW QUESTIONS

State whether the following statement is “True” or “False”

The Indian Partnership Act 1932 shall be applicable to LLPs.
• True
• False
Correct Answer: False

2. SALIENT FEATURES
The salient features of the Limited Liability Partnership are as follows:—
(i) The LLP is a body corporate and a legal entity separate from its partners. Any two or more persons,
associated for carrying on a lawful business with a view to profit, may by subscribing their names to
an incorporation document and filing the same with the Registrar, form a Limited Liability
Partnership. The LLP has a perpetual succession;
(ii) The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners
shall be governed by an agreement between partners or between the LLP and the partners subject
to the provisions of the proposed legislation. There would be flexibility to devise the agreement as
per their choice. In the absence of any such agreement, the mutual rights and duties shall be
governed by the provisions of the proposed legislation;
(iii) A LLP is a separate legal entity, liable to the full extent of its assets, with the liability of the partners
being limited to their agreed contribution in the LLP which may be tangible or intangible in nature or
both tangible and intangible in nature. No partner would be liable on account of the independent or
un-authorized acts of other partners or their misconduct;
 Lesson 29 Limited Liability Partnerships 663

(iv) Every LLP shall have at least two partners and shall also have at least two individuals as
Designated Partners, of whom at least one shall be resident in India.
(v) A LLP shall maintain annual accounts reflecting true and fair view of its state of affairs. A statement
of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of
LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by
the Central Government;
(vi) The Central Government has power to investigate the affairs of an LLP, if required, by appointment
of competent inspector for the purpose;
(vii) The Indian Partnership Act, 1932 shall not be applicable to LLPs. A partnership firm, a private
company and an unlisted public company may convert themselves to LLP in accordance with
provisions of the proposed legislation;
(viii) The Central Government has made rules for carrying out the provisions of the LLP Act.

REVIEW QUESTIONS

State whether the following statement is “True” or “False”

The Central Government does not have any powers whatsoever to investigate
the affairs of an LLP.
• True
• False
Correct Answer: False

The Central Government shall have powers to investigate the affairs of an LLP, if required, by appointment of
competent inspector for the purpose.

3. DISTINCTION BETWEEN LLP AND PARTNERSHIP

The principle points of difference between a company and a partnership are as follows:
1. LLP is a separate legal entity and therefore, can be sued or it can sue others without involving the
partners. A partnership firm is not distinct from the several persons who compose it.
2. The partners of a LLP would have limited liability i.e. they would not be liable beyond the money
contributed by them. Whereas, partners of a firm would have unlimited liability.
3. The retirement or death of a partner would not dissolve the LLP. On the other hand, the death or
retirement of a partner would dissolve the partnership firm.
4. In a partnership, the property of the firm is the property of the individuals comprising it. In a LLP, it
belongs to the LLP and not to the individuals comprising it.
5. Whereas a partnership can be formed either orally or by a deed of agreement whether registered or
not, LLP is formed by an incorporation document and an LLP agreement, thus, giving it a legality.
6. Whereas a registered or unregistered partnership cannot have more than 20 partners, LLP can
have more than that number since no upper limit has been laid down by the Act.
7. A LLP has perpetual succession, i.e. the death or insolvency of a shareholder or all of them does
not affect the life of the LLP, whereas the death or insolvency of a partner dissolves the firm, unless
otherwise provided.
664 EP-CL

8. Whereas an individual partner would not be able to conduct business transaction with the
partnership firm of which he is a partner, a partner of LLP in his separate capacity as a legal person
can do business with the LLP since the LLP is a separate legal entity by itself.

4. DISTINCTION BETWEEN LLP AND COMPANY

1. In case of LLP, the need for classifying the object clauses into main, ancillary and other objects as
well as framing the Share Capital clause in the memorandum for incorporating a company is
reduced into a simple procedure of filling of the prescribed information in the Incorporation
document and statement in Form No. 2.
2. In case of LLP, a ‘limited liability partnership agreement’ (LLPA) is prepared which is a variant of the
‘articles of association’ of a company.
3. Whereas the memorandum of a company is required to name the state in which it is required to be
incorporated, there is no such obligation in the case of LLP. Consequently, the detail procedure
involved in changing the registered office from the state of incorporation to another state is not
required to be followed in case of a LLP.
4. In the LLP Act, there is no such stipulation for meeting of partners either periodically or compulsory
at the year end as stipulated for directors and shareholders meetings in the Companies Act.
5. There is no separation between management of the company and the ownership as is observed in
a company since all the partners, unlike all the directors, can take part in the day to day affairs of
the LLP.
6. In case of a company no individual director can conduct the business of the company but in an LLP,
each partner has the authority to do so unless expressly prohibited by the partnership terms.
7. Whereas, the Companies Act contemplates regulating the remuneration payable to directors, there
are no corresponding provisions in the LLP Act for remuneration payable to designated partners.
The same could be as per the LLP Agreement.
8. In the case of LLP, unlike in the case of companies, there are no restrictions on the borrowing
powers.
9. The LLP can choose to maintain the accounts on cash basis/accrual basis whereas under the
Companies Act, accrual method is compulsory.
10. Audit of a company is compulsory. Conversely, the audit of LLP is not compulsory if the capital
contributed does not exceed ` 25 lakh or if the turnover does not exceed ` 40 lakhs.
11. Cost audit as contemplated in Section 233B of the Companies Act, 1956 has not been prescribed
for LLPs.
12. The appointment of Company Secretaries as required under Section 383A of the Companies Act,
1956 is not provided in the LLP Act. However, the annual return of a LLP in form 11 is to be certified
as ‘true and correct’ by a Company Secretary in practice.

5. COMPARISON OF LLP WITH PRIVATE LIMITED COMPANY

A comparison of a LLP with a Private Limited Company reveals that such companies have:
— Limited Liability: Similar to LLP.
— Internal flexibility: The Company Law requires a formal board structure and decision making at
validly constituted meetings, passing of resolutions and maintenance of minutes of meetings.
 Lesson 29 Limited Liability Partnerships 665

— Privacy: Similar to LLP.

— Requirement of a LLP agreement: The Memorandum and Articles of Association are the default
standard provisions doing away with the need for a separate agreement similar to a LLP agreement.
— Legal uncertainty: Private Limited companies have long been in existence and being tried and
tested vehicles of business entities, there is no legal uncertainty which is not true in case of a LLP.

The LLP structure seems most suited for partnership concerns set up by professionals such as company
secretaries in practice and others, by offering them the benefits of limited liability on one hand and the
flexibility in internal management that is akin to partnerships on the other. Venture capitalists might also be
attracted to the LLP structure owing to the ability of the partners to participate in management without the
risk of losing limited liability, the absence of capital maintenance rules and the likely advantageous tax
position. The laws of U.S.A., U.K., Singapore and Australia permit formation of LLPs.

6. INCORPORATION OF LIMITED LIABILITY PARTNERSHIP

According to section 11 (1) of the Limited Liability Partnership Act, 2008, for a limited liability partnership to
be incorporated—
(a) two or more persons associated for carrying on a lawful business with a view to profit shall
subscribe their names to an incorporation document;
(b) the incorporation document shall be filed in such manner and with such fees, as may be prescribed
with the registrar of the state in which the registered office of the limited liability partnership is to be
situated; and
(c) a statement in the prescribed form shall be filed along with the incorporation document, made by
either an advocate, or a Company Secretary or a Chartered Accountant or a Cost Accountant, who
is engaged in the formation of the limited liability partnership and by any one who subscribed his
name to the incorporation document, that all the requirements of this Act and the rules made
thereunder have been complied with, in respect of incorporation and matters precedent and
incidental thereto.

2. The incorporation document shall— .

(a) be in form 2 as per rule 11.
(b) state the name of the limited liability partnership;
(c) state the proposed business of the limited liability partnership;
(d) state the address of the registered office of the limited liability partnership;
(e) state the name and address of each of the persons who are to be partners of the limited liability
partnership on incorporation;
(f) state the name and address of the persons who are to be designated partners of the limited liability
partnership on incorporation;
(g) contain such other information concerning the proposed limited liability partnership as may be
prescribed.

3. If a person makes a statement under clause (c) of Sub-Section (1) which he—
(a) knows to be false; or
(b) does not believe to be true,
666 EP-CL

shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not
be less than ten thousand rupees but which may extend to five lakh rupees.

Subject to prior compliance with the requirements of section 11(1) of the Act, section 12(1) mandates the
Registrar to register the incorporation document and issue a certificate of incorporation within 14 days. The
certificate of incorporation shall be conclusive evidence that the limited liability partnership is incorporated by
the name specified in the incorporation document.

Registered Office of LLP

Every limited liability partnership shall have a registered office to which all communications and notices may
be addressed and where they shall be received. [(Section 13(1)]

Rule 17 (1) of the Limited Liability Partnership Rules, 2009 provides that the limited liability partnership may
change its registered office from one place to another by following the procedure as laid down in the limited
liability partnership agreement. Where the limited liability partnership agreement does not provide for such
procedure, consent of all partners shall be required for changing the place of registered office of limited
liability partnership to another place:

Provided that where the change in place of registered office is from one state to another state, the limited
liability partnership having secured creditors shall also obtain consent of such secured creditors.

Name of LLP
According to section 15(1), every limited liability partnership shall have either the words “limited liability
partnership” or the acronym “LLP” as the last words of its name. Section 15 (2) prohibits registration of a LLP
with a name that is either undesirable in the opinion of the Central Government or that is identical with or that
which too nearly resembles to the name of any existing partnership firm or a LLP or a body corporate or a
trade mark registered or pending registration under the Trade Marks Act, 1999.

Rule 18 (1) of the LLP Rules, 2009 provides that the name of the limited liability partnership shall not be one
prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950. Further, Rule 20 (1)
provides that the limited liability partnership may change its name by following the procedure as laid down in
the limited liability partnership agreement. Where the limited liability partnership agreement does not provide
such procedure, consent of all partners shall be required for changing the name of the limited liability
partnership.

7. LLP AGREEMENT
No provision has been made for directors or a board structure on the lines of Company Law. The LLP
agreement determines the mutual rights and duties of the partners and their rights and duties in relation to
limited liability partnership. This LLP agreement is required to be filed with the Registrar.

It has been provided under Section 23 – 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.

Limited liability partnership agreement should be filed with the Registrar within 30 days of incorporation in
form 3. A person becomes a Partner by virtue of LLP agreement. This means that the LLP agreement is a
must and it serves as a basic document and, to a certain extent, takes the place of MOA and AOA applicable
in the case of a company registered under the Companies Act, 1956. Any change in the LLP agreement is
 Lesson 29 Limited Liability Partnerships 667

also required to be notified to the Registrar of Companies. The importance of the said document lies in the
fact that it is a public document and it is open to public inspection being on the records of the Registrar.

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.

8. PARTNERS AND DESIGNATED PARTNERS

Any person can be a ‘partner’ in the limited liability partnership in accordance with the LLP agreement.
Every LLP shall have atleast two designated partners who are individuals and at least one of them shall be a
resident in India.

Section 5 provides that any individual or body corporate may be a partner in limited liability partnership.
However, 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.

Section 7 provides that every limited liability partnership shall have at least two designated partners who are
individuals and at least one of them shall be a resident in India. Provided that in case of a limited liability
partnership in which all the partners are body corporates, at least two partners shall nominate their
respective individuals who are to act as "designated partners" and one of the nominees shall be a resident of
India.

Every designated partner of a limited liability partnership shall obtain a Designated Partner Identification
Number (PIN) from the Central Government and the provisions of Sections 266A to 266G (both inclusive) of
the Companies Act, 1956 shall apply mutatis mutandis for the said purpose.

The Central Government, vide Notification No. GSR 506(E) dated 5th July, 2011, notified Limited Liability
Partnership (amendment) Rules, 2011 whereby it has integrated the Director’s Identification Number (DIN)
issued under Companies Act, 1956 with Designated Partnership Identification Number (DPIN) issued under
Limited Liability Partnership (LLP) Act, 2008 with effect from 9.7.2011.

Pursuant to aforesaid notification with effect from 9.7.2011, no fresh DPIN will be issued. Any person, who
desires to become a designated partner in a Limited Liability Partnership, has to obtain DIN by filing e-form
DIN-1. If a person has been allotted DIN, the said DIN shall also be used as DPIN for all purposes under
Limited Liability Partnership Act, 2008. If a person has been allotted DPIN, the said DPIN will also be used
as DIN for all the purposes under Companies Act, 1956. If a person has been allotted both DIN and DPIN,
his DPIN will stand cancelled and his DIN will be used as DIN as well as DPIN for all purposes under Limited
Liability Partnership Act, 2008 and Companies Act, 1956. Every designated partner, shall intimate his
consent to become a designated partner to the limited liability partnership and DPIN, in Form 9 and the LLP
shall intimate such DPIN to Registrar in Form 4.

Disqualification of a designated partner

If he –
(a) Has at any time within the preceding five years been adjudged insolvent; or
668 EP-CL

(b) Suspends, or has at any time within the preceding five years suspended payment to his creditors
and has not at any time within the preceding five years made, a composition with them;

(c) has been convicted by a Court for any offence involving moral turpitude and sentenced in respect
thereof to imprisonment for not less than six months; or
(d) has been convicted by a Court for an offence involving section 30 of the Act.

(Section 30 deals with punishment for carrying out acts by the LLP or its partners with intent to defraud its
creditors or for a fraudulent purpose).

Responsibilities of Designated Partner - Where the LLP has contravened the provisions of
LLP Act
Moreover, it would be seen from what has been stated above that as per the Act the designated partner
would be liable to all penalties imposed on the LLP for the contravention of the provisions of the Act and as
such the designated partner would be required to pay all the monetary fines imposed on the LLP. There is no
provision in the Act providing for the reimbursement of such monetary penalties to him by the LLP. Further in
the following instances apart from the LLP, the designated partner would also be imposed monetary
penalties under the Act:-
— For non-compliance with the directions of the Central Government for change of name under
Section 17 of the Act,
— For non-maintenance of books of accounts, non-filing of accounts, duly audited where such an audit
is mandatory under Section 34 of the Act,
— For non-filing of the annual return of the LLP with the Registrar under Section 35 of the Act.

REVIEW QUESTIONS

Choose the correct answer

What is the minimum limit for appointment of designated partners in a limited
liability partnership?
(a) Maximum two designated partners
(b) At least two designated partners
(c) Any number of designated partners
(d) None of the above
Correct answer: (b)

9. PARTNERS’ OBLIGATIONS
All partners, not just the designated partners, are agents of the LLP, but not of other partners. As such, all
partners owe the duties of an agent to the LLP. The LLP shall not be bound by anything done by a partner in
dealing with a person if that partner has no authority to act for LLP in doing a particular act and the person
with whom he is dealing also knows that the partner has no authority for such act and to provide that an
obligation of LLP, whether arising out of contract or otherwise will solely be the obligation of LLP. It is also
provided that liabilities of LLP are to be met from the property of LLP. Further the LLP shall be liable for a
wrongful act or omission by a partner in the course of the business of the LLP or with its authority. The
obligation of a LLP shall not affect the personal liability of a partner for his own wrongful act or omission but a
partner shall not be personally liable for wrongful act or omission of any other partner. No partner is
 Lesson 29 Limited Liability Partnerships 669

personally liable directly or indirectly for an obligation of LLP solely by reason of his being a partner of the
LLP.

10. ADVANTAGES & DISADVANTAGES OF LLP

The advantages of a LLP include:
— Separate legal entity: A limited liability partnership is a body corporate formed and incorporated
under this Act and is a legal entity separate from that of its partners.
— Perpetual Succession: A limited liability partnership shall have perpetual succession. In other words,
partners may come and partners may go but a LLP will go on till the winding up of its affairs.
— Limited Liability: reduced risk to personal wealth from creditors’ claims.
— Internal flexibility: allows for participation in management and maintenance of ethos of partnership.
The disadvantages include:
— Lack of privacy: Disclosure of financial information required under Section 34.
— Requirement of a LLP agreement: A LLP agreement is a necessity so as to avoid the application of
default provisions (First Schedule) and to provide for matters not covered in the default provisions.
— Legal uncertainty: This being a newly introduced concept in the corporate world, it is yet to prove
itself as a commercial entity.

11. LLP FOR THE PROFESSIONALS

LLPs are eminently suited to the professionals like Company Secretaries and others. They will get the benefit
of limited liability and insulate them from third party claims against professional negligence or deficiency. A
cross section of the professionals may come together under the banner of LLP to carry on the professional
work in their respective field of specialisation, with the respective statutes according sanction for such a
dispensation. Such an arrangement will bring the professionals closer and this will benefit the corporate and
other clients, as they may be able to get solutions to their problems under one roof. This will also create a
strong organisation of professionals and acts as a bulwark against keen competition expected to happen
from the professionals abroad, with the opening of legal field under the WTO dispensation.

12. VALUATION OF CAPITAL CONTRIBUTION

As per Rule 23(1) of the LLP Rules, 2009, the contribution of each partner shall be accounted for and
disclosed in the accounts of the LLP along with nature of contribution and amount. Further, Rule 23 (2)
provides that the contribution of a partner consisting of tangible, movable or immovable or intangible property
or other benefits brought or contribution by way of an agreement or contract for services shall be valued by a
practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel
maintained by the Central Government.

13. MAINTENANCE OF BOOKS AND ACCOUNT (RULE 24 OF LLP RULES)

(1) Every limited liability partnership shall keep books of accounts which are sufficient to show and explain
the limited liability partnership’s transactions and are such as to —
(a) disclose with reasonable accuracy, at any time, the financial position of the limited liability
partnership at that time; and

(b) enable the designated partners to ensure that any Statement of Account and Solvency prepared
under this rule complies with the requirements of the Act. [Rule 24(1)]
670 EP-CL

(2) The books of account shall contain—

(a) particulars of all sums of money received and expended by the limited liability partnership and the
matters in respect of which the receipt and expenditure takes place;

(b) a record of the assets and liabilities of the limited liability partnership;

(c) statements of cost of goods purchased, inventories, work-in-progress, finished goods and cost of
goods sold; and

(d) any other particulars which the partners may decide. [Rule 24(2)]

(3) The books of account which a limited liability partnership is required to keep shall be preserved for eight
years from the date on which they are made. [Rule 24(3)]

(4) Every limited liability partnership shall file the Statement of Account and Solvency in Form 8 with the
Registrar, within a period of thirty days from the end of six months of the financial year to which the
Statement of Account and Solvency relates. [Rule 24(4)]

(5) A limited liability partnership’s Statement of Account and Solvency shall be signed on behalf of the limited
liability partnership by its designated partners. [Rule 24(6)]

14. AUDIT OF LIMITED LIABILITY PARTNERSHIP ACCOUNTS (RULE 24 OF LLP RULES)

The accounts of every limited liability partnership shall be audited in accordance with these rules:

A limited liability partnership whose turnover does not exceed, in any financial year, forty lakh rupees or
whose contribution does not exceed twenty-five lakh rupees is not required to get its accounts audited.

The Accounts of LLP should be audited as per LLP Rules, 2009. Where the partners of LLP do not decide
for audit of the accounts of the LLP, such LLP shall include in the Statement of Account and Solvency a
statement by the partners to the effect that the partners acknowledge their responsibilities for complying with
the requirements of the Act and the Rules with respect to preparation of books of account and a certificate in
the form specified in Form 8. [Rule 24(8)]. The audit of LLP may be done by a Chartered Accountant in
Practice only.

An auditor or auditors of a limited liability partnership shall be appointed for each financial year of the LLP for
auditing its accounts. [Rule 24(10)]

15. FILING OF ANNUAL RETURN (RULE 25 OF LLP RULES)

As per Section 35(1), every limited liability partnership shall file an annual return with the Registrar in Form
11. The annual return of an LLP having turnover upto Rs. five crore rupees during the corresponding
financial year or contribution upto Rs. fifty lakh rupees shall be accompanied with a certificate from a
designated partner, other than the signatory to the annual return, to the effect that annual return contains
true and correct information. In all other cases, the annual return shall be accompanied with a certificate from
a Company Secretary in practice to the effect that he has verified the particulars from the books and records
of the limited liability partnership and found them to be true and correct.
 Lesson 29 Limited Liability Partnerships 671

REVIEW QUESTIONS

State whether the following statement is “True” or “False”

A partner shall not be personally liable for the wrongful act or omission of any
other partner of the Limited Liability Partnership.
• True
• False
Correct answer: True

16. ELECTRONIC FILING OF DOCUMENTS

Rule 36(1) of LLP Rules provides that every form or application or document or declaration required to be
filed or delivered under the Act and rules made there under, shall be filed in computer readable electronic
form, in portable document format (pdf) to the Registrar through the portal maintained by the Ministry of
Corporate Affairs(MCA) on its website www.mca.gov.in or through any other website approved by the
Central Government and authenticated by a partner or designated partner of the limited liability partnership
for such purpose by the use of a valid digital signature. Earlier MCA had launched a separate portal
www.llp.gov.in for filling of form/application etc. Now the same is integrated with MCA portal.

Integrating e-Governance project for Limited Liability Partnership (LLP) under the platform
of MCA21

The Ministry of Corporate Affairs, has achieved a new milestone by integrating e- Governance project for
Limited Liability Partnership (LLP) under the platform of MCA21. With effect from 11-06-2012 all LLP forms,
except Forms to be filed by Foreign LLP is being processed and approved by respective Registrar of
Companies (ROCs) of concerned state. The forms to be filed by foreign LLPs shall be processed and
approved by the ROC, Delhi & Haryana.

17. INVESTIGATION OF THE AFFAIRS OF LIMITED LIABILITY PARTNERSHIP (SECTION 43)

As per Section 43 the Central Government may appoint one or more competent persons as inspectors to
investigate the affairs of a limited liability partnership and to report on them in such manner as it may direct.
(a) if not less than one-fifth of the total number of partners of the limited liability partnership make an
application along with supporting evidence and security amount as may be prescribed; or
(b) if the limited liability partnership makes an application that the affairs of the limited liability
partnership ought to be investigated; or
(c) if, in the opinion of the Central Government, there are circumstances suggesting—
(i) that the business of the limited liability partnership is being or has been conducted with an intent
to defraud its creditors, partners or any other person, or otherwise for a fraudulent or unlawful
purpose, or in a manner oppressive or unfairly prejudicial to some or any of its partners, or that
the limited liability partnership was formed for any fraudulent or unlawful purpose; or
(ii) that the affairs of the limited liability partnership are not being conducted in accordance with the
provisions of this Act; or
672 EP-CL

(iii) that, on receipt of a report of the Registrar or any other investigating or regulatory agency, there
are sufficient reasons that the affairs of the limited liability partnership ought to be investigated.

18. FOREIGN LIMITED LIABILITY PARTNERSHIP

As per rule 34(1) of the LLP Rules, a foreign limited liability partnership shall, within thirty days of
establishing a place of business in India, file with the Registrar in Form 27 —

(a) a copy of the certificate of incorporation or registration and other instrument(s) constituting or
defining the constitution of the limited liability partnership;

(b) the full address of the registered or principal office of the limited liability partnership in the country of
its incorporation;

(c) the full address of the office of the limited liability partnership in India which is to be deemed as its
principal place of business in India; and

(d) list of partners and designated partners, if any, and the names and addresses of two or more
persons resident in India, authorized to accept on behalf of the limited liability partnership, service of
process and any notices or other documents required to be served on the limited liability
partnership.

20. WINDING UP OF LIMITED LIABILITY PARTNERSHIP

The winding up of a limited liability partnership may be either voluntary or by the Tribunal. Limited liability
partnership, so wound up may be dissolved.(Section 63)

Circumstances in which limited liability partnership may be wound up by Tribunal (Section 64)

A limited liability partnership may be wound up by the Tribunal—

(a) if the limited liability partnership decides that limited liability partnership be wound up by the
Tribunal;
(b) if, for a period of more than six months, the number of partners of the limited liability partnership is
reduced below two;
(c) if the limited liability partnership is unable to pay its debts;
(d) if the limited liability partnership has acted against the interests of the sovereignty and integrity of
India, the security of the State or public order;
(e) if the limited liability partnership has made a default in filing with the Registrar the Statement of
Account and Solvency or annual return for any five consecutive financial years; or
(f) if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be
wound up.

Limited Liability Partnership (Winding up and Dissolution) Rules, 2012

The Limited Liability Partnership (Winding up and Dissolution) Rules, 2012 prescribes the details provisions
relating to winding up. Any LLP may be wound-up voluntarily if the LLP passes a resolution to wind up the
LLP with approval of at least three-fourths of the total number of its partners. Provided that where the LLP
has creditors, whether secured or unsecured, the winding up shall not take place unless approval of such
 Lesson 29 Limited Liability Partnerships 673

creditors takes place. A copy of the resolution shall be filed with the Registrar within thirty days of passing of
such resolution in Form No. 1. For details, please visit www.mca.gov.in/LLP.

21. FOREIGN DIRECT INVESTMENT (FDI) IN LIMITED LIABILITY PARTNERSHIPS (LLPs)

FDI is allowed in LLPs. The department of Industrial Policy and Promotion vide its press note dated May 20
2011, amending Consolidated FDI Policy allows LLPs to have FDI.

Salient Features
• FDI in LLPs is allowed, thorugh the government route only for LLPs operating in
sectors/activities where 100%FDI is allowed through automatic route. There are no FDI linked
performance related conditions(Such as ‘Non-Banking Finance Companies’ or ‘Development of
townships, housing, built-up infrastructure and Construction-development projects’ etc)
• FDI in LLP is not allowed at all even through government route in those sectors where 100% FDI
is not allowed under automatic route.
• LLPs with FDI is not eligible to make any downstream investments.
• An Indian Company, having FDI is permitted to make downstream investment in an LLP only if
both the company as well as LLP are operating in sectors where 100% FDI is allowed through
the automatic route and there are no FDI linked performance related conditions.
• LLP with FDI is not allowed to operate in agricultural/plantation activity, print media or real estate
business.
• LLPs cannot avail External Commercial Borrowings.
• Foreign Capital participation in the capital structure of LLPs is allowed only by way of cash
consideration, received by inward remittance, through normal banking channels or by debit to
NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized
bank.
• Investment in LLPs by Foreign Institutional Investors (FIls) and Foreign Venture Capital
Investors (FVCIs) is not permitted.
• Conversion of a company with FDI, into an LLP, is allowed only if the conditions stipulated for
LLP regarding FDI are complied with.
• For LLPs with FDI, the designated partner "resident in India", as defined under the 'Explanation'
to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of "person resident
in India", as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.
• In case the LLP with FDI has a body corporate that is a designated partner or nominates an
individual to act as a designated partner in accordance with the provisions of Section 7 of the
LLP Act, 2008, such a body corporate should only be a company registered in India under the
Companies Act, 1956 and not any other body, such as an LLP or a trust.

LESSON ROUND-UP
• Any two or more persons associated for carrying on a lawful business with a view to earn profit may form a limited
liability partnership by subscribing their names to an incorporation document and registration with the registrar of
companies.

• Salient features of the Limited Liability Partnership

• Body corporate with a separate legal entity.

674 EP-CL

• Mutual rights and duties of partners of an Limited Liability Partnership inter se and those of the Limited Liability
Partnership and its partners shall be governed by an agreement between the partners.

• Limited liability of the partners.

• Every Limited Liability Partnership shall have atleast two partners.

• The Indian Partnership Act, 1932 shall not be applicable to LLPs.

• Every Limited Liability Partnership shall have at least two designated partners who are individuals and atleast one of
them shall be a resident of India.

• The mutual rights and duties of the partners of 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.

• Every limited liability partnership shall file the Statement of Account and Solvency in Form 8 with the Registrar,
within a period of thirty days from the end of six months of the financial year to which the Statement of Account and
Solvency relates. A limited liability partnership’s Statement of Account and Solvency shall be signed on behalf of the
limited liability partnership by its designated partners.

• A limited liability partnership whose turnover exceed forty lakh rupees, in any financial year or whose contribution
exceed twenty-five lakh rupees shall be required to get its accounts audited.

• Every limited liability partnership shall file an annual return with the Registrar in Form 11.

• The Central Government may appoint one or more competent persons as inspectors to investigate the affairs of a
limited liability partnership and to report on them in such manner as it may direct.

• The winding up of a limited liability partnership may be either voluntary or by the Tribunal.

GLOSSARY
LLPA Limited Liability Partnership Agreement
DPIN Designated Partner Identification Number

SELF-TEST QUESTIONS
1. What do you mean by Limited Liability Partnership. State the salient features of Limited Liability
Partnerships.
2. Who is a designated partner? Give the relevant provisions of the LLP Act 2008 with regard to
designated partners.
3. Write short notes on:
(i) LLP Agreement (ii) LLP for the professionals.
4. State the circumstances in which LLP may be wound up by the Tribunal.