The year was 1957 when the Iron, Steel and Hardware Merchants Chamber made a suggestion to introduce Limited Liability Partnership (LLP) legislation on the ground that the Companies Act had become cumbersome for private companies. But it was rejected on the basis that the whole purpose of the Companies act amendment would fail if the proposal was accepted. Now the LLP is finally a reality through the Limited Liability Partnership Act, 2008 which has come into force from 1st April 2009.
Limited Liability Partnerships are commercial business vehicles which combines the features of both partnership firm and a company. The most distinct feature of the LLP entity is that unlike partnership firms it provides the advantage of limited liability of a company.
INCORPORATION OF LLP
• An LLP for the purpose of incorporation should have a minimum of two partners. The partners should then furnish information regarding the Name of LLP, Proposed business, Address of the registered office, Name and address of those who would be the partners and the designated partners are to Registrar in prescribed forms.
• Then a statement should be made by an advocate or company secretary or chartered accountant or cost accountant, who is engaged in the formation of LLP and by anyone who has subscribed his name to the incorporation document, stating that all the requirements of the LLP Act and the rules made there under have been complied with.
• The following forms have to be used for incorporation of a LLP:
1.Form 1 : Application for reservation of name.
2.Form 2 : Incorporation document and statement.
3.Form 3 : Information regarding LLP Agreement
4.Form 4 : Notice of appointment of partners/ designated partners and changes among them, intimation of DPIN by the LLP to registrar and consent of partner to become a partner/ designated partner.
• On submission of the requisite documents, complete in all respects, the registrar shall within 14 days issue the certificate of registration of LLP. The certificate of registration issued in form 16 is the conclusive evidence of incorporation of LLP. After incorporation each LLP is allocated a unique identity number called the limited liability partnership identity number (‘LLPIN’) which is similar to corporate identity number(‘CIN’) in case of companies.
In the LLP form of business organisation each partner’s liability is limited to the contribution made by that partner and the obligation of the partner to contribute money or other property to perform services will be as per the limited liability partnership agreement. Chapter V of the Limited Liability Partnership Act, 2008 deals with the extent and limitation of liability of limited liability partnership and partners. Section 27 of the act provides that, an obligation of the LLP is solely the obligation of the LLP. Hence the liability of a LLP will be meted out of the property of LLP.A partner will not be personally liable directly or indirectly for an obligation of the LLP solely by reason of being a partner of the LLP. Though a partner will be liable for his own acts he shall not be personally liable for the wrongful acts of any other partner of the LLP.
But there are certain special circumstances in which the partners would be liable which are as follows:
1. Liability of partner by holding out- If a person represents himself to be a partner of LLP then he would be liable to any person who acts with him in good faith on the basis of such representation.
2. Unlimited liability- In the event of an act carried out by a LLP, or any of its partners, with intent to defraud creditors of LLP, or for any fraudulent purpose, the liability of the LLP and the partners who acted with the intention to defraud shall be unlimited. But in case of negligence or misconduct of business only the personal assets of the concerned partner would be attached and not of the other partner.
Another characteristic is that an obligation of the partner which he incurred while being a partner does not discharge if he ceases to be a partner of the LLP.
Thus with its distinct feature of limited liability LLP is now a new alternative form of business organisation which can provide a platform to small and medium enterprises, to become competitive. LLP which removes the defects of traditional partnership along with retaining flexibility in its operations through minimum statutory compliances is beyond doubt a welcome sign.
- Parvathy Tharamel
ILS Law College