CONCEPT PAPER ON LIMITED LIABILITY PARTNERSHIPS EXPLANATORY NOTES INTRODUCTION

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1 CONCEPT PAPER ON LIMITED LIABILITY PARTNERSHIPS INTRODUCTION EXPLANATORY NOTES 1. The main purpose of this Concept Paper (hereinafter referred to as The Paper ) is to create a basic framework, which will facilitate the creation of a new legal entity in India viz. the limited liability partnership ("LLP"). The essential feature of an LLP is that it combines the organisational flexibility and tax status of a partnership with limited liability for its partners. An LLP is a body corporate having perpetual succession and separate legal entity. 2. The paper is only an approach to the introduction of a bill in the Parliament and has not been vetted by the Legislative Department, Ministry of Law. 3. The aim of this paper is only to provoke critical examination of the provisions contained in this paper by all chambers of commerce, business organizations, professional bodies, academicians and persons connected with corporate sector. 4. The Ministry will feel rewarded if it stimulates widest possible public debate so that the bill as and when introduced in the Parliament will duly take into account the various points of view. 5. The Ministry invites suggestions for improvement of the paper. Once the concepts are frozen after public debate and completion of consultation process, necessary changes will be proposed and finalized. Thereafter, the Limited Liability Partnership Bill will be framed for introduction in the Parliament. 6. It will be appreciated if the suggestions are given, in a tabular form, against each section. All suggestions must, however, reach the Ministry (by post addressed to Shri B M Anand, Joint Director, Ministry of Company Affairs, Room No 539, A Wing, Shastri Bhawan, New Delhi or by at cl5.dca@sb.nic.in) latest by These explanatory notes have been made to assist the reader in understanding the paper and need to be read in conjunction with the paper. However, they are not meant to be a comprehensive description of the paper. BACKGROUND 8. The idea that there should be the opportunity in India to organise as an LLP emerged out of the Report of the Naresh Chandra Committee on Regulation of Private Companies and Partnership and Report of the Expert Committee on Company Law (Dr. J. J. Irani Committee). 9. In India, businesses mainly operate as companies, sole proprietorships and partnerships. Each of these is subject to different regulatory and tax regimes reflecting their organisation and ownership. Introducing LLPs as a new business structure would fill the gap between business firms such as sole proprietorship and

2 partnership which are generally unregulated and Limited Liability Companies which are governed by the Companies Act, In addition to an alternative business structure, LLPs would foster the growth of the services sector. The regime of limited liability partnership will provide a platform to small and medium enterprises and professional firms of Company Secretaries, Chartered Accountants, Advocates etc. to conduct their business/profession efficiently which would in turn increase their global competitiveness. 10. The Indian Partnership Act, 1932 sets out special rules relating to the liability of partners to persons dealing with them. A partner acts as the agent of the firm and of other partners for the purpose of the business of the firm. Further, every partner is liable, jointly and severally, with all the other partners, for all acts of the firm done while he is a partner. 11. The unlimited liability for partners in case of general partnerships has become an increasing cause for concern in the light of general increase in the incidence of litigation for professional negligence, the size of claims and the risk to a partner's personal assets when a claim exceeds the sum of the assets of the partnership. The unlimited liability of partners has been the chief reason why partnership firms of professionals, have not grown in size to successfully meet the challenges posed today by international competition, WTO, GATS etc. As an alternative corporate business vehicle, limited liability partnership goes some way towards addressing these concerns. A limited liability partnership has unlimited capacity and provides the internal flexibility of a partnership i.e. by allowing the partners to adopt whatever form of internal organisation they prefer while at the same time limiting their liability with respect to the LLP to their individual contributions. 12. The Concept paper comprises of divided in sixteen chapters and five schedules as under: Chapters 1. Chapter I Preliminary 2. Chapter II Applicability 3. Chapter III Incorporation 4. Chapter IV Partnership 5. Chapter V - Extent and Limitation of Liability 6. Chapter VI - Duties and Standards of Conduct 7. Chapter VII Contributions 8. Chapter VIII - Financial Disclosures 9. Chapter IX Taxation 10.Chapter X - Assignment and Transfer of Partnership Rights 11.Chapter XI Investigation 12.Chapter XII - Conversion to Limited Liability Partnership 13.Chapter XIII - Foreign Limited Liability Partnership 14.Chapter XIV Amalgamation, Merger and Demerger of Limited Liability Partnerships 15.Chapter XV - Winding Up and Dissolution 16.Chapter XVI - Miscellaneous Schedules 1. First Schedule Default provisions for limited liability partnerships. 2. Second Schedule - Conversion from firm to limited liability partnership. 3. Third Schedule - Conversion from private company to limited liability partnership. 4. Fourth Schedule - Conversion from unlisted public company to limited liability partnership. 5. Fifth

3 Schedule Penalties. 14. COMMENTARY ON CHAPTERS Chapter I - PreliminaryThe preliminary chapter contains the provisions relating to short title, commencement and extent of the proposed Act and the definitions of key terms used in the paper. Chapter II - Applicability An LLP is a body corporate having perpetual succession and a legal personality of its own. It shall have at least two partners but there is no limit on the maximum number of partners that it can have. If at any time the number of partners of an LLP falls below two and the business is carried on for more than six months, a person who is a partner of the LLP during the time that it so carries on business after those six months and is cognizant of this fact shall be liable jointly and severally with the LLP for the obligations of the LLP incurred during that period. Any individual or body corporate may be a partner in an LLP. An LLP being a body corporate, the law relating to partnerships is generally not applicable to a limited liability partnership. Similarly, any change in the partners does not affect the existence, rights and liabilities of the LLP. Every LLP shall ensure that it has a manager who is an individual and is resident in India. The role of a manager is to perform the administrative and filing duties of the LLP and will be held personally liable for all penalties imposed on the LLP unless he satisfies the Tribunal that he should not be held liable. Further, in all cases where the manager is liable the LLP shall also be liable to the same extent for such defaults. The particulars of such person, his consent to act as a manager and any change of manager shall be lodged with the registrar in the prescribed manner and form. A manager need not be a partner of the LLP. However, if no manager is appointed, each partner who is resident in India shall be treated as a manager. The LLP shall appoint another person as the manager within sixty days from the date on which a person ceases to be a manager. Chapter III - Incorporation To form an LLP, there must at the outset be at least two persons who are associated for carrying on a lawful business with a view to profit and who subscribe their names to a document called an "incorporation document". The incorporation document must be delivered to the Registrar in the prescribed form and manner. A statement must also be delivered to the Registrar that there has been compliance with all the requirements of this Act and Regulations with respect to incorporation and matters precedent and incidental thereto. The statement must be made by a subscriber to the incorporation document and by either an advocate, or a Company Secretary, or a Chartered Accountant in whole time practice in India, who is engaged in the formation of the LLP. The incorporation document must contain information such as the name of the LLP, its proposed business, address of its registered office, the name, address and photographs of the persons who are to be its partners and manager (s) on incorporation. If a person makes a statement under Section 8 (1) (c) that he knows to be false or does not believe to be true he shall be punishable under the Act. When the registrar receives the incorporation document he will retain and register it. Once the documents have been registered, the registrar will issue a certificate that

4 the LLP is incorporated by the name specified in the incorporation document. A statement that is delivered under section 8(1) (c) may be accepted by the registrar as sufficient evidence that the requirement in section 8(1) (a) has been complied with. The certificate issued by the registrar is an evidence that all the requirements have been complied with. Every LLP is required to have a registered office in India to which all communications will be made and received. Any change in the registered office shall be intimated to the Registrar. An LLP, shall by its name has the power to sue and being sued, hold and dispose property, have a common seal and to do and suffer such other acts as bodies corporate may lawfully do and suffer. Every LLP is required to have either the words limited liability partnership or the acronym LLP as the last words of its name. An LLP shall not be allowed to register with a name, which is undesirable or identical to a name of any other LLP or body corporate or to a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, The name shall be printed on all its invoices and official correspondence along with a statement that it is registered with limited liability. Chapter IV Partnership The first partners of an LLP are those who sign the incorporation document. After incorporation, any person may become a partner of an LLP by agreement with the existing partners. The rights and duties of the partners of an LLP to one another and to the LLP are governed by the provisions of any agreement between the partners. In case, a matter has not been specifically dealt with in the agreement, the provisions set out in the First Schedule shall apply. Certain particulars contained in the LLP agreement as may be prescribed and any changes made therein shall be filed with the Registrar. A person may cease to be a partner by death, dissolution of the LLP or in accordance with any agreement with the other partners of the LLP. Where there is no agreement a partner may cease to be a partner by giving 30 days notice to the other partners. However, a person shall be regarded as a partner, in relation to any person dealing with the LLP unless the third person has notice that the former partner has ceased to be a partner or a notice in this regard has been delivered to the Registrar. Moreover, a former partner shall continue to be liable for the acts done in his tenure. Where a person ceases to be a partner of an LLP, a person entitled to his share in consequence to death or insolvency may not interfere with the management or administration of the LLP, but may receive any amount to which he is entitled. Where a person becomes or ceases to be a partner, the manager of the LLP shall within thirty days from the date on which the partner becomes or ceases to be a partner notify the registrar in the prescribed form and manner. In case of admission of a partner, a statement by the incoming partner that he consents to be a partner should also be filed in the prescribed form and manner. Similarly where there is any

5 change in the name or address of a partner, the same shall be notified. If a person ceases to be a partner and believes that the LLP shall not lodge the statement with the Registrar, he shall himself lodge it. Chapter V - Extent and Limitation of Liability Each partner of the LLP is an agent of the LLP but not of other partners. Therefore, a partner shall be held personally liable for his own wrongful act or omission, but will not be liable for the wrongful act or omission of any other partner of the LLP. An LLP is however, not bound by the actions of a partner where that partner has no authority to act for the LLP, and the person dealing with the partner is aware of this or does not know or believe that the partner was in fact a partner of the LLP. Further, where a partner of an LLP is liable to a person for a wrongful act or omission in the course of business of the LLP or with its authority, the LLP will be liable to the same extent as the partner. An LLP being a separate legal entity is liable for an obligation arising in contract or otherwise and the liabilities of the LLP shall be met out of its property. A partner will not be held personally liable, directly or indirectly for an obligation of the LLP, solely by reason of being a partner of the limited liability partnership. However, this liability shield will be withdrawn in case of an act carried out by a LLP with the intent to defraud creditors or for any other fraudulent purposes. Chapter VI - Duties and Standards of Conduct This chapter deals with the duties and standards of conduct of partners. The more important of these provisions include obligations of loyalty, due care and good faith. Chapter VII - Contributions This chapter deals with the form and liability of partner s contribution. Chapter VIII - Financial Disclosures A limited liability partnership is required to maintain proper books of accounts at its registered office relating to its affairs for each year of its existence on accrual basis and according to the double entry system of accounting. An LLP shall take reasonable precautions to maintain the records so as to prevent loss or destruction, falsification of entries and facilitate detection and correction of inaccuracies. If default is made in complying with these provisions, the manager shall be punishable under the Act. The manager of an LLP shall lodge with the Registrar a declaration as to whether in his opinion the LLP appears to be able to pay its debts in the normal course of business or not. The declaration is to be lodged within 15 months of registration and subsequently every financial year at intervals of not more that 15 months. If the manager fails to lodge the declaration or makes a declaration without having reasonable grounds for his opinion, he shall be punishable under the Act. Further, if any person makes a statement or furnishes information to a manager that is false or

6 misleading in a material particular, then that person shall also be punishable under the Act. The Registrar shall have the power to call for further information as he may require and any person, who fails to comply with any summons or requisition of the Registrar or provides false information, shall be punishable under the Act. He shall also have the powers to enforce the lodging or filing of any return, account or other document. Further, the Registrar may destroy any document lodged, filed or registered with it, if it is no longer necessary or desirable to retain the same. Regulations to the Act shall prescribe the offences which may be compounded by the Central Government under this Act. A limited liability partnership shall take all reasonable precautions to maintain the records it is required to maintain under sub-section (1) of section 27 in a manner so as to prevent loss or destruction thereof prevent falsification of entries and facilitate detection and correction of inaccuracies. Chapter IX - Taxation This chapter ensures that the partners of an LLP which is carrying on a business with a view to profit are treated for the purposes of income tax and capital gains tax as if they were partners carrying on a business in partnership, despite the fact that an LLP is a body corporate. It also provides that the property of the LLP shall be treated for those purposes as property of its partners. This ensures that partners will be individually liable to tax on their share of the profits of the trade, profession or business carried on by the LLP. Further, the assets of the LLP shall be treated as assets held by the partners for the purpose of taxing capital gains. This ensures that the partners of the LLP, rather than the LLP itself, will be liable to tax for capital gains on the disposal of LLP assets. The chapter brings LLPs in line with the approach adopted for partnerships, which similarly treats assets as held by the partners rather than by the partnership. Chapter X - Assignment and Transfer of Partnership Rights This chapter deals with the partner s transferable interest. A partner s economic rights, which include the rights of the partner to a share of the profits and losses of the partnership and to receive distributions in accordance with the limited liability partnership agreement, are freely transferable. However, a transfer in whole or in part of the transferable interest does not imply the partner s disassociation or dissolution and winding up of the LLP s activities. Further, they do not entitle the assignee to participate in the management or conduct of the LLP s activities or access information concerning the LLP s transactions. Moreover, the non-economic rights of a partner shall not be transferable unless specified by the LLP Agreement. Chapter XI - Investigation This chapter deals with the investigation of the affairs of a limited liability partnership.

7 Chapter XII - Conversion to Limited Liability Partnership This chapter contains provisions which provide for the conversion from firm, private company and unlisted public company to a limited liability partnership. The Second Schedule contains provisions for conversion from firm to LLP; the Third Schedule contains provisions for conversion from private company to LLP and the Fourth Schedule provides for conversion from unlisted public company to LLP. Chapter XIII - Foreign Limited Liability Partnership This chapter deals with the foreign limited liability partnership. The Regulations shall make provisions about the features of foreign limited liability partnership. Chapter XIV Amalgamation, Merger and Demerger of Limited Liability Partnerships This chapter deals with the amalgamation, merger and demerger of limited liability partnerships. The Regulations shall make provisions for the same. Chapter XV - Winding Up and Dissolution This chapter deals with the winding up and dissolution of limited liability partnerships. The winding up of a limited liability partnership may be either voluntary or by the Tribunal. The Regulations shall make provisions for the winding up and dissolution of limited liability partnerships. Chapter XVI - Miscellaneous This chapter deals with business transaction of partner with partnership, application of company law etc., electronic filing service, penalties, application of other laws, enabling provision for Regulations, powers of Registrar, offences by limited liability partnerships, jurisdiction of the Tribunal and general penalties. CONTENTS CONCEPT PAPER ON LIMITED LIABILITY PARTNERSHIP Sr. No Particulars Page No. 1 Chapter I 1 Preliminary 2 Section 1 Short title, commencement 1 and extent. 3 Section 2 Definitions 1 4 Chapter II 2 Applicability 5 Section 3 Limited Liability Partnership 2 6 Section 4 Non-applicability of 2 partnership law 7 Section 5 Partners 3

8 8 Section 6 Minimum and Maximum 3 Number of Partners 9 Section 7 Manager 3 10 Chapter III 4 Incorporation 11 Section 8 Incorporation Document 4 12 Section 9 Incorporation by Registration4 13 Section 10 Registered Office 5 14 Section 11 Powers 5 15 Section 12 Names of limited liability 5 partnerships 16 Section 13 Publication of name and 6 limited liability 17 Chapter IV - 7 Partnership 18 Section 14 Partner 7 19 Section 15 Relationship of Partners 7 20 Section 16 Cessation of partnership 7 interest 21 Section 17 Registration of changes in 8 partners 22 Chapter V - Extent 9 and Limitation of Liability 23 Section 18 Partner as agent 9 24 Section 19 Extent of liability of the 9 limited liability partnership 25 Section 20 Extent of liability of a 9 partner 26 Section 21 Unlimited liability in case of 9 fraud 27 Section 22 Liability for personal acts Chapter VI - Duties 10 and Standards of Conduct 29 Section 23 Duties of Partners Section 24 General Standards of 10 Partner's Conduct 31 Chapter VII - 11 Contributions 32 Section 25 Form of Contribution Section 26 Liability for Contribution Chapter VIII - 11 Financial Disclosures 35 Section 27 Maintenance of records Section 28 Annual declaration of 11 solvency 37 Section 29 Power of Registrar to obtain 12

9 further information 38 Section 30 Penalty for providing false 12 information to the Registrar 39 Section 31 Composition of offences Section 32 Destruction of old records Section 33 Enforcement of duty to make13 returns 42 Section 34 Keeping of limited liability 13 partnership records 43 Chapter IX - 14 Taxation 44 Section 35 Income Tax and Capital 14 Gains 45 Chapter X - 14 Assignment and Transfer of Partnership Rights 46 Section 36 Partner's transferable 14 interest 47 Section 37 Transfer of partner's 14 transferable interest 48 Chapter XI - 14 Investigation 49 Section 38 Investigation of the affairs of14 a limited liability partnership 50 Section 39 Application by partners to be 15 supported by evidence and power to call for security. 51 Section 40 Firm, body corporate or 15 association not to be appointed as inspector. 52 Section 41 Power of inspectors to carry 16 out investigation into affairs of related entities, et. 53 Section 42 Production of documents and16 evidence. 54 Section 43 Seizure of documents by 17 inspector. 55 Section 44 Inspectors' report Section 45 Prosecution Section 46 Application for winding up of 18 limited liability partnership or other entity 58 Section 47 Proceedings for recovery of 19 damages or property. 59 Section 48 Expenses of investigation Section 49 Inspectors' report to be 20 evidence. 61 Chapter XII Conversion to 20

10 Limited Liability Partnership 62 Section 50 Conversion from firm to 20 limited liability partnership 63 Section 51 Conversion from private 20 company to limited liability partnership 64 Section 52 Conversion from unlisted 20 public company to limited liability partnership 65 Chapter XIII - Foreign 20 Limited Liability Partnership 66 Section 53 Foreign Limited Liability 20 Partnership 67 Chapter XIV 20 Amalgamation, Merger and Demerger of Limited Liability Partnerships 68 Section 54 Amalgamation, Merger and 20 Demerger of Limited Liability Partnerships 69 Chapter XV - 21 Winding Up and Dissolution 70 Section 55 Winding Up and Dissolution Chapter XVI - 21 Miscellaneous 72 Section 56 Business Transactions of 21 Partner with Partnership 73 Section 57 Application of Company Law Section 58 Electronic filing service Section 59 Penalty Section 60 Application of other laws not 22 barred 77 Section 61 Power to make regulations Section 62 Power to remove difficulties Section 63 Power of Registrar to strike 23 defunct limited liability partnership off register 80 Section 64 Offences by limited liability 24 partnerships 81 Section 65 Jurisdiction of the Tribunal Section 66 General penalties FIRST SCHEDULE DEFAULT PROVISIONS FOR 25 LIMITED LIABILITY PARTNERSHIPS 84 SECOND SCHEDULE CONVERSION FROM FIRM TO26 LIMITED LIABILITY

11 PARTNERSHIP 85 THIRD SCHEDULE CONVERSION FROM 29 PRIVATE COMPANY TO LIMITED LIABILITY PARTNERSHIP 86 FOURTH SCHEDULE CONVERSION FROM 32 UNLISTED PUBLIC COMPANY TO LIMITED LIABILITY PARTNERSHIP 87 FIFTH SCHEDULE PENALTIES LLP REGULATIONS CONCEPT PAPER ON LIMITED LIABILITY PARTNERSHIPS Chapter I Preliminary 1. Short title, commencement and extent. (1) This Act may be called the Limited Liability Partnerships Act, (2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. (3) It extends to the whole of India. 2. Definitions. In this Act, unless the context otherwise requires,- (1) "address" in relation to a partner of a limited liability partnership, means- (a) if an individual, his usual residential address, and (b) if a body corporate, address of its registered office; (2) Appellate Tribunal means the National Company Law Appellate Tribunal constituted under the Companies Act, 1956; (3) body corporate means a company as defined in section 3 of the Companies Act, 1956 and includes: (a) a limited liability partnership registered under this Act; (b) a limited liability partnership incorporated outside India; and (c) a company incorporated outside India

12 but does not include- (i) a corporation sole; (ii) a co-operative society registered under any law relating to co-operative societies; and (iii) any other body corporate (not being a company as defined above), which the Central Government may, by notification in the Official Gazette, specify in this behalf; (4) "business" includes every trade, profession and occupation; (5) chartered accountant means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 and who has obtained a certificate of practice under sub-section (1) of section 6 of that Act; (6) company secretary means a company secretary as defined in clause (b) of subsection (1) of section 2 of the Company Secretaries Act, 1980 and who has obtained a certificate of practice under sub-section (1) of section 6 of that Act; (7) "court" means court as defined under the Companies Act, 1956; (8) "economic rights" means the rights of the partner to a share of the profits and losses of the partnership and to receive distributions in accordance with the limited liability partnership agreement; (9) financial year means in relation to a limited liability partnership, the period in respect of which any profit and loss account of the limited liability partnership is made up, and shall not be less than six months but not exceed fifteen months. (10) foreign limited liability partnership" means a partnership that is 1. formed, registered or incorporated outside India which, after the commencement of this Act, establishes a place of business within India; and 2. formed, registered or incorporated outside India which have, before the commencement of this Act, established a place of business within India and continue to have an established place of business within India at the commencement of this Act; and 3. which if incorporated in India, would be a limited liability partnership within the meaning of this Act. (11) "incorporation document" shall be construed in accordance with section 8; (12) "limited liability partnership" has the meaning given to it by section 3;

13 (13) "limited liability partnership agreement" means any written agreement of the partners as to the affairs of a limited liability partnership and the conduct of its business; (14) manager in relation to a limited liability partnership, means any person (whether or not a partner of the limited liability partnership) who is concerned in or takes part in the management of the limited liability partnership; (15) "modification" shall include the making of additions and omissions; (16) "name" in relation to a partner of a limited liability partnership, means- (a) if an individual, his forename, middlename and surname, and (b) if a body corporate, its registered name; (17) "partner" in relation to a limited liability partnership, means any person who has been admitted as a partner in the limited liability partnership in accordance with the limited liability partnership agreement; (18) register means any register kept and maintained under this Act; (19) "Registrar" means Registrar as defined in the Companies Act, 1956; (20) Tribunal means the National Company Law Tribunal constituted under the Companies Act, Limited Liability Partnership. Chapter II Applicability (1) A limited liability partnership is a body corporate which is formed by being incorporated under this Act and which has legal entity separate from that of its partners. (2) A limited liability partnership shall have perpetual succession. (3) Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership. 4. Non-applicability of partnership law. Except as otherwise provided by this Act or any other enactment, the law relating to partnerships shall not apply to a limited liability partnership. 5. Partners. Any individual or body corporate may be a partner in a limited liability partnership.

14 6. Minimum and Maximum Number of Partners. (1) Every limited liability partnership shall have at least two partners. (2) If at any time the number of partners of a limited liability partnership, is reduced, below two, and the limited liability partnership carries on business for more than six months while the number is so reduced, a person who is a partner of the limited liability partnership during the time that it so carries on business after those six months and is cognizant of the fact that it is carrying on business with fewer than two partners shall be liable jointly and severally with the limited liability partnership for the obligations of the limited liability partnership incurred during that period. (3) A limited liability partnership may have any number of partners. 7. Manager. (1) Every limited liability partnership shall have a manager who is an individual and is resident in India. (2) For the purpose of sub-section (1), resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a manager and who has come to stay in India, - (a) for taking up employment in India, or (b) for carrying on a business or vocation in India. (3) Every limited liability partnership shall within 30 days ensure that the particulars of every person who acts as manager of the limited liability partnership, his consent to act as such and any change of manager are lodged with the Registrar in such manner and form as may be prescribed. (4) If the incorporation document specifies who is to be a manager - (a) that person shall be the manager on incorporation, and (b) if no manager is appointed, each partner resident in India shall be deemed to be a manager. (5) Every limited liability partnership shall appoint a person as manager within sixty days from the date on which a person ceases to be a manager. (6) A manager shall be (a) answerable for the doing of all acts, matters and things, as are required to be done by the limited liability partnership; and

15 (b) personally liable to all penalties imposed on the limited liability partnership for any contravention of those sections unless he satisfies the Tribunal that he should not be so liable. (7) If a limited liability partnership contravenes any sub-section of this section, the limited liability partnership and every partner of the limited liability partnership shall be punishable under the Act. 8. Incorporation Document. Chapter III Incorporation (1) 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 must have subscribed their names to an incorporation document, (b) there must have been delivered to the Registrar of the State in which the registered office of the limited liability partnership is to be situate, the incorporation document in a manner as may be prescribed, and (c) there must have been so delivered a statement in the prescribed form, made by either an advocate, or a Company Secretary, or, a Chartered Accountant, who is engaged in the formation of the limited liability partnership and by anyone who subscribed his name to the incorporation document, that all the requirements of this Act and Regulations thereunder have been complied with, in respect of incorporation and matters precedent and incidental thereto. (2) The incorporation document must- (a) be in a form as may be prescribed, (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 person (s) who is/are to be manager (s) of the limited liability partnership on incorporation; (g) be accompanied by the photographs of the persons who are to be partners and manager(s) of the limited liability partnership. (3) If a person makes a statement under sub-section (1)(c) which he-

16 (a) knows to be false, or (b) does not believe to be true, he shall bepunishable under the Act. 9. Incorporation by Registration. (1) When the requirements imposed by clause (b) and (c) of sub-section (1) of section 8 have been complied with, the Registrar shall retain the incorporation document and, unless the requirement imposed by clause (a) of that sub-section has not been complied with, he shall within a period of 14 daysa. register the incorporation document, and b. give a certificate that the limited liability partnership is incorporated by the name specified in the incorporation document. (2) The Registrar may accept the statement delivered under clause (c) of sub-section (1) of section 8 as sufficient evidence that the requirement imposed by clause (a) of that sub-section has been complied with. (3) The certificate shall be signed by the Registrar and authenticated by his official seal. (4) The certificate is conclusive evidence that the requirements of sub-section 2 of section 8 are complied with and that the limited liability partnership is incorporated by the name specified in the incorporation document. 10. Registered Office. (1) Every limited liability partnership shall have a registered office to which all communications and notices may be addressed and where they shall be received. (2) A document may be served on a limited liability partnership or a partner or manager thereof by sending it by post under a certificate of posting or by registered post or by any other mode, which may be prescribed, or by leaving at its registered office. (3) A limited liability partnership may change the address of its registered office by lodging with the Registrar notice of such change in such manner and form as may be prescribed and any such change shall take effect only upon such lodgment. (4) A person guilty of an offence under sub-section (3) shall be punishableunder the Act. 11. Powers. A limited liability partnership shall, by its name have the power of-

17 (a) suing and being sued; (b) acquiring, owning, holding and developing or disposing of property, both movable and immovable; (c) having a common seal; and (d) doing and suffering such other acts and things as bodies corporate may lawfully do and suffer. 12. Names of limited liability partnerships. (1) Every limited liability partnership shall have either the words limited liability partnership or the acronym LLP as the last words of its name. (2) No limited liability partnership shall be registered by a name which, in the opinion of the Central Government is - (a) undesirable; (b) identical or too nearly resembles to that of any other limited liability partnership or body corporate or to a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, (3) A person may apply in the prescribed manner to the Registrar for the reservation of a name set out in the application as (a) the name of a proposed limited liability partnership; or (b) the name to which a limited liability partnership proposes to change its name. (4) Upon receipt of an application under sub-section (3) and on payment of the prescribed fee, the Registrar may, if he is satisfied that the name to be reserved is not one which may be rejected on any ground referred to in sub-section (2), reserve the name for a period of three months from the date of intimation by the Registrar. (5) Notwithstanding anything contained in this section, where the Central Government is satisfied that a limited liability partnership has been registered (whether through inadvertence or otherwise and whether originally or by a change of name) under a name which (a) is a name referred to in sub-section (2); or (b) so nearly resembles the name of any other limited liability partnership or body corporate or other name as to be likely to be mistaken for it, the Central Government may direct the limited liability partnership to change its name, and the limited liability partnership shall comply with the direction within three months after the date of the direction or such longer period as the Central Government may allow.

18 (6) Any person may apply, in a manner as may be prescribed, to the Registrar to give a direction to any limited liability partnership, on a ground referred to in subsection (5), to change its name. (7) The Registrar shall not consider any application under sub-section (6) to give a direction to a limited liability partnership on the ground referred to in sub-section (5) (b) unless the Registrar receives the application within twelve months from the date of registration of the limited liability partnership under that name. (8) Any limited liability partnership which fails to comply with a direction given under sub-section (5) shall be punishable under the Act. (9) Any limited liability partnership may change its name by lodging with the Registrar notice of such change in such manner and form as may be prescribed. 13. Publication of name and limited liability. (1) Every limited liability partnership shall ensure that its invoices and official correspondence bear the following: (a)the name and registration number of the limited liability partnership; and (b) a statement that it is registered with limited liability. (2) Any limited liability partnership which contravenes sub-section (1) shall be punishable under the Act. 14. Partner. Chapter IV Partnership (1) On the incorporation of a limited liability partnership its partners are the persons who subscribed their names to the incorporation document. (2) Any other person may become a partner of a limited liability partnership by and in accordance with an agreement with the existing partners. 15. Relationship of Partners. (1) Except as far as otherwise provided by this Act or any other enactment, 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 agreement between the partners, or between the limited liability partnership and its partners. (2) The contents as may be prescribed in Regulations and form part of limited liability partnership agreement and any changes made therein shall be filed with the Registrar in the manner and form as may be prescribed.

19 (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 as a preincorporation agreement, 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 any provision relating to that matter as is set out in the First Schedule. 16. Cessation of partnership interest. (1) A person may cease to be a partner of a limited liability partnership in accordance with an agreement with the other partners or, in the absence of agreement with the other partners as to cessation of being a partner, by giving 30 days notice to the other partners of his intention to resign as partner. (2) A person may also cease to be a partner of a limited liability partnership by his death or by dissolution of the limited liability partnership firm. (3) Where a person has ceased to be a partner of a limited liability partnership, the former partner is to be regarded (in relation to any person dealing with the limited liability partnership) as still being a partner of the limited liability partnership unless- (a) the person has notice that the former partner has ceased to be a partner of the limited liability partnership, or (b) notice that the former partner has ceased to be a partner of the limited liability partnership has been delivered to the Registrar. (4) A partner's disassociation from the limited liability partnership does not by itself discharge the partner from any obligation to the limited liability partnership or to the other partners which he incurred while being a partner. (5) Where a partner of a limited liability partnership ceases to be a partner, unless otherwise provided in the limited liability partnership agreement, the former partner or a person entitled to his share in consequence of the death or insolvency of the former partner, shall be entitled to receive from the limited liability partnership an amount (a) equal to the former partner s capital contribution to the limited liability partnership and his right to share in the accumulated profits of the limited liability partnership after the deduction of losses of the limited liability partnership; and (b) determined as at the date the former partner ceased to be a partner. (6) For the avoidance of doubt, a former partner or a person entitled to his share in consequence of the death or insolvency of the former partner shall not interfere in the management of the limited liability partnership.

20 17. Registration of changes in partners. (1) A limited liability partnership must ensure that- (a) where a person becomes or ceases to be a partner, notice is delivered to the Registrar within 30 days, and (b) where there is any change in the name or address of a partner, notice is delivered to the Registrar within 30 days. (2) A notice delivered under sub-section (1)- (a)shall be in a form as may be prescribed, and (b)shall be signed by the manager of the limited liability partnership and authenticated in a manner as may be prescribed, and, (c) if it relates to admission of partner, shall contain a statement by the incoming partner that he consents to becoming a partner, signed by him and authenticated in a manner as may be prescribed. (3) If a limited liability partnership fails to comply with sub-section (1), the manager shall be punishable under the Act. (4) Any person who ceases to be a partner of a limited liability partnership may himself lodge with the Registrar the statement referred to in sub-section (2) if he has reasonable cause to believe that the limited liability partnership will not lodge the statement with the Registrar. 18. Partner as agent. Chapter V Extent and Limitation of Liability Every partner of a limited liability partnership is the agent of the limited liability partnership, but not of other partners. 19. Extent of liability of the limited liability partnership. (1) A limited liability partnership is not bound by anything done by a partner in dealing with a person if- (a) the partner in fact has no authority to act for the limited liability partnership in doing a particular act, and (b) the person knows that he has no authority or does not know or believe him to be a partner of the limited liability partnership.

21 (2) The limited liability partnership is liable if a partner of a limited liability partnership is liable to any person as a result of a wrongful act or omission on his part in the course of the business of the limited liability partnership or with its authority. (3) An obligation of the limited liability partnership whether arising in contract or otherwise, is solely the obligation of the limited liability partnership. (4) The liabilities of the limited liability partnership shall be met out of the property of the limited liability partnership. 20. Extent of liability of a partner. (1) A partner is not personally liable, directly or indirectly for an obligation referred to in sub-section (3) of section 19 solely by reason of being a partner of the limited liability partnership. (2) Sub-section (3) of section 19 and sub-section (1) of this section 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 the wrongful act or omission of any other partner of the limited liability partnership. 21. Unlimited liability in case of fraud. (1) In the event of an act carried out by a limited liability partnership, or any of its partners, with intent to defraud creditors of the limited liability partnership or any other person, or for any fraudulent purpose, the liability of the parties shall be unlimited for all or any of the debts or other liabilities of the limited liability partnership. (2) Where any business is carried on with such intent or for such purpose as mentioned in sub-section (1), every person who was knowingly a party to the carrying on of the business in the manner aforesaid shall be punishable under the Act. 22. Liability for personal acts. A partner shall have unlimited liability for his or her personal acts which are not done for and on behalf of the limited liability partnership, and were committed in his or her personal capacity. 23. Duties of Partners. Chapter VI Duties and Standards of Conduct A partner shall discharge his duties to the limited liability partnership and the other partners under this Act or under the partnership agreement and exercise any right consistent with the obligation of good faith.

22 24. General Standards of Partner's Conduct. (1) The fiduciary duties that a partner has to the limited liability partnership and the other partners are the duties of loyalty and due care as specified under sub-section (2) and (3). (2) A partner's duty of loyalty to the limited liability partnership shall include: (a) to account to the limited liability partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the limited liability partnership's activities or derived from a use by the partner of limited liability partnership property, including the appropriation of a limited liability partnership opportunity; (b) to refrain from competing with the limited liability partnership in the conduct or winding up of the limited liability partnership's activities; and (c) refrain from dealing with the limited liability partnership in the conduct or winding up of the limited liability partnership's activities as or on behalf of a party having an interest adverse to the limited liability partnership. (3) A partner s duty of due care to the limited liability partnership and the other partners in the conduct and winding up of the limited liability partnership's activities is to refrain from engaging in grossly negligent or reckless conduct and from contravening any of the provisions of this Act and any other law for the time being in force. 25. Form of Contribution. Chapter VII Contributions A contribution of a partner may consist of tangible or intangible property or other benefit to the limited liability partnership, including money, services performed, promissory notes, other agreements to contribute cash or property, and contracts for services performed or to be performed. 26. Liability for Contribution. (1) A partner's obligation to contribute money or other property or other benefit or to perform services for a limited liability partnership shall be as per the partnership agreement. (2) A creditor of a limited liability partnership, which extends credit or otherwise acts in reliance on an obligation described in that agreement, without notice of any compromise under this sub-section, may enforce the original obligation against such partner. Chapter VIII

23 27. Maintenance of records. Financial Disclosures (1) The limited liability partnership shall maintain proper books of accounts relating to its affair for each year of its existence on accrual basis and according to the double entry system of accounting, and shall maintain the same at its registered office for a period as may be prescribed. (2) If default is made in complying with sub-section (1), the manager shall be punishable under the Act. 28. Annual declaration of solvency. (1) Every limited liability partnership shall lodge with the Registrar a declaration by its manager that in his opinion, the limited liability partnership either (a)appears as at that date to be able to pay its debts as they become due in the normal course of business; or (b) does not appear as at that date to be able to pay its debts as they become due in the normal course of business. (2) The declaration referred to in sub-section (1) shall be lodged not later than 15 months after the registration of the limited liability partnership and subsequently once in every financial year at intervals of not more than 15 months. (3) Notwithstanding sub-section (2), the Registrar may, on application by a limited liability partnership and if he thinks fit, grant an extension of time for the lodging of the declaration referred to in sub-section (1). (4) If a limited liability partnership fails to lodge the declaration referred to in subsection (1) within the time or extended time referred to in sub-sections (2) and (3), the manager shall be punishable under the Act. (5) A manager who makes a declaration referred to in sub-section (1) (a) without having reasonable grounds for his opinion, shall be punishable under the Act; and (6) Any person who, in connection with a declaration made under this section, makes a statement or furnishes information (whether directly or indirectly) to a manager that is false or misleading in a material particular, when he knows or ought reasonably to have known that the statement or information is false or misleading in a material particular, shall be punishable under the Act. (7) If an offence under this section is committed with an intent to defraud creditors of the limited liability partnership or for a fraudulent purpose, the offender shall be punishable under the Act. 29. Power of Registrar to obtain further information.