Author Name:   akshatgupta

The article speaks about Limited Liability Partnership in India with an overview of the same being different and yet similar to traditional Partnership Companies, and the Winding Up procedure for LLP in India...

Limited Liability Partnership

The Limited Liability Partnership Act 2008 was published in the official Gazette of India on January 9, 2009 and has been notified with effect from 31 March 2009. The rules have been notified in the official gazette on April 1, 2009. The first LLP was incorporated in the first week of April 2009.

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of a limited partnership. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation. Any individual (who is of sound mind and is solvent) and anybody corporate can be partner of LLP. There should be minimum two partners.

LLP must have two 'designated partners' who must be individuals. If a body corporate is partner of LLP, it can nominate a person as 'designated partner'. He has to give consent to act as designated partner. He has to obtain DPIN [Designated Partner Identification Number] from Central Government. The designated partner is liable for all compliances as required under the Act and is liable to penalty for contravention of those provisions. Personal liability shall arise if the number of partner’s falls below two, However there exists no upper limit on the same. In India for all purposes of taxation, an LLP is treated like any other partnership firm.

For statutory compliances provisions at least one resident designated partner (DP) in every LLP is available in India for at least six months for regulatory compliance requirements. The LLPs would have freedom to appoint more than one resident as DP. LLP as an entity would always remain liable for regulatory or other compliances.

Administration
Ministry of Corporate Affairs, Government of India is the administrating ministry. Registrar of Companies (RoC) of respective State is the administrative authority where all documents are to be filed, the Central Government can make applicable any provision of Companies Act to LLP with suitable modifications by issuing a notification. However, provisions of Indian Partnership Act will not apply to LLP.

Limited Liability Partnership and Traditional partnership
The Limited Liability Partnership is different than a traditional Partnership in many aspects also, at the same point of time it does reflect certain characteristics which resembles a traditional partnership structure. The same is broadly classified as under:
 

Comparison between Company and LLP

LLP around the Globe
In some countries, an LLP must also have at least one "general partner" with unlimited liability. Unlike corporate shareholders, the partners have the right to manage the business directly. As opposed to that, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest.

The Indian LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.

United Kingdom
In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000. A UK Limited Liability Partnership is a Corporate body - that is to say, it has a continuing legal existence independent of its Members, as compared to a Partnership which may have a legal existence dependent upon its Membership.

A UK LLP's members have a collective ("Joint") responsibility, to the extent that they may agree in an "LLP agreement", but no individual ("several") responsibility for each other's actions. As with a limited company or a corporation Members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.

In relation to tax, however, a UK LLP is similar to a partnership: it is tax transparent or pass-through, that is to say it pays no UK tax but its Members do in relation to the income or gains they receive through the LLP. It is a unique entity in its synthesis of collective and individual rights and responsibilities and its infinite flexibility - there is in fact no requirement for the LLP agreement even to be in writing because simple partnership-based regulations apply by way of default provisions.

United States of America
In the United States, each individual state has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act in 1996.

Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly lawyers, accountants, and architects. In some U.S. states, namely California, New York, Oregon, and Nevada, LLPs can only be formed for such professional uses. Formation of an LLP typically requires filing certificates with the county and state offices. Although specific rules vary from state to state, all states have passed variations of the Revised Uniform Partnership Act.

Japan
Limited liability partnerships were introduced to Japan in 2006 during a large-scale revamp of the country's laws governing business organizations. Japanese LLPs may be formed for any purpose (although the purpose must be clearly stated in the partnership agreement and cannot be general), have full limited liability and are treated as pass-through entities for tax purposes. However, each partner in an LLP must take an active role in the business, so the model is more suitable for joint ventures and small businesses than for companies in which investors plan to take passive roles. Japanese LLPs may not be used by lawyers or accountants, as these professions are required to do business through an unlimited liability entity.[7]

A Japanese LLP is not a corporation, but rather exists as a contractual relationship between the partners, similarly to an American LLP. Japan also has a type of corporation with a partnership-styled internal structure, called a godo kaisha, which is closer in form to a British LLP or American limited liability company.

Modes of Winding Up
The winding up of a Limited Liability Partnership (LLP) may be either by the Tribunal, or voluntary.

Voluntary Winding Up
A LLP may be wound up voluntarily if the LLP passes a resolution with approval of at least three fourth (in number) of total number of partners, requiring the LLP to be wound up voluntarily. A copy of resolution shall be filed with the Registrar within 30 days of passing up such resolution in Form as prescribed in Appendix II. If the LLP has creditors, whether secured or unsecured, then such winding up shall not take place unless approval of such creditors takes place in pursuance of rule 4.

Creditors
In case the LLP has creditors, secured or otherwise, the LLP shall, before taking any action for winding up of the LLP, also seek approval of such creditors and shall forward them, by registered post and any other electronic mean like email or website a copy of declaration under rule 3, the estimated amount of the claims due to each of the creditor and an offer for creditors to accept such claims.

The creditors would be given a month time to give LLP their opinion in respect of voluntary winding up proposed by the LLP or acceptance of offer made under sub-rule(1).

Publication of resolution
Where a LLP has resolved for voluntary winding up and consent of the creditors is received, it shall within fourteen days of the receipt of creditors consent give notice of the resolution by advertisement in some newspaper circulating in the district where the registered office or the principal office of the LLP is situated.

The  author can be reached at: akshatgupta@legalserviceindia.com

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