NATURE OF LIMITED LIABILITY PARTNERSHIP (LLP)

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1 NATURE OF LIMITED LIABILITY PARTNERSHIP (LLP) 1. Concept of limited liability partnership LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner s wrongful business decisions or misconduct. Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. Since LLP contains elements of both a corporate structure as well as a partnership firm structure LLP is called a hybrid between a company and a partnership. 2. Structure of an LLP LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. 3. Advantages of LLP form LLP form is a form of business model which: (i) is organized and operates on the basis of an agreement. (ii) provides flexibility without imposing detailed legal and procedural requirements (iii) enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner 4. Other countries where this form is available The LLP structure is available in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members. 5. Difference between LLP & traditional partnership firm Under traditional partnership firm, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or unauthorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner s wrongful acts or misconduct.

2 6. Difference between LLP & a Company A basic difference between an LLP and a Company lies in that the internal governance structure. A company is regulated by statute (i.e. Companies Act, 1956) whereas for an LLP it would be by a contractual agreement between partners. The management-ownership divide inherent in a company is not there in a limited liability partnership. LLP will have more flexibility as compared to a company. LLP will have lesser compliance requirements as compared to a company. APPLICABILITY OF THE LLP Act 7. Whether the LLP Act is applicable to any specific services like professional services regulated by Statutes? No. Any two or more persons associating for carrying on a lawful business with a view to profit may set up an LLP. In the light of various inputs received by this Ministry for applicability of the LLP form to small entities and venture capital funded enterprises, it is proposed that the framework should not be restricted to professional services alone as was earlier recommended by Naresh Chandra Committee. Accordingly, the LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only. 8. Likely users/beneficiaries of the LLP Law? India has witnessed considerable growth in services sector and the quality of our professionals is acknowledged internationally. It is necessary that entrepreneurship knowledge and risk capital combine to provide a further impetus to our impressive economic growth. Equally the services sector promises an economic opportunity similar to that provided by information technology over the past few years. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would offer a menu of solutions to international clients. In view of all this, the LLP framework could be used for many enterprises, such as:- Persons providing services of any kind Enterprises in new knowledge and technology based fields where the corporate form is not suited. For professionals such as Chartered Accountants (CAs), Cost and Works Accountants (CWAs), Company Secretaries (CSs) and Advocates, etc. Venture capital funds where risk capital combines with knowledge and expertise Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services. Small Sector Enterprises (including Micro, Small and Medium Enterprises) Producer Companies in Handloom, Handicrafts sector

3 9. Whether an entity which has objectives like charitable or other not for profit objectives would be able to set up under LLP Act? No. The essential requirement for setting LLP is carrying on a lawful business with a view to profit. 10. Whether provisions of Indian Partnership Act, 1932 would be applicable to LLPs? No, these shall not be applicable to LLPs. 11. Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made? The Companies Act is not suited to the liability and governance structure intended for LLPs. The overall intent of the legislation to regulate widely-held companies is different. Therefore, in accordance with the recommendations of the Irani Committee, it is felt appropriate to bring about a separate legislation for LLPs. The administration and enforcement of partnership firms under the Indian Partnership Act, 1932 is at the State level. Besides, a partnership firm involves full joint and several liabilities of the partners. Because of this, many firms/enterprises engaged in biotech, information technology, Intellectual property and other knowledge based sectors find traditional partnerships unsuitable. The traditional partnerships are also considered unsuitable for multi-disciplinary combinations comprising a large number of partners, seeking a flexible working environment but with limited liability. LLP structure would promote growth and enable such firms/enterprises expand their trade/business or services across States in India as also abroad. 12. Committees, which have made recommendations for legislation on LLPs in India The desirability of LLP form has been expressed in the context of small enterprises by :- 1. Bhat Committee (1972); 2. Naik Committee (1992); 3. Expert Committee on Development of Small Sector Enterprises headed by Sh. Abid Hussain in 1997 and 4. Study Group on Development of Small Sector Enterprises (SSEs) headed by Dr. S P Gupta (2001). Following Committees set up by M/o Company Affairs have also recommended for legislation on LLPs:- Committee on Regulation of Private Companies and Partnerships headed by Sh. Naresh Chandra (2003) The Committee on New Company Law (Dr. J.J. Irani Committee) (2005)

4 13. Whether Ministry has adopted a Consultative Approach while bringing out the LLP Act? Yes. The Ministry of Corporate Affairs, on 2nd November, 2005, placed a Concept Paper on LLP Law on its website so that all interested stakeholders may express their opinions on the concepts involved and suggest formulations for the consideration of the Ministry on various aspects of LLP Law. The Concept Paper was also circulated to various concerned Ministries/Departments and autonomous bodies like Comptroller and Auditor General of India (C&AG), Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority (IRDA) etc. for their comments. Large number of comments and suggestions were received by the Ministry on the Concept Paper. These were examined in light of international practice/law on the subject. The Act has been prepared keeping in view the Indian requirements. 14. Definition of partners. PARTNERS Section 2(1)(q) of the Act defines partner as; partner in relation to a Limited Liability Partnership means any person who becomes a partner in the Limited Liability Partnership in accordance with the Limited Liability Partnership Agreement. 15. Definition of Address in relation to a partner of LLP. Section 2(1)(a) of the Act defines address in relation to a partner as; address in relation to a partner of a LLP means- (i) if an individual, his usual residential address; and (ii) if a body corporate, the address of its registered office. 16. Does any change in the partners of a LLP affect the existence, rights or liabilities of LLP? Change in the partners of a LLP does not affect the existence, rights or liabilities of LLP. [Section 3(3)] 17. Who can act as partners of the LLP? Any individual or a body corporate may be a partner in a LLP. [Section 5]. 18. When is an individual disqualified from being appointed as a partner of LLP? An individual cannot be appointed as a partner of LLP if; 1. he has been found to be of an unsound mind by a court of competent jurisdiction and the finding is in force; 2. he is an undischarged insolvent or 3. he has applied to be adjudicated as an insolvent and his application is pending. [Section 5]

5 19. What is the minimum number of partners an LLP must have? As per Section 6(1) every LLP must have atleast 2 partners. 20. Can a LLP have less than 2 partners? A LLP should have at least 2 partners. If at any time the number falls below 2 and the LLP carries on business for more than 6 months while the number is so reduced, the person, who is the only partner of the LLP during the time that it so carries on business after those 6 months and has the knowledge of the fact that it is carrying on business with him alone, shall be personally liable for the obligations of the LLP incurred during that period.[section 6(2)] 21. Can partners act as designated partners? A partner can act as designated partner in the following circumstances; 1. In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least 2 individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners [Section 7(1)]. 2. If the incorporation document states that each of the partners from time to time of LLP shall be designated partner then every such partner shall be a designated partner. [Section 7(2)(i)(b)] 3. In accordance with the LLP Agreement, any partner may become a designated partner and also cease to be the same.[section 7(2)(ii)] 22. What is the liability of partners for contravention of Sections 7, 8 and 9 of the Act? The Liability of the partners is as follows; Section 7(1) - fine which shall be not less than Rs.10,000/- but which may extend to Rs.5 lacs. Section 7(4) & 7(5), Section 8 and Section 9 - fine which shall be not less than Rs.10,000/- but which may extend to Rs.1 lac.[section 10] 23. What is the manner of service of documents on the partner? A document can be served by sending it by post under a certificate of posting, or by registered post or by any other manner, as may be prescribed, at the registered office and any other address specifically declared by the LLP for the purpose in such form and manner as may be prescribed. [Section 13(2)] 24. What is the liability of the partners for contravention of provisions relating to registered office of LLP and change therein? Every partner shall be punishable with fine which shall not be less than Rs.2000/- but which may extend to Rs.25000/- [Section 13(4)]

6 25. Is the designated partner liable for non-compliance of Central governments direction to change the name of LLP? Where the LLP fails to comply with the direction given by the Central government to change its name, the designated partner shall be punishable with fine which shall be not less than Rs.10,000/- but which may extend to Rs.1 lac. [Section 17(2). 26. Who are eligible to be partners? On the incorporation of a LLP the persons who subscribed their names to the incorporation document shall be its partners. [Section 22] 27. Can any person other than subscriber to a LLP become a partner? Yes. Any other person can become a partner of the LLP by and in accordance with the Limited Liability Partnership Agreement. [Section 22] 28. What governs the mutual rights and duties of the partners of a LLP and that of LLP and its partners? The Limited Liability Partnership Agreement governs the mutual rights and duties of the partners of a LLP and that of LLP and its partners. [Section 23(1)] 29. Can an agreement in writing made before the incorporation of LLP between the persons who subscribe their names to the incorporation document impose obligations on the LLP? An agreement in writing made before the incorporation of LLP between the persons who subscribe their names to the incorporation document may impose obligations on the LLP. But such obligations shall be valid if all the partners ratify such agreement after the incorporation of LLP. [Section 23(3)] 30. How to determine the mutual rights and duties of the partners of a LLP and that of LLP and its partners in the absence of any agreement as to any matter? In the absence of any agreement as to any matter, the mutual rights and duties of the partners of a LLP and that of LLP and its partners shall be determined by the provisions relating to that matter as are set-out in the first schedule. [Section 23(4)] 31. What results in cessation of partnership Interest? A person may cease to be a partner of LLP under the following circumstances; a. According to an agreement with the other partners; b. In case of absence of such agreement, by giving a notice in writing of not less than 30 days to the other partners of his intention to resign as partner. [Section 24(1)] 32. When shall a person cease to be a partner of a LLP? A person shall cease to be a partner of a LLP in the following cases; a) On his death or dissolution of the LLP; or b) If he is declared to be of unsound mind by a competent court; or

7 c) If he has applied to be adjudged as an insolvent or declared as an insolvent. [Section 24(2)] 33. Can a former partner be regarded as still being a partner of the LLP? Former partner can be regarded as still being a partner of the LLP unless; the person has notice that the former partner has ceased to be a partner of the LLP; or notice that the former partner has ceased to be a partner of the LLP has been delivered to the Registrar. [Section 24(3)] 34. On cessation of a partner from the LLP, does a partner get discharged of obligations to the LLP or to the other partners or to any other person? The cessation of a partner does not by itself discharge the partner from any obligation to the LLP or to the other partners or to any other person, which he incurred while being a partner.[section 24(4)] 35. Is the partner, on cessation of the partnership, entitled to receive anything from the LLP? On cessation of the partnership, 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 LLP, unless otherwise provided in the LLP agreement; an amount equal to the capital contribution of the former partner actually made to the LLP; and his right to share in the accumulated profits of the LLP, After deduction of accumulated losses of the LLP determined as at the date the former partner ceased to be a partner. [Section 24(5)] 36. Can a former partner or a person entitled to his share in consequence of the death or insolvency of the former partner, interfere in the management of LLP? A former partner or a person entitled to his share in consequence of the death or insolvency of the former partner shall not have any right to interfere in the management of LLP. [Section 24(6)] 37. Is it necessary for a partner to inform the LLP about change in name and address? Partner has to inform the LLP about change in name and address. [Section 25(1)] 38. What is the time limit within which the partner should intimate any change in name or address to the LLP? Every partner shall inform the LLP of any change in his name & address within a period of 15 days of such change. [Section 25(1)]

8 39. Is it mandatory for the LLP to intimate change in partners and also their name and address to the Registrar? If yes, what is the time limit? The LLP has to intimate the Registrar within 30 days about any change in the partners as well as their names and address. [Section 25(2)] 40. Are the partners liable for contravention of provisions relating to the registration of changes in partners? If any partner contravenes the provisions relating to the registration of changes in partners then such partner shall be punishable with fine which shall not be less than Rs.2000 but which may extend to Rs [Section 25(5)] 41. Can a person who ceases to be a partner of a LLP himself file notice under section 25(3) with the Registrar? A person who ceases to be a partner of a LLP can himself file notice under section 25(3) with the Registrar if he has reasonable cause to believe that the LLP may not file notice with the Registrar. [Section 25(6)] 42. Is a partner agent of the LLP? Every partner of LLP is, for the purpose of the business of the LLP, the agent of LLP. [Section 26] 43. Is a partner agent of other partners? No. A partner is not an agent of other partners. [Section 26] 44. When is LLP not liable for acts of the partners? LLP is not liable for the anything done by the partner in dealing with a person if; the partner in fact has no authority to act for LLP in doing a particular act; and the person knows that the partner does not have any authority or does not know or believe him to be a partner of the LLP. [Section 27(1) 45. When is LLP liable for the acts of the partners? The LLP is liable if a partner of LLP is liable to any other person as a result of a wrongful act or omission on his part in course of the business of LLP or with its authority. [Section 27(2)] 46. Can the Tribunal on an application made by the Registrar enforce duty to make returns, etc. on partners? Yes. In case the LLP has defaulted in complying with any provisions of the act relating to filing of returns, etc. then the tribunal may on an application made by the Registrar direct the present or former partners to make good the default within such time as specified in the order. [Section 41(1)] 47. When is the partner personally liable? A partner is personally liable for the wrongful acts or omission. [Section 28(2)]

9 48. Is partner personally liable for the wrongful acts or omission of other partners? No. A partner is not personally liable for the wrongful acts or omission of other partners. [Section 28(2)] 49. When is the holding out principle applicable? When any person, who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented to be a partner of LLP is liable to any person who has on the faith of any such representation given credit to the LLP and whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person giving credit. [Section 29(1)] 50. When is the liability of a partner unlimited? The liability of a partner is unlimited if; he carries out any act with an intent to defraud the creditors of LLP or any other person; for any fraudulent purpose [Section 30(1)] 51. What is the penalty in case of fraud? Every person who knowingly is a party to the carrying on of the business shall be punishable with fine which shall not be less than Rs.50000/- but which may extend to Rs.5 lacs. [Section 30(2)] 52. When can the Court or Tribunal may reduce or waive any penalty leviable against any partner? The Court or Tribunal may reduce or waive any penalty leviable against any partner if; such partner of LLP provides useful information during investigation of such LLP; or when any information given by the partner leads to LLP or any partner or employee of such LLP being convicted under this Act or any other Act. [Section 31(1)] [Section 32(1)] 53. If the contribution is in any form other than cash, how will it be disclosed in the LLP accounts? The monetary value of the contribution of each partner shall be accounted for and disclosed in the LLP accounts in the manner as may be prescribed. [Section 33(1)] 54. What shall govern the obligation of a partner to contribute? The LLP Agreement shall govern the obligation of the partner to contribute. [Section 33(2)]

10 55. What is the liability of the partner in case of contravention of provisions relating to financial disclosures? For contravention of provisions relating to financial disclosures, every partner is punishable with fine which shall not be less than Rs.10000/- but which may extend to Rs.1 lac. [Section 34(5)] 56. What is the liability of the partner in case of contravention of provisions relating to filling of annual return? For contravention of provisions relating to filling of annual return, every partner is punishable with fine which shall not be less than Rs.10000/- but which may extend to Rs.1 lac. [Section 35(3)] 57. Can the Tribunal on an application made by the Registrar enforce duty to make returns, etc. on partners? Yes. In case the LLP has defaulted in complying with any provisions of the act relating to filing of returns, etc. then the tribunal may on an application made by the Registrar direct the present or former partners to make good the default within such time as specified in the order. [Section 41(1)] 58. Is the partners interest in the LLP transferable? The rights of a partner to a share of the profits and losses of the LLP and to receive distributions in accordance with LLP agreement are transferable either wholly or in part. [Section 42(1)] 59. Does the transfer of any right by the partner result in disassociation of the partner or a dissolution and winding up of the LLP? No. [Section 42(2)] 60. Pursuant to transfer of right, does the transferee by itself gets entitled to participate in the management or conduct of the activities of LLP or access any information concerning the transactions of the LLP? No. [Section 42(3)] 61. Do the partners of the LLP have a right to make an application to the Tribunal for carrying out investigation of the LLP? Yes. One-fifth of the total number of partners of the LLP can make an application to the Tribunal for carrying out investigation of the LLP. [Section 43(1)(a)] 62. Can the inspector investigating the affairs of related entities, etc., investigate the affairs of present or former partners? Yes. The inspector investigating the affairs of related entities, etc. has the power to investigate the affairs of present or former partners. He can do so only after obtaining prior approval of the Central Government. [Section 46(1) & (2)]

11 63. Can a compromise or arrangement be entered into between the partners and the LLP? Yes. [Section 60(1)] 64. When is the compromise or arrangement binding on all the partners? Compromise or arrangement is binding on all the partners when three-fourths of the partners agree to any compromise or arrangement and it is also approved by the Tribunal. [Section 60(2)] 65. Can a partner lend money to transact other business with the LLP? Yes. [Section 66] 66. What are the rights and obligations of the partners with respect to loan or other transactions? The rights and obligations of the partners with respect to loan or other transactions are the same as they are with the other persons who are not partners. [Section 66] 67. Is a partner liable for enhanced punishment? If yes, what is the enhanced punishment? Yes. The partner is liable for enhanced punishment. For the second or subsequent offence the designated partner shall be punishable with imprisonment as provided but in case of offences where fine is prescribed either along with or exclusive of imprisonment, with fine which shall be twice the amount of fine for such offence. [Section 70] 68. Are the partners liable in case of offences to LLP? Where it is proved that an offence under this act committed by LLP has occurred due to consent, connivance or neglect on the part of the partner then the partner shall be guilty of offence and shall be proceeded against and punished accordingly. [Section 76] 69. In case of conversion of the partnership firm into LLP, are the partners liable for liabilities and obligations of firm before conversion? Yes. [Clause 16(1) of The Second Schedule] 70. In case of conversion of the partnership firm into LLP, where a partner discharges any liability or obligation of the firm then is he entitled to be fully indemnified by the LLP in respect of such liability or obligation? Subject to the LLP Agreement, a partner shall be entitled to be fully indemnified by the LLP in respect of such liability or obligation. [Clause 16(2) of The Second Schedule]

12 71. Who shall be the partners in case of conversion of the private company into a LLP? Only the shareholders of the private company shall be the partners of the LLP. [Clause 2(2b) of The Third Schedule] 72. Who shall be the partners in case of conversion of the unlisted public company into a LLP? Only the shareholders of the unlisted public company shall be the partners of the LLP. [Clause 2(2) of The fourth Schedule] DESIGNATED PARTNER 73. Definition of Designated Partner Designated partner in reference to Limited Liability Partnership means any partner designated as such pursuant to section 7 of Limited Liability Partnership Act, 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. In case if no partner is designated as such, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner of the LLP. Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners. An individual cannot become a designated partner in any limited liability partnership unless he has given his prior consent to act as such to the limited liability partnership in such form and manner as may be prescribed and he is also required to obtain a Designated Partner Identification Number. The role of Designated Partners in case of LLP is on same footage as of Directors in case of Company. The Designated Partners as provided under Section 8 are directly responsible for the compliances of all provisions provided under LLP Act, 2008 and the provisions specified in the LLP Agreement. Rights of Designated Partner are same as of other Partners. Alike other partners they are not entitled to any remuneration for their participation in management of LLP unless otherwise specifically provided in the LLP Agreement, yet they have additional responsibilities to comply with. A designated partner shall be a. responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and

13 b. liable to all penalties imposed on the limited liability partnership for any contravention of those provisions. 74. What are the Major duties of Designated Partner? Notify any changes in the LLP's to Registrar of Companies. Notify any changes in the Partners names & residential addresses to Registrar of Companies. Notify any change in Registered Office Address to Registrar of Companies. Filing of any Annual return, Statement of Accounts and other documents specified under the provisions of LLP Act with the Registrar of Companies. Statement of Accounts & Solvency to be signed by the Designated Partners of the Company. To preserve and to produce before an inspector or any person authorized by him in this behalf with the previous approval of the Central Government, all books and papers of, or relating to, the limited liability partnership or, as the case may be, the other entity, which are in their custody or power Responsible for signing all the e-forms filed with the Registrar of Companies. Any vacancy arising in the office of Designated Partner shall be filled within 30 days and the change shall be intimated to the Registrar of Companies 75. Who can be a designated partner? Only an individual can be appointed as Designated Partner and at least one of the Designated Partner shall be a resident of India. In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners. 76. How can a designated partner be nominated? A Designated Partner may become so: a) if specified in the incorporation document for the time being or is specified that each partner may be Designated Partner as and when appointed b) any partner may become a designated partner by and in accordance with the limited liability partnership agreement and a partner may cease to be a designated partner in accordance with limited liability partnership agreement. c) In case the LLP Agreement is silent as to the Designated Partner, every partner shall be treated as Designated Partner. Provided that any person intending to become a Designated Partner is required to give a prior consent to the LLP which shall be filed with the Registrar.

14 77. Whether it is necessary to have more designated partners resident in India than outsiders? LLPs, particularly those as may be engaged in the services or technology-based sectors, may provide services globally. This may require any number of its partners to locate them abroad. In view of liability structure of partners, designated partners and LLP, clearly provided for in the Act, there does not appear to be any necessity and justification for restriction relating to designated partners to out-number partners located abroad. In fact it may pose unnecessary restriction 78. What is Designated Partners Identification Number (DPIN)? Designated Partners Identification Number (DPIN) is a eight digit numeric number granted to any person intending to be appointed as Designated Partner for the purpose of its identification on the lines similar to Directors Identification Number required for Directors in case of Companies. Every Designated Partner is required to have at least a provisional DPIN for forming a LLP. 79. Who is a designated partner? Designated Partner is partner, who has been nominated as such in the LLP Agreement and who shall be responsible for all the compliances required to be done under the LLP Act and liable for all the penalties there under. 80. Designated Partners are responsible for matters in respect of compliance of provisions of LLP Act. It does not mean that the designated partners shall be the managing partners. Designated Partners may be from only view of legal compliance, managing partner. Yes, Designated Partners are responsible for all compliances under the LLP Act and they may not be indulged in day to day business activities of the LLP. 81. Is there any difference between Managing & Designated Partner? Designated Partners are partners who are responsible for managing the compliance under the LLP Act and Managing Partner are partners, who are managing the business of the Firm and therefore it is not necessary that a Designated Partner is also a Managing Partner & vice versa. 82. Whether it is necessary for the Designated Partner to be a Partner in the LLP? Yes, as the name suggest, the Designated partner is required to be partner in the LLP just like a Managing Director in case of Company. LLP AGREEMENT 83. How the mutual rights and duties of partners inter-se and those of partners and LLPs would be governed?

15 The mutual rights and duties of partners inter se and those of the LLP and its partners shall be governed by the agreement between partners or between the LLP and the partners. This Agreement would be known as LLP Agreement. 84. Whether LLP Agreement would be mandatory for all LLPs? As per provisions of the LLP Act, in the absence of agreement as to any matter, the mutual rights and liabilities shall be as provided for under Schedule I to the Act. Therefore, in case any LLP proposes to exclude provisions/requirements of Schedule I to the Act, it would have to enter into an LLP Agreement, specifically excluding applicability of any or all paragraphs of Schedule I. REGISTRATION 85. What are the registration formalities relating to LLPs? LLPs shall be registered with the Registrar of Companies (ROC) (appointed under the Companies Act, 1956) after following the provisions specified in the LLP Act. Every LLP shall have a registered office. An Incorporation Document subscribed by at least two partners shall have to be filed with the Registrar in a prescribed form. Contents of LLP Agreement, as may be prescribed, shall also be required to be filed with Registrar, online. Contents of LLP Agreement or any changes made therein, if any, may be filed in Form 3 and details of partners/designated partners may be filed in Form 4 in accordance with LLP Rules, Whether foreigners can incorporate LLP? Yes, the LLP Act 2008 allows Foreign Nationals including Foreign Companies & LLPs to incorporate a LLP in India provided at least one designated partner is resident of India. However, the LLP/Partners would have to comply with all relevant Foreign Exchange Laws/ Rules/ Regulations/ Guidelines. 87. What are the broad provisions of the Act in respect of names of LLPs? Every limited liability partnership shall have either the words limited liability partnership or the acronym LLP as the last words of its name. LLPs would not be given names, which, in the opinion of the Central Government, are undesirable. Registrar would be under obligation to follow such rules, which would be framed by the Central Government in connection with allotting names to LLPs. There are also provisions in respect of rectification of name in case two LLPs have been registered with the same name, inadvertently. 88. For what period a name can be reserved by Registrar? The name can be reserved by ROC on approval of Form 1, for a period of 3 months from the date of intimation by the Registrar. However, Foreign LLP/Companies have an option to reserve their existing names, under which they are operating outside India, for a period of 3 years in India, which can be further renewed on application to Registrar in Form 25.

16 89. Can LLP give any other address (besides its registered office) for the purpose of receiving communication from Registrar? It has been provided in the Act that a document may be served on a LLP or a partner or designated partner by sending it by post or by any other mode (to be prescribed under Rules) at the registered office and any other address specifically declared by the LLP for the purpose in such form and manner as may be prescribed (in the rules). Thus, an LLP shall have option to declare one more address (other than the registered office) for getting statutory notices/letters etc. from Registrar. REGISTERED OFFICE 90. What is the meaning of Registered Office? The legal address (which may not be the office address) of a firm or a Company that is entered in the official register of the Registrar of Companies, and to which all government and court communication is addressed. The location of this office must be in the jurisdiction in which the firm or a Company is registered, and any change in its address must be notified to the registrar within a specified period. 91. What are the requirements of having a Registered Office? The requirement specified for companies in section 146(1) of the Companies Act is that a company shall have a registered office, as from the day on which it begins to carry on business, or as from the thirtieth day after the date of incorporation, whichever is earlier, to which all communications and notices may be addressed. Notice of situation of registered office and every change within the State of incorporation duly backed by a Board or special resolution as required under section 146(2) should be given to the Registrar either within 30 days of incorporation or the change, as the case may be. Inter- RoC- jurisdiction shift in the same State or inter- State shift of registered office require special procedure of special resolution and Regional Director s/clb s [Central Government s confirmation after notification of Companies (Second Amendment) Act, 2002] confirmation as laid down in section 17/17A/18 and 19 and filing of the special resolution and copy of the order of confirmation with the Registrar as prescribed under those sections. As against the position for companies summarized above, the requirement for LLPs given in sections 11(2)(d) and 13(1) and (3) of the Act looks simplistic: address to be given in the incorporation document and change of the address from time to time subject to the manner and conditions as may be prescribed and subject to and taking effect on filing a notice with the Registrar. What all is required in that behalf briefly stated above and elaborated in the discussion that belows is reserved for the rules to be made by Central Government under section 79(2)(i), it appears as there are no prohibitions against those matters spelt out in the Act, either Rules 15 to 17 and Forms 12 and 15 of LLP Rules and Forms, 2008 may be referred. 92. Whether it is possible to change the Registered Office of the LLP from one state to other? Yes, by virtue of the LLP agreement or by obtaining consent of all the Partners of the LLP. Further consent of the secured creditors of the LLP should also be obtained in such case. The limited liability partnership shall further publish a general notice, not less than 21 days before filing any notice with Registrar of Companies, in a daily

17 newspaper published in English and in the principal language of the district in which the registered office of the limited liability partnership is situated and circulating in that district giving notice of change of registered office. The notice of shifting of registered office shall be given to the Registrar within 30 days of publication of the notice in the newspaper. 93. Whether LLP can give any other address (besides its registered office) for the purpose of receiving communication from Registrar? It has been provided in the Act that a document may be served on a LLP or a partner or designated partner by sending it by post or by any other mode (to be prescribed under Rules) at the registered office and any other address specifically declared by the LLP for the purpose in such form and manner as may be prescribed (in the rules). Thus, an LLP shall have option to declare one more address (other than the registered office) for getting statutory notices/letters etc. from Registrar. 94. Can there be a single registered office for more than one LLP? Yes, more than one LLP can have the same Registered Office. 95. Can Registered Office be changed? Yes, registered office can be changed by filing e-form 15 with the Registrar of Companies. CONTRIBUTION 96. What are the different forms of contribution? A. Contribution may consist of any of the following, or a combination thereof:- Tangible, moveable property, Tangible, immoveable property, Intangible property Money Promissory notes Agreements to contribute cash or property Contracts for services performed or to be performed. Any other benefit to the LLP. [Section 32(1) of the LLP Act, 2008] 97. Which document shall govern the obligation of a partner towards contribution? The LLP Agreement shall govern the obligations of a partner towards contribution. [Section 33(1) of the LLP Act, 2008] 98. Is it necessary to disclose the amount of contribution of all the partners in the LLP accounts? Yes, it is necessary to disclose the amount of contribution of all the partners in the LLP accounts. [Regulation 23(1) of the LLP Rules, 2009]

18 99. Is it necessary to disclose the nature or form of contribution of all the partners in the LLP accounts? Yes, it is necessary to disclose the nature and form of contribution of all the partners in the LLP accounts. [Regulation 23(1) of the LLP Rules, 2009] 100. If the contribution is in any form other than cash, how will it be accounted for and disclosed in the LLP accounts? If the contribution is in any form other than cash, then the monetary value of the contribution shall be accounted for and disclosed in the LLP accounts in the manner as may be prescribed. [Section 32(2) of the LLP Act, 2008] 101. Who can be appointed as a valuer for valuation of contribution, if it is in any other form than in cash? If contribution is in any other form than cash, the following persons can act as a valuer for valuation of contribution:- A practicing Chartered Accountant A practicing Cost Accountant An Approved Valuer from the panel maintained by the Central Government. [Regulation 23(2) of the LLP Rules, 2009] 102. Is there any time period within which partners of an LLP shall bring contribution? The LLP Act, 2008 or the LLP Rules, 2009 do not mention anything specifically about the time period within which contribution shall be brought in, by the partners of an LLP. Hence, the time period of bringing in contribution, shall be governed by the provisions of LLP Agreement Whether contribution amount once contributed can be withdrawn by a Partner? The LLP Act, 2008 or the LLP Rules, 2009 do not contain any specific restrictions on withdrawal of contribution by a Partner. However, the LLP Agreement may provide for such restrictions What are the circumstances where contribution amount is liable to be repaid to the partners? The contribution amount brought in by a partner is liable to be repaid to the respective partner in the event of his cessation as a partner of an LLP. [Section 24(5) of the LLP Act, 2008] 105. Is there any classification under the concept of contribution? The LLP Act, 2008 or the LLP Rules, 2009 do not provide for any classification under the concept of contribution. However, the LLP Agreement may provide for any such classification.

19 106. Whether contribution would have any bearing on profit sharing pattern of LLP? The profit sharing pattern of an LLP shall be governed by the LLP agreement, and may not be related to the contribution of each partner. [Section 23(1) of the LLP Act, 2008] 107. If the LLP Agreement is silent about the profit sharing pattern, how will the profit sharing pattern of the partners be determined? If the LLP Agreement is silent about the profit sharing pattern, then the profit sharing pattern of the partners shall be as prescribed in the First Schedule to the LLP Act, What does the First Schedule to the LLP Act, 2008 prescribe about the profit sharing pattern of the partners of an LLP? The First Schedule to the LLP Act, 2008 prescribes that in the absence of any express provision in the LLP Agreement, the partners shall share all profits and losses equally Can there be an increase in the Contribution of an LLP? The LLP Act, 2008 or the LLP Rules, 2009 do not contain any specific provisions regarding the procedure for increase in contribution of an LLP. Hence, the procedure for increase in contribution of an LLP shall be governed by the provisions of the LLP agreement Is there any form to be filed with the Registrar indicating the increase in contribution of an LLP? Yes. For indicating an increase in the contribution of an LLP, Form 3 is required to be filed with the Registrar What is the time limit for filing of Form 3 with the Registrar? The time limit for filing of Form 3 with the Registrar is a maximum of 30 days from the date of modification of LLP Agreement, for increase in contribution What fees shall be payable through Form 3 for increase in contribution? For increase in contribution, the difference between the fees payable on the increased slab of contribution and the fees paid on the preceding slab of contribution shall be paid through Form 3. [Clause 2 of Annexure A to the LLP Rules, 2009] 113. Is any stamp duty payable on an increase in contribution? Yes, the stamp duty applicable for Partnership Agreements under the respective Stamp Acts shall be payable on an increase in contribution In what manner can the contribution amount be increased?

20 An increase in the contribution amount can be introduced in two ways; 1. By bringing additional contribution by the existing partner(s) or 2. By introducing new partner(s) What are the steps for increase in contribution by way of additional contribution brought in by existing partners? For increase in contribution by way of additional contribution brought in by existing partners, the following steps are involved:- a. To check whether the LLP agreement contains a clause for, and procedure for such an increase in contribution. b. If yes, to modify the LLP Agreement, by following the procedure prescribed in the LLP Agreement for modification of the Agreement for: 1. inclusion of a clause for increase in contribution, 2. actual increase in contribution. c. If the LLP Agreement is silent about the procedure to be followed for modification of the Agreement, to pass a resolution by a majority in the number of partners for modification of the Agreement for: 1. inclusion of a clause for increase in contribution, 2. actual increase in contribution. [Clause 7 of First Schedule to the LLP Act, 2008] d. Filing of Form 3, by the LLP with the Registrar, within 30 days from the date of modification of the Agreement along with the requisite fees, as mentioned above. [Section 23(2) of the LLP Act, 2008, Regulation 21(1) of the LLP Rules, 2009 and Clause 2 of Annexure A to the LLP Rules, 2009] 116. What are the steps for increase in contribution by way of introduction of new partner(s)? For increase in contribution by way of introduction of new partner(s), the following steps are involved:- a. To check whether the LLP agreement specifies the procedure for modification of the LLP Agreement for introduction of a new partner. b. If yes, to modify the LLP Agreement, by following the procedure prescribed in the LLP Agreement, for modification of the Agreement for introduction of a new partner. c. If the LLP Agreement is silent about the procedure to be followed for modification of the Agreement for introduction of a new partner, to pass a resolution by taking consent of all the partners for modification of the Agreement for introduction of a new partner and increase in contribution which is brought in by the new partner. [Clause 7 of First Schedule to the LLP Act, 2008] d. If the new partner shall also be a designated partner of the LLP, such person shall obtain Designated Partner s Identification Number (DPIN) from the Central Government by making an application electronically in Form 7 to the Central Government, and payment of a fee of Rs. 100/- [Section 7(6) of the LLP Act, 2008, Regulation 10(1) of the LLP Rules, 2009 and Clause 4(e) of Annexure A to the LLP Rules, 2009] e. The proposed Designated Partner shall give his prior consent to act as a designated partner and intimate his DPIN, in Form 9, to the LLP. [Section 7(3) of the LLP Act, 2008 and Regulation 7 and 10(8) of the LLP Rules, 2009] f. Filing of Form 4, by the LLP with the Registrar, within 30 days from the date of appointment of the designated partner / partner, along with the requisite

21 fees, as mentioned above. [Section 7(4), 25(2)(a) of the LLP Act, 2008, Regulation 8, 10(8), 22(2) and 22(3) of the LLP Rules, 2009 and Clause 3 of Annexure A to the LLP Rules, 2009] g. Filing of Form 3, by the LLP with the Registrar, within 30 days from the date of modification of the Agreement along with the requisite fees, as mentioned above. [Section 23(2) of the LLP Act, 2008, Regulation 21(1) of the LLP Rules, 2009 and Clause 2 of Annexure A to the LLP Rules, 2009] 117. Does contribution determine voting rights of partners? No, the voting rights of partners may not be determined by the contribution brought in by them. The voting rights of the partners can be specified in the LLP Agreement How shall voting rights of partners be determined, if the LLP Agreement is silent on this matter? If the LLP Agreement is silent about the voting rights of partners, each partner shall be entitled to one vote, irrespective of the capital brought in by him. [Regulation 8 of the First Schedule to the LLP Act, 2008] 119. How can the lender safeguard his interest with the help of contribution? In the absence of restrictions on repayment of contribution (for instance, provisions similar to Section 77A and Section 100 of the Companies Act, 1956), the lender needs to be extra cautious while lending funds to an LLP. The lender needs to install his own systems and procedures for safeguarding his interest. LIABILITY OF PARTNERS 120. Nature & extent of liability of a partner of an LLP? Every partner of an LLP would be, for the purpose of the business of the LLP, an agent of the LLP but not of the other partners. Liability of partners shall be limited except in case of unauthorized acts, fraud and negligence. But a partner shall not be personally liable for the wrongful acts or omission of any other partner. An obligation of the limited liability partnership whether arising in contract or otherwise, is solely the obligation of the limited liability partnership. The liabilities of LLP shall be met out of the property of the LLP What is the liability of a Partner upon reduction of minimum number of members in an LLP? The Act provides for the minimum of two partners to carry on LLP. 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, the person, who is the only partner of the limited liability partnership during the time that it so carries on business after those six months and has the knowledge of the fact that it is carrying on business with him alone, shall be liable personally for the obligations of the limited liability partnership incurred during that period.