LLP Act 2008 Revision Notes

1. What is an LLP?

  • A hybrid of a company and a partnership. Provides limited liability with the flexibility of a partnership.
  • It is a body corporate with a legal entity separate from its partners.
  • Has perpetual succession; changes in partners do not affect its existence.
  • The Indian Partnership Act, 1932 is not applicable to LLPs.

2. Incorporation & Partners

  • Minimum of two partners required. No maximum limit.
  • Partners can be individuals or bodies corporate.
  • Must have at least two Designated Partners (individuals).
  • At least one Designated Partner must be resident in India (stay of 120 days or more in the financial year).
  • Incorporation is done by filing an incorporation document (FiLLiP form) with the Registrar.

3. Agreement & Liability

  • Mutual rights and duties are governed by the LLP Agreement.
  • In the absence of an agreement, Schedule I of the Act applies.
  • Limited Liability: Partner's liability is limited to their agreed contribution.
  • Mutual Agency: A partner is an agent of the LLP, not of other partners. One partner's actions do not bind others.
  • Liability becomes unlimited in case of acts done with intent to defraud creditors.

4. Financial Disclosures

  • Must maintain proper books of account on accrual or cash basis.
  • Must prepare a Statement of Account and Solvency every year.
  • This statement must be filed with the Registrar within 6 months from the end of the financial year.
  • Must file an Annual Return with the Registrar within 60 days of the closure of its financial year.
  • Audit of accounts is required as per prescribed rules.

5. Conversion & Winding Up

Conversion to LLP

  • A Partnership Firm can convert into an LLP (Schedule II).
  • A Private Company can convert into an LLP (Schedule III).
  • An Unlisted Public Company can convert into an LLP (Schedule IV).

Winding Up by Tribunal

  • If partners fall below two for more than 6 months.
  • If LLP is unable to pay its debts.
  • If LLP has acted against the sovereignty and integrity of India.
  • Default in filing financial statements for 5 consecutive years.

6. Key Differences

LLP vs Partnership Firm

  • Legal Status: LLP is a body corporate, Firm is not.
  • Liability: Limited in LLP, Unlimited in Firm.
  • Mutual Agency: Partners are not agents of each other in LLP. They are in a Firm.
  • Registration: Mandatory for LLP, Voluntary for Firm.

LLP vs Company

  • Governing Act: LLP Act vs Companies Act.
  • Internal Governance: By agreement in LLP, by statute in Company.
  • Management: By partners in LLP, by directors in Company.