A final look on Limited Libility Partnership : Chapter III
Designated Partners: Minimum number of the partners required are 2 as individuals for creating an LLP and one of them should be an Indian nationality. An LLP can be made between the partners and other incorporated partners. These incorporated bodies can be some other LLP, a company and society, along with they have to designate one individual as the partner to carry on the process on the behalf of these incorporated bodies. The upper limit for partners are 20 and all the designated partners are accountable for regulator and legal compliance.
LLP partnership with foreign individual or a foreign company. It can be formed in compliance with foreign exchange law. Among them one of the partner as designated partner should be a resident of India. The Consolidated FDI Policy of India governs investment into Indian LLPs by foreign investors including corporate investors.
LLP name reservation: LLP name can be registered with Registrar of Companies on approval of Form 1, for a period of 3 months from the date of intimation by the Registrar. An LLP using that name should be created within 3 months failing which the name reservation expires and becomes open for everyone.
Partner admission and exit process:
All partners designated as partners during the LLP incorporation are partners and any further partner can be included as per the LLP agreement.
End of partnership in LLP
By giving 30 days’ notice to the other partners. A person may cease to be a partner in accordance with the agreement or in the absence of agreement,
A person shall also cease to be a partner of a limited liability partnership-
- on his death or dissolution of the limited liability partnership; or
- if he is declared to be of unsound mind by a competent court; or
- if he has applied to be adjudged as an insolvent or declared as an insolvent.
This notice has to be given to ROC when a new partner joins or the existing partner needs and exit or for any change in partner in Form 4
Editing of the partners information
In case of change in name or address of partner, such partner shall inform:
- The LLP of any change in his name or address within a period of fifteen days of such change.
- The LLP must file such details with the Registrar within thirty days of such change in Form 4.
Partners Contribution: Capital contribution can be done either in cash or in kind. Contribution in kind requires a valuation to be conducted by a practicing Chartered Accountant or a Cost Accountant. The contribution in kind can be done like providing some assets, office space, and other services. All these valuation done by the partner should be accounted in the book of account.
The liabilities of partner in LLP are limited as the LLP are separate legal entity, so any obligation of the LLP arising out of any reason is the sole obligation of the LLP and its liability can be met out of the property of LLP and no individual unless an individual is found for any wrong cause.
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. Even in that case, a partner shall not be personally liable for the wrongful acts or omission of any other partner.
For instance, if an LLP has four partners Jai, Raj, Vikram, and Veer, and while executing a trade with some customer in name of LLP Jai commits some fraud. Then Jai will be fully liable for any loss to the firm, and the customer is free to recover the legal claims against the firm arising out of Jai’s conduct from the funds and property of the LLP, and Jai’s personal assets too. but, customer can not recover anything from the personal property of other designated partner.
Alone Liability of the partner : If in any case if one of the individual partner is indulged in some fraud or lends some money form a third party, bank, or any other lender , then only that individual is liable for the amount of the fraud he or she commits and no other partner or the LLP is liable for the fraud.
Partners by holding Out:
It is same as the partner by holding out with the partnership firm, this concept is also applied to LLP Act as well
From Previous Article
Any one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented- to be a partner does or does not know that the representation has reached the person so giving credit and this partner has to follow the same liability as with the other partners.
Further, where any credit is received by the LLP as a result of such representation, the LLP shall, irrespective of the liability of the partner by holding out, be liable to the amount of credit received on the basis of such representation.
Public Inspection of LLP
The following documents/information will be available for inspection by any person:-
- Incorporation Documents
- Partners names and changes made
- Statement of Account and Solvency
- Annual Return
These documents can be checked online through MCA website
Every LLP would be required to file
- an annual return in Form 11 with ROC within 60 days of the closure of financial year,
- a Statement of Accounts and Solvency in Form 8, within 7 months from the end of the financial year.
Account Maintenance: It is obliged to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency is mandated to be filed with ROC in each financial year, failing which some challan can be imposed in LLP
Auditing Condition: An LLP whose contribution exceeds Rs. 25 Lakh or the Limited Liability Partnership whose turnover exceed Rs. 40 Lakh are required to annually get their accounts audited by any Chartered Accountant in practice.
Taxation of LLPs is governed by the Income Tax Act, 1961, as amended by the Finance Act, 2009 which introduced provisions for the taxation of LLPs (effective from assessment year 1 April 2010 to 31 March 2011)
The designated partner are required to sign the income tax return of an LLP. In case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.