Features of LLP

Features of LLP :

1. Legal entity/ body corporate – The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, 6 associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a LLP.
   Sec. 3(1) of the Limited Liability Partnership Act, 2009 lays down: “A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from its partners.” Just like a Company, LLP is also body corporate, which means it has its own existence as compared to partnership. LLP and its Partners are distinct entity in the eyes of law. LLP will be known by its own name and not by the name of its partners. An LLP as legal entity is capable of owning its funds and other properties. The LLP is the real person in which all the property is vested and by which it is controlled, managed and disposed off. The property of LLP is not the property of its partners. Therefore, partners cannot make any claim on the property in case of any dispute among themselves.

2. Number of partners – Every LLP shall have at least two partners and shall have at least two individuals as ‘Designated Partners,’ of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law. There shall not be any upper limit on number of partners in an LLP, unlike an ordinary partnership firm where the maximum number of partners cannot exceed 20.
   Additionally, a corporate body may be a partner of an LLP. Consent is necessary to become a partner in LLP. LLP Act makes a mandatory statement where one of the partners to the LLP should be an Indian.

3. Perpetual Succession – The LLP will have perpetual succession like a corporation. Notwithstanding any changes in the partners of the LLP, the LLP will be a same entity with the same privileges, immunities, estates and possessions. The LLP shall continue to exist till its wound up in accordance with the provisions of the relevant law.
4. ⁠Rights/Duties of partners and Agreement – The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the Act. The Act provides flexibility to devise the agreement as per their choice. In the absence of any such agreement, the provisions of law (Schedule l) shall govern the mutual rights and duties. Partners may lend money to and transact other business with LLP.
5. Liability of LLP/Partners – The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP, which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or unauthorized actions of other partners or their misconduct.
6. Assignment and transfer of Partnership Rights (Sec. 42) – Rights of a partner to share profits and losses of LLP and to receive distributions are transferable either wholly or in part. Transfer of right does not cause disassociation of the partner or dissolution and winding up of LLP. Transfer of right does not entitle the transferee or assignee to participate in the management or conduct of activities of LLP or access information concerning the transactions of LLP.
7. ⁠Financial disclosures (Sec. 34) – The LLP shall be under an obligation to maintain ‘annual accounts’ reflecting true and fair view of its state of affairs. A “statement of accounts and solvency” (SAS) shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government. Audit of the accounts is required only if the contribution exceeds Rs. 25 lacs or annual turnover exceeds Rs. 40 lacs.
   Every LLP is required to file ‘annual return’ in Form 11 with Registrar of Companies within 60 days of close of the financial year. The annual return is available for public inspection on payment of prescribed fees to the Registrar.

8. ⁠Investigation into affairs of LLP – The Central Government shall have powers to investigate the affairs of an LLP, if required, by appointment of competent inspector for the purpose.
9. ⁠Taxation of LLPs – Since tax matters of all entities in India are addressed in the Income Tax Act, 1961, the taxation of LLPs shall be addressed in that Act. For the purposes of taxation, LLPs will be treated as a “firm’ as defined in the Indian Partnership Act, 1932 [as per the Finance Act, 2009].
10. Registration – It is compulsory for a limited liability partnership to get registered as per the provisions of the Limited Liability Partnership Act, 2009.
11. Applicability of Companies Act – The law would confer powers on the Central Government to apply such provisions of the Companies Act, 1956 to provide, inter alia, for mergers, amalgamations, winding up and dissolutions of LLPs, as appropriate, by notification with such changes or modifications as deemed necessary. However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both The Registrar of Companies (RoC) shall register and control LLPs also.
12. Applicability of Partnership Act – The Indian Partnership Act, 1932 shall not be applicable to LLPs.
13. Applicability of Arbitration and Conciliation Act, 1996 – All disputes between the partners arising out of the LLP Agreement which cannot be resolved in terms of such Agreement shall be referred for arbitration as per the provisions of the Arbitration and Conciliation Act, 1996.
14. Conversion of other entities into LLPs – Other business entities like a firm or a company may convert themselves into an LLP. The LLP Act, 2009 contains enabling provisions pursuant to which a firm (set up under the Partnership Act) and private company or unlisted public company (incorporated under Companies Act) would be able to convert themselves into LLPs. But, the LLP Act bars an LLP from converting it into a company despite provisions in the Companies Act which enable an LLP to convert itself into a company.
15. Merger and winding-up of Limited Liability Partnerships – Provisions of Secs. 60 to 62 of the LLP Act provide for the manner in which compromises or arrangements including mergers and amalgamations involving LLPs shall be allowed. The sections provide the provisions and procedures required to be complied with when the affairs of LLPs are to be wound up and dissolved. An application is required to be filed with the High Court for any compromise or arrangement.
    A ‘compromise or arrangement’ can be between LLP and its creditors or partners. Application is made to Tribunal by LLP, creditor or partner. In case of wound up, LLP application can be made by the liquidator. Tribunal orders a meeting of creditors or partners. Winding up of LLP may be either voluntary or by the Tribunal. LLP so wound up may de dissolved. Sec. 64 provides circumstances in which LLP may be wound up by the Tribunal. There are provisions for dissolving LLP by declaring it ‘defunct.’

16. Offences and penalties – Offences and penalties arising out of the non-compliance with the provisions of the LLP Act have been defined along with substantive provisions themselves. However, for defaults/non-compliance on procedural matters such as time limits for filing requirements, penalties have been provided for application in a non-discretionary manner, through the levy of a default fee for every day for which the default continues.
    The Act contains provisions empowering the Union Government to compound any offence punishable with fine only by collecting a sum not exceeding the amount of maximum fine prescribed for the offence. Though most of the offences in the Act provide for punishment by way of charging fine, imprisonment too has been provided for in respect of violations.

17. Whistle blowing – Enabling provisions have been made in the Act in respect to protection to “whistle blowers.” Protection provided to employees and partners who provide useful information during the investigation process.
18. Foreign limited liability partnership – means a limited liability partnership formed, incorporated or registered outside India which establishes a place of business within India. A LLP registered outside India can establish an office in India and has to comply with the provisions of LLP Act, 2009.
19. Powers of Central Government – The Central Government shall have powers to make rules for carrying out the provisions of the Act. The Central Government may make rules for establishment of place of business by “foreign LLP” within India and carrying on business by foreign LLP by applying the provisions of Companies Act or such regulatory mechanism as may be prescribed with such modifications, as appear appropriate.