LLP ACT OF 2008
The method of organizing joint business has been introduced by the Limited Liability Partnership Act, 2008.
Statement of objects and reasons
a. With the growth of the Indian economy, the role played by its entrepreneurs as well as its technical and professional manpower has been acknowledged internationally. It is felt opportune that entrepreneurship, knowledge and risk capital combine to provide a further impetus to India’s economic growth. In this background, a need has been felt for a new corporate from that would provide an alternative to the traditional partnership, with unlimited personal liability on the one had, and, the statue-based governance structure of the limited company on the other, in order to enable professional expertise and entrepreneurial initiative to combine, organize and operate in flexible, innovative and efficient manner.
b. The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits or limited liability but allows its members the flexibility or organizing their internal structure as a partnership based on a mutually arrived agreement. The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements. Owing to flexibility in its structure and operation, the LLP would also be a suitable vehicle for small enterprises and for investment by venture capital.
c. Its partners can define their mutual right and obligations under their own agreement or agreement with LLP. In the absence of any such agreement, the provisions of the Act would apply.
d. The partnership firm would be liable to the full extant of its assets. The partner would be liable to the extent of their agreed contributions. No partners would be liable for independent or unauthorized acts of other partners or for their misconduct. The liability of the firm and that of partners who have acted with intent to defraud creditors or for any fraudulent purpose is to be unlimited for all or any of the debts, liability of LLP.
e. Every LLP has to have at least two individuals as designated partners. At least one of them should be resident in India. Their duties and obligations are to be as prescribed by law.
f. The LLP has to prepare annual accounts showing true and fair view of the state of affairs. They have to be filed with the Registrar after being audited. The Central Government can exempt a class of LLP’s from the required auditing.
g. In case of need, the Central Government may appoint inspectors to investigate affairs of the company.
h. Provisions have been made for compromise or arrangement including amalgamation.
i. A fir, private company or an unlisted public company are to be allowed to convert into LLP.
j. An LLP may be wound up voluntarily or by the Tribunal to be established under the Companies Act. Before any such Tribunal is so established, the power is to be that of the High Court.
k. The Central Government can apply the provisions of the Companies Act to such partnership.
PRELIMINARY
The Act is to be called Limited Liability Partnership Act, 2008. It extends to the whole of India. Section 2 contains definitions.
The expression “body corporate” means a body corporate as defined in Section 3 of the Companies Act, 1956 and includes:
(i) a limited liability partnership;
(ii) a limited liability partnership incorporated outside India;
(iii) any other body corporate (not being companies and LLPs) which the Central Government may specify in this behalf by notification in the Official Gazette.
The financial year of an LLP is to be one from 1st April to 31st March.
NATURE OF LIMITED LIABILITY PARTNERSHIP
Limited liability partnership to be body corporate
A limited liability partnership has been conferred the status of a body corporate being formed and incorporated under the Act. It is a legal entity separate from its partners. It is to have a perpetual succession. Any change in the partners is not to affect the existence, rights and liabilities of the limited liability partnership.
Non-applicability of the Indian Partnership Act, 1932
The provisions of the Indian Partnership Act, 1932 are not to apply to a limited liability partnership, unless it is otherwise so provided.
Partners
Any individual or a body corporate may be partner in a limited liability partnership. Individuals who are of unsound mind, undischarged insolvent or who have applied for insolvency are not capable of becoming partners.
Minimum number of partners
A limited liability partnership is to have at least two members. If at any time the number of partners is reduced below two and still the business is carried on for more than six months, the only partner who is there and who knows this happening is to be personally liable for obligations incurred during that period.
Designated partners
Every limited liability partnership is to have at least two designated partners, who are individuals and one of whom is a resident in India. In the case of an LLP of which all the partners are bodes corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners or nominees of the bodies corporate are to act as designated partners.
The Explanation clarifies that the term “resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one year. Sub-section (2) provides that if the incorporation documents specifies who are to be designated partners on incorporation or states that each of the partners from time to time is to be a designated partner, every such person is to be a designated partner. A partner may become designated partner in accordance with the terms of the agreement and may also cease to be so in accordance with those terms.
A partner is not to become a designated partner unless he has given a prior consent to act as such. The consent has to be in such form and manner as may be prescribed by the rules. Within 30 days of such appointment, the Registrar has to be informed of the particulars of the individuals who have consented to act as designated partners. The form and manner of filing such information is prescribed under the rules.
The eligible individuals have to satisfy prescribed requirements.
Every such partner has to obtain a Designated Partner Identification Number (DPIN) from the Central Government. For this purpose the provisions of Section 266-A to 266-G of the Companies Act, 1956 are to apply. These provisions deal with directors’ identification number.
Liabilities of designated partners
A designated person is (a) responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance with the provisions of the Act including filing of any documents, returns, statements and the like report pursuant to the provisions of the Act and also as may be specified in the agreement; (b) liable to all penalties imposed on the partnership for any contravention of these provisions.
Changes in designated partners
The LLP has to appoint a designated partner within 30 days of a vacancy arising for any reason. The provisions of Sections 7(4) and (5) apply in respect of each such new designated partner. Where no designated partner is
so appointed or if at any time there is only one designated partner, each partner becomes to be deemed designated partner.
INCORPORATION OF LIMITED LIABILITY PARTNERSHIP AND INCIDENTAL MATTERS
Essential requirements for incorporating limited liability partnership are stated in Section 11:
(a) two or more persons associated for carrying on a lawful business with a view to profit have to subscribe their names to an incorporation document;
(b) the incorporation document has to be filed with the Registrar of the State in which the registered office of the LLP is to be stated; and
(c) a statement has to be filed along with the incorporation document to the effect that all the requirements of the Act and its rules have been complied with in respect of incorporation and matters precedent and incidental to it. The statement has to be made by an advocate, or a company secretary, or a chartered accountant, or a cost accountant who is engaged in the formation of the LLP and by one of those who subscribed his name to the incorporation document.
The requirements as to incorporation documents are given in Sub-section (2):
(a) it has to be in prescribed form;
(b) it has to state the name of LLP;
(c) it has to state the proposed business;
(d) it has to state the address of the registered office;
(e) it has to state the name and address of each of the persons who are to be partners on incorporation;
(f) it has to state the name and address of the persons who are to be designated partners;
(g) it has to contain such further information concerning the proposed LLP as may be prescribed.
Incorporation by registration
When the requirements of Section 11(1) area satisfied, the Registrar has to retain the incorporation document and register it within 14 days and give a certificate that the LLP is incorporated by the name specified in the document.
The Registrar may accept the statement as compliance filed with the document as sufficient evidence that the requirements have been complied with.
The certificate issued by the Registrar has to be signed by him and authenticated by his official seal. The certificate is a conclusive evidence that the LLP is incorporated by the name specified on the certificate.
Registered office of LLP and change of it
Every LLP has to have a registered office to which all communications and notice may be addressed and where they are to be received. A document may be served on LLP or its partner or designated partner at registered office by sending it by post under certificate of posting or by registered post or by any other manner which maybe prescribed. The service may also be rendered at any other address specifically declared by the LLP in such manner and form as may be prescribed. The LLP may change the place of its registered office. A notice of such change has to be filed with the Registrar in the prescribed form and manner. It will be subject to prescribed conditions. The change becomes effective from the date of filing.
Effect of registration
On registration, the LLP by registered name becomes capable of:
(a) suing and being sued;
(b) acquiring, owning, holding and developing or disposing of property, whether movable or immovable, tangible or intangible;
(c) having a common seal, if it decides to have one; and
(d) doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.
Name
Every LLP is to have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name.
No LLP is to be registered by name which, in the opinion of the Central Government, is:
(a) undesirable; or
(b) identical or too closely resembles to that of any other partnership firm or limited liability partnership or a body corporate or a registered trade mark or a trade mark which is the subject-matter of an application for registration of any other person under the Trade Marks Act, 1999.
Reservation of name
A person may present an application to the Registrar for the reservation of a name set out in the application as the name of a proposed LLP, or the name which the LLP wants to adopt by changing its present name. on receipt of such application and payment of fee, the Registrar may reserve the name for a period of three months from the date of intimation by the Registrar. It is necessary for the exercise of this power that the name should not be rejectable under Section 15(2) and is in compliance with the Central Government rules on the mater if any.
Change of name of LLP under direction
Where the Central Government is satisfied that an LLP has been registered, whether originally or by a change of name, under a name which is a name referred to in Section 15(2) or is identical with or too nearly resembles the name of any other LLP or body corporate or other name as likely to be mistaken for it, the Central Government may direct such LLP to change its name. The LLP has to comply with the direction within three months after the date of direction or such longer period as may be allowed.
Application for direction to change name in certain circumstances
Any entity which already has a name similar to the name of a limited liability partnership which has been incorporated subsequently, may apply to the Registrar to give a direction to the LLP on the ground specified in Section 17 to change its name. a direction for change of name of the ground specified in Section 17(1)(b), namely identical or resembling names, is not to be given unless the Registrar receives the application within 24 months from the date of registration of the LLP under that name.
Change of registered name
An LLP may change its name registered with the Registrar by filing with him a notice of such change. The notice has to be inform and manner and accompanied by such fee as may be prescribed.
Publication of name and limited liability
Every LLP has to ensure that its invoices, official correspondence and publications bear the following, namely:
(a) the name and address of its registered office and registration number of the LLP; and
(b) a statement that it is registered with limited liability.
PARTNERS AND THEIR RELATIONS
On the registration of an LLP persons who have subscribed their names to the incorporation document are its partners. Any other person may become a partner of the LLP by and in accordance with the LLP agreement.
Relationship of partners
The mutual right and duties of partners of an LLP and the mutual rights and duties of the LLP and its partners are to be governed by the LLP agreement between the partners or between the LLP and its partners. Such agreement has to be filed with the Registrar and also of change, if any, made in it.
An agreement in writing made before incorporation of the LLP between persons who subscribed their names to the incorporation document may impose obligations on the LLP provided that such agreement is ratified by all the partners after incorporation of the LLP. In the absence of agreement as to any matter, the mutual rights and duties of partners and the LLP and its partners are to be determined by the provisions relating to that matter as are set out in the First Schedule.
Cessation of partnership interest
A person may cease to be a partner of an LLP in accordance with an agreement with the other partners. In the absence of any such agreement, he may cease by service of a notice in writing of not less than 30 days to the other partners of his intention to resign as a partner.
A person is to cease as a partner of an LLP:
(a) on his death or dissolution of LLP; or
(b) if he is declared to be a person of unsound mind by a competent court; or
(c) if he has applied to be adjudged as an insolvent or declared as an insolvent.
Where any person has ceased to be a partner (former partner), the former is still to be regarded as a continuing partner in relation to any person dealing with the LLP as still being a partner unless:
(a) the person has notice that the former partner has ceased to be so; or
(b) a notice of his ceasing to be a partner has been delivered to the Registrar.
The cessation does not by itself discharge him from any obligation to the LLP or to the other partners or to any other person incurred while he was a partner.
Unless there is an agreement to the contrary, the former partner or a person entitled to his share in consequence of his death or insolvency is entitled to receive from the LLP:
(a) an amount equal to the capital contribution of the former partner actually made to the LLP; and
(b) his right to share in the accumulated profits of the LLP, after deduction of accumulated losses determined as at the date the former partner ceased to be so.
A former partner or a person entitled to his share in the event of his death or insolvency does not have any right to interfere in the management of the LLP.
Registration of changes in partners
Every partner has to inform the LLP of any change in his name or address within a period of 15 days of such change. When a person becomes a partner or ceases to be so, the LLP has to inform the Registrar within 30 days of the date on which that happened. A similar information has to be filed with the Registrar within the same time when there is a change in the name or address of a partner.
A notice so filed has to be in the prescribed form and accompanied with prescribed fee. It has to be under the signature of a designated partner and authenticated in the prescribed manner. If it relates to an incoming partner, it has to contain a statement by such partner that he consents to becoming a partner, signed by him and authenticated in the prescribed manner.
A person who ceases to be a partner may himself file with the Registrar a notice, as required by Sub-section (3) if he has a reasonable cause to believe that the LLP may not file the notice with the Registrar. In the case of any such notice filed by a partner, the Registrar has to obtain a confirmation to this effect from the LLP unless the LLP has also filed the notice The proviso to sub-section (6) says that if no confirmation is forthcoming from the LLP within 15 days, the Registrar has to register the notice filed by the former partner.
EXTENT AND LIMITATION OF LIABILITY OF LLP AND ITS PARTNERS
Every partner of an LLP for the purposes of its business is its agent but not that of other partners.
Extent of liability of LLP
An LLP is not bound by anything done by a partner in dealing with a person if the partner in fact has no authority to act for the partnership in doing that particular act and the other person knows that he has no authority or does not know or believe him to be a partner of the LLP.
An LLP is liable if any of its partners becomes liable to any person as a result of a wrongful act or omission on his part in the course of the LLP business or if the act is done with its authority.
An obligation of an LLP whether arising in contract or otherwise is to be solely the obligation of the LLP. Its liabilities are to be met out of its property.
Extent of liability of partner
A partner is not to be personally liable directly or indirectly for an obligation of the LLP arising in contract or otherwise by reason solely of the fact that he is a partner of the LLP. These principles do not affect the personal liability of a partner for his own wrongful act or omission of any other partner of LLP.
Holding out
Liability by holding out arises when a person represents himself or permits himself to be represented as partner of an LLP. Such representation may take place by words spoken or written or by conduct. The liability arises toward any person who has on the faith of such representation given credit to the LLP. It is immaterial that the person being represented does or does not know that representation has reached the person who gave credit on its faith. The LLP also becomes liable to the extent of credit received or any financial benefit derived from it.
Where after the death of a partner the business of the LLP is carried on in its LLP name, the continued use of the deceased partner’s name as a part of it is not by itself to make his legal representatives or his estate liable for any act of the LLP done after the partner’s death.
Unlimited liability in case of fraud
This is one situation in which the LLP and its partners are deprived of the benefit of limited liability as they incur unlimited liability. Such a situation arises when an act is carried out by the LLP or any of its partners with intent to defraud LLP creditors or any other person or for any fraudulent purpose. The liability in such a case is to be unlimited for all or any of the debts or other liabilities of the LLP. Where any such act is carried out by a partner, the LLP is to be liable to the same extent as the partner unless the LLP proves that such act was done without the knowledge or authority of the LLP.
Where an LLP, or any of its paartne4s, designated partners or employees has conducted its affairs in a fraudulent manner, then, apart from any criminal liability for the same, the LLP, any such partner or employee is liable to pay compensation to any person who has suffered any loss or damage by reason of such conduct. The LLP is not to be liable for any such act if it was done without its knowledge.
Whistle blowing (waiver of penalty)
The court or Tribunal may reduce or waive any penalty livable against any partner or employee of an LLP if it is satisfied that:
(a) such partner or employee has provided useful information during investigation of LLP;
(b) where any information given by the employee or partner (during investigation or otherwise) leads to the LLP, partner or employee being convicted under the LLP Act or any other Act.
Sub-section (2) carries a protective provision. A partner or employee is not to be discharged, demoted, suspended threatened, harassed or in any other manner discriminated merely because he provided the information or caused it to be provided.
CONTRIBUTIONS
The contribution of a partner may consist of tangible, movable or immovable or intangible property or some other benefit to the LLP including money, tracts for services performed or to be performed.
The monetary value of the contribution of each partner is to be accounted for and disclosed in the accounts of the LLP in the manner as maybe prescribed.
Obligation to contribute
The obligation of a partner to contribute money or other property, other benefit or perform services for the LLP is to be as per the LLP agreement.
A creditor of an LLP, who extends credit or otherwise acts in reliance of an obligation described in the LLP agreement, without notice of any compromise between partners, may enforce the original obligation against such partners.
FINANCIAL DISCLOSURES
Maintenance of books of account, other records and audit
The LLP has to maintain such proper books of account relating to its affairs as may be prescribed. The accounts have to be for each year of its existence on cash or accrual basis and according to double entry system of accounting. They have to be kept in the registered office of the LLP for such period as may be prescribed.
Every LLP has to prepare, within a period of six months from the end of each financial year, a Statement of Account and Solvency for the financial year as on the last day of financial year in such form as may be prescribed. The statement has to be signed by the designated partners of the LLP.
Every LLP has to file within the prescribed time, the Statement of Account and Solvency with the Registrar every year in the prescribed manner and form and accompanied by prescribed fee.
The accounts have to be audited in accordance with the prescribed rules. The Central Government can exempt from the requirement of auditing a class or classes of LLPs.
Annual return
Every LLP has to file an annual return duly authenticated with the Registrar within 60 days of closure of its financial year. The form and manner and filing fee is prescribed under the rules.
Inspection of documents kept by Registrar
The incorporation document, names of partners and changes, if any, statement of Account, and annual return filed by each LLP with the Registrar is to be available for inspection by any person in such manner and on payment of such as may be prescribed.
Power of Registrar to obtain information
In order to obtain such information as the Registrar may consider necessary for the purposes of carrying out the provisions of the Act, the Registrar may require any person including any present or former partner or designated sure or supply any details or particulars in writing to him within a reasonable period. If any such person fails to comply with the cal of the Registrar, or Registrar is not satisfied with his response, the Registrar can summon him to appear before him or before an inspector or any other public officer whom the Registrar may designate to answer the questions or do other things that he may be required to do. A person who without any lawful excuse fails to comply with the summons, he becomes punishable with fine starting with Rs.2000 and extending up to Rs.25,000.
Compounding of offences
The Central Government may compound any offence under this Act which is punishable with fine only by collecting fro a person reasonably suspected of having committed the offence, a sum of money which is equal to the maximum amount of penalty prescribed for the offence under the section.
Destruction of old records
The Registrar may destroy any document registered or filed with him in physical form or in electronic form in accordance with the rules under the Act.
Enforcement of duty to make returns, etc
If any LLP is in default with:
(a) any provisions of the Act or of any other law which requires the filing in any manner with the Registrar of any return, account or other document or the giving of any notice to him of any matter; or
(b) any request of the Registrar to amend or complete and resubmit any document or to submit a fresh document,
and fails to make good the default within 14 days after the service on the LLP requiring it to be done, the Tribunal may on application by the Registrar, make an order directing the LLP or its designated partners or its partners to make good the default within such time as may be specified in the order.
Any such order may provide that all the costs of and incidental to the application would be borne by the LLP.
ASSIGNMENT AND TRANSFER OF PARTNERSHIP RIGHTS
The right of a partner to a share of profits and loses of the LLP and to receive distribution in accordance with LLP agreement are transferable either wholly or in part. The transfer of any right by any partner pursuant to Sub-section (1) does not by itself cause the disassociation of the partner or a dissolution and winding up of the LLP. The transfer of right pursuant to the section does not by itself entitle the transferee or assignee to participate in the management or conduct of the activities of the LLP or access information concerning the transactions of the LLP.
INVESTIGATION
In the following two cases, the Central Government has to appoint one or more competent inspectors to investigate the affairs of an LLP and make report in the manner as maybe directed by the Central Government.
(a) On Tribunal order:- where the Tribunal either suo motu or by an application received from the minimum of 1/5th members of the LLP, by order declares that the affairs of the LLP ought to be investigated.
(b) On court order:- when any court by order declares that the affairs of the LLP in question ought to be investigated.
In addition, Sub-section (2) empowers the Central Government to appoint inspectors in the circumstances specified in Sub-section (3). These grounds are:
(a) on application of members:- where not less than 1/5th of the total number of partners of the LLP make an application along with supporting evidence and the prescribed security amount; or
(b) on application of LLP:- where the LLP itself makes an application for investigation;
(c) Central Government’s opinion:- where in the opinion of the Central Government there are circumstances suggesting:
(i) that the business of the LLP is being or has been conducted with a view to defraud its creditors, partners or any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive or unfairly prejudicial to some or any of its partners, or that the LLP was formed for any fraudulent or unlawful purpose; or
(ii) Contravention of Act:- when the affairs of the LLP are not being conducted in accordance with the provisions of the Act; or
(i) On report:- when on the receipt of a report of the Registrar or any other investigating or regulatory agency shows that there are sufficient reasons that the affairs of the LLP ought to be investigated.
Application by partners for investigation
An application by partners under Section 43(1)(a) has to be supported by such evidence as the Tribunal may require for the purpose of showing that the applicants have a good reason for requiring the investigation. The Central Government may, before appointing inspectors, require the applicants to provide security for the prescribed amount for meeting the investigation costs.
A firm, body corporate or an association of persons is not to be appointed as an inspector.
Power of inspectors
If an inspector appointed for investigation thinks it necessary for the purpose of his investigation to investigate also the affairs of an entity which has been associated in the past or is presently associated with the LLP, the inspector is to have the power to do so and report on the affairs of the other entity or partner or designated partner, so far as he thinks that the result of his investigation are relevant to the investigation of the LLP.
In the case of an entity, partner or designated partner, the inspector is not to exercise his power of investigation or make report of it without obtaining the prior approval of the Central Government. Before giving any such approval the Central Government has to inform the entity, partner or designated partner and give them an opportunity to show cause why such approval should not be given.
Production of documents and evidence
It is the duty of the designated partner and other partners of the LLP:
(a) to preserve and produce before the inspector all books and papers of the LLP relating to it or to the other entity which are in their custody or power; and
(b) Otherwise to give to the inspector all assistance in connection with the investigation which they are reasonably able to give.
With the previous approval of the Central Government, the inspector may require any entity to furnish such information to the inspector or to produce before him such books and papers as he may consider necessary if such matters are relevant or necessary for the purposes of his investigation.
The inspector may keep in his custody the books and papers for 30 days. He has then to return the same to the LLP or the other entity or individual by whom or on whose behalf they were produced. The inspector can ask for them again if they are needed. If certified copies of books and papers have been furnished to the inspector, he has to return those books and papers to the entity of person concerned.
Sub-section (4) empowers the inspector to examine of oath:
(a) any of the persons referred to in Section 47(1);
(b) with the previous approval of the Central Government, any other person, in relation to the affairs of the LLP or any other entity;
(c) may administer on oath accordingly and may require for that purpose any of those person examined. It can then be used by the inspector as evidence.
Seizure of documents by inspector
Where in the course of an investigation the inspector has a reasonable ground to believe that the books and papers of or relating to the LLP or other entity or partner or designated partner may be destroyed, mutilated, altered, falsified or secreted, the inspector may make an application to the Judicial Magistrate of the First Class or a Metropolitan Magistrate having jurisdiction, for an order for seizure of such books or papers. The Magistrate may by order authorize the inspector to enter the place, search that place and seize books and papers which the inspector considers necessary for the purposes of his investigation and then return them. They cannot be kept under seizure for a continuous period of six months, before returning.
Every search and seizure made under the section has to be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 relating to searches and seizures made under that Code.
Inspector’s report
The inspector may make an interim report and has to do so if so required by the Central Government. On the conclusion of the investigation, the inspector has to make the final report. The report has to be written or printed as the Central Government may direct.
The Central Government has to forward a copy of any report (other than interim) to the LLP at its registered office and also to any other entity or person dealt with or related to the report. Persons related to the report or affected by it may purchase a copy of the report.
Prosecution
If it appear to the Central Government from the report that any person in relation to the LLP or any other entity whose affairs have also been investigated, has been guilty of any offence for which he is liable, the Central Government may prosecute such person of the offence. It is the duty of all partners, designated partners and other employees and agents of the LLP or the other entity, to give the Central Government all assistance in connection with the prosecution which they are reasonable able to give.
Application for winding up of LLP
If any such LLP is liable to be wound up under the Act or under any other law and it appears to the Central Government from the report that it is expedient to do so by reason of circumstances referred to in Section 43(3)(c)(ii) (affairs not being conducted in accordance with the Act), the Central Government may ask any authorized person to present a petition for winding up on the ground that it is just and equitable to do so.
Proceedings for recovery of damages or property
If it appears to the Central Government from the report that proceedings ought, in public interest, to be brought by the LLP or entity whose affairs have been investigated for recovery of damages for fraud, misfeasance or other misconduct in connection with the promotion or formation or management of affairs of the LLP or the oth3er entity, or for recovery of any property of the LLP or the other entity; which has been misapplied or wrongfully retained, the Central Government may itself bring the proceedings for that purpose.
Expenses of investigation and report as evidence
The expenses of and incidental to an investigation have to be defrayed in the first instance by the Central Government. But person listed would be liable to reimburse the Central Government:
(a) any person who is convicted on a prosecution or who is ordered to pay damages or restore any property in proceedings brought under Section 32, may be ordered in the same proceedings to pay the expenses to such extent as may be specified by the court convicting such person or ordering him to pay such damages or restore such property, as the case may be;
(b) any entity in whose name the proceedings are brought is to be liable, to the extent of the amount of value of any sums or property covered by it as a result of the proceedings;
(c) in the absence of any prosecution the expenses would have to be borne by:
(i) any entity, partner or designated partner or any other person dealt with by the report who is liable to reimburse for the whole of the expenses, unless the Central Government otherwise directs;
(ii) the applicants for the investigation, where the inspector was appointed under Section 43(1)(3) who area to be liable to such extent as the Central Government may direct.
Any amount for which an LLP or the other entity is liable under Sub-section (1)(b) is to be the first charge on the sums or property mentioned in that clauses.
The amount of expenses for which the LLP, other entity, partner or designated partner or any other person is liable under Sub-section (1)(c)(i) to reimburse the Central Government are to be recoverable as arrears of land revenue.
For the purposes of the section, any costs and expenses incurred by the Central Government or in connection with proceedings brought under Section 52 are to be treated as expenses of the investigation giving rise to the proceedings.
A copy of the report of the inspector authenticated in the prescribed manner is to be admissible as evidence in any legal proceedings in relation to any matter contained in the report.
CONVERSION INTO LIMITED LIABILITY PARTNERSHIP
A firm may convert into an LLP in accordance with the provisions of Chapter 10 and the Second Schedule.
A private company may convert into an LLP in accordance with the provisions of Chapter 10 and the Third Schedule.
An unlisted public company may convert into an LLP in accordance with the provisions of Chapter 10 and the Fourth Schedule.
Registration and effect of conversion
The Registrar, on being satisfied that a firm, private company or unlisted public company has complied with the provisions of the First, Second or Third Schedule has to register the document submitted under the applicable Schedule. The Registrar has then to issue a certificate of registration in such form as the Registrar may determine stating that the LLP is registered under the Act on and from the date specified in the certificate. Within 15 days the LLP has to inform the Registrar of Companies or Registrar of Partnerships with whom the company or the firm was registered about the conversion and of the particulars of the LLP. This has to be done I the prescribed form and manner.
Upon such conversion, the partners of the firm, shareholders of the private company or public unlisted company would become an LLP. The partners of the LLP are to be bound by the provisions of the applicable Schedule. The effect of conversion, as from the date of the certificate of registration, would be as specified in the Second Schedule, Third Schedule and Fourth Schedule as may be applicable.
Sub-section (4) indicates some further effects of conversion. It says:
(a) that there emerges a limited liability partnership by the name specified in the certificate of registration;
(b) all the tangible (movable or immovable) and intangible property vested in the form of company, all assets, interests, right, privileges, liabilities, obligations relating to the firm or the company and the whole of its undertaking is to be transferred to and vested in the LLP without any further assurance, act or deed;
(c) The firm or the company is deemed to be dissolved and removed from the records of the Registrar of Firm or Companies.
FOREIGN LIMITED LIABILITY PARTNERSHIPS
The Central Government may make rules for provisions relating to establishment of place of business by a foreign LLP within India and carrying on business and thereby applying or incorporating, with such modification as appear appropriate, the provisions of the Companies Act, 1956. This may be done with such regulatory mechanisms with such composition as may be prescribed.
COMPROMISE, ARRANGEMENT OR RECONSTRUCTION OF LLP
Where a compromise or arrangement is proposed between LLP and its creditors or between the LLP and its partners, an application can be made to the Tribunal. The application can be made by the LLP or any of its partners or creditors. If the LLP is in winding up, the liquidator can apply. The Tribunal can order a meeting of the creditors or of partners to be called, held and conducted in such manner as the Tribunal may prescribe.
If a majority representing three-fourths in value of the creditors or partners at the meeting agrees to any arrangement or compromise, the Tribunal may sanction the scheme and pass an order to that effect. The order becomes binding on all the creditors or partners or the liquidator and contributories of the LLP.
The Tribunal is not to sanction the scheme unless satisfied that the LLP or the applicant has disclosed to the Tribunal, by affidavit or otherwise, all materials facts relating to the LLP including the latest financial position and the pendency of any investigation proceedings in relation to the LLP.
The order has to be filed by the LLP with the Registrar within 30 days from its date. It becomes effective only on such filing.
The Tribunal may, after filing of an application, stay the commencement or continuation of any suit or proceeding against the LLP on such terms as the Tribunal considers fit until the application is finally disposed of.
Power of Tribunal to enforce compromise or arrangement
Where the Tribunal has sanctioned a scheme of compromise or arrangement, it:
(a) is to have power to supervise the carrying out of the compromise or an arrangement; and
(b) May give such directions or make such modifications in the scheme as it may consider necessary for proper working of the scheme.
If the Tribunal is satisfied that the scheme sanctioned by it cannot be worked out satisfactorily with or without modifications, either of its own motion or on the application of an interested person, make an order for winding up of the LLP. Such order is deemed to be an order made under Section 64 of the Act.
Provisions for facilitating reconstruction or amalgamation
Where an application is made to the Tribunal under Section 60 for sanctioning a scheme of compromise or arrangement and it is shown that the compromise or arrangement has been proposed for the purposes of the scheme of reconstruction and under the scheme of the whole or any part of the under taking, property or liabilities of an LLP (transferor LLP) is to be transferred to another LLP (transferee LLP), the Tribunal may by order sanctioning the scheme or by a subsequent order, make provisions for all or any of the following matters, namely:
(i) The transfer to the transferee LLP of the whole or any part of the undertaking, property or liabilities of the transferor LLP;
(ii) the continuation by or against the transferee LLP of any legal proceedings by or against the transferor LLP;
(iii) the dissolution, without winding up of the transferor LLP;
(iv) the provision to be made for any person who dissented from the scheme;
(v) such incidental, consequential and supplemental matters as are necessary to secure that the scheme is fully and effectively carried out.
A scheme is not to be sanctioned unless 5the Tribunal has received a report from a Registrar that the affairs of the LLP have not been conducted in a manner pre judicial to the interests of its partners or public interest.
An order for dissolution of the transferor LLP is not to be made unless the Official Liquidator has scrutinized the books and papers of the LLP and made a report to the Tribunal that the affairs to the LLP have not been carried out in a manner prejudicial to the interests of its partners or public interest.
Where an order provides for the transfer of any property or liabilities then by virtue of the order the property has to be transferred to and vest in the LLP. The liabilities are to become the liabilities of the transferee LLP. The Tribunal may order that a charge, if any, on the properties of transferor LLP is to cease to the extent necessary under the scheme.
Within 30 days of the order, the LLP in reference to which the order has been made it to file a certified copy of the order for registration.
The Explanation to the section clarifies that the work property as used in the section includes property, right and powers of every description and the word “liabilities” includes duties of every description.
WINDING UP AND DISSOLUTION
The winding up of a limited liability partnership may be either voluntary or by the Tribunal. The LLP so wound up may be dissolved.
Circumstances in which LLP may be wound up by Tribunal
An LLP may be wound u by the Tribunal in the following cases:
(a) where an LLP decides that it may be wound up by the Tribunal;
(b) where for a period of more than six months, the number of partners is reduced to below two;
(c) if the LLP is unable to pay its debts;
(d) if the LLP has acted against the interest of the sovereignty and integrity of India, the security of State or public order;
(e) if the LLP has made a default in filing with the Registrar the Statement of Account and Solvency or Annual return for any five consecutive financial years; or
(f) if the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.
The Central Government may make rules for provisions in relation to winding up and dissolution of LLPs.
MISCELLANEOUS
Business transactions of partner with limited liability partnership
A partner may lend money to the LLP and also transact any other business with it. He will have the same rights and obligations with respect to the loan or other transactions as a person who is not a partner.
Applications of provisions of the Companies Act
The Central Government may, by notification in the Official Gazette, direct that any of the provisions of the Companies Act, 1956 specified in the notification are to apply to an LLP; or apply to any LLP with such except in, modification and adaptation as may be specified in the notification.
A copy of every such proposed notification is to be laid in draft before each House of Parliament, while it is in session for a total period of 30 days which may be comprised I one session or in two or more successive sessions. Parliamentary approval is necessary for issue of any such notification.
Electronic filing of documents
Documents required to be filed, recorded or registered have to follow the manner or filing etc and subject to such conditions as may be prescribed.
The copy of an electronically filed document which is supplied or issued by the Registrar and certified through affixing digital signature as per the Information technology Act, 2000 is to be true copy of or extract from such document, and in any proceedings to be admissible in evidence as of equal validity with the original document.
Any information supplied by the registrar that is certified by him through affixing digital signature is to be a true extract from any document filed with or submitted to the Registrar and is admissible in evidence in any proceedings and is to be presumed to be a true extract from such document unless any evidence to the contrary is adduced.
Payment of additional fee
Late filing of documents is allowed within 300 days from the date within which it should have been filed on payment of additional fee of Rs.100 for every day of delay in addition to any fee as is payable for filing such document or return. Filing after 300 days is also allowed on payment of fee and additional fee as specified I the section. Such double late filing is not to prejudice any other action or liability under the Act.
Enhanced punishment
Where any LLP or any partner or designated partner of the LLP commits any offence second time or any subsequent offence, he is punishable with imprisonment as provided. But in the case of offences for which fine is prescribed either along with or exclusive of imprisonment, the fine amount would be twice the amount of fine prescribed for such offence.
Application of other laws not barred
The provisions of the LLP Act are I addition to and not in derogation of the provisions of any other law for the time being in force.
Jurisdiction of tribunal and appellate tribunal
The Tribunal can exercise such powers and per form such functions as have been or may be conferred on it by or under the Act or any other law for the time being in force. Any person aggrieved by an order or decision of the Tribunal may prefer an appeal to the Appellate Tribunal. The provisions of Section 101-FQ to 10-FZA, 10-G, 10-GD, 10-GE and 10-GF of the Companies Act, 1956 are to be applicable in respect of such appeals.
Penalty for non-compliance of tribunal’s order
Non-compliance with Tribunal’s order under the Act is punishable with imprisonment which may extend to six months. There is also the liability of fine which is not to be less than Rs.50,000.
General penalties
A person guilty of offence under the Act for which no punishment is expressly provided is to be liable to a fine which may extend to five lakh rupees but which is not to be less than Rs.50,000. There will also be a further fine up to Rs.50 extending for everyday for which the default continues.
Power of Registrar to strike off defunct LLP
Where the Registrar has a reasonable cause to believe that an LLP is not carrying on business or its operation in accordance with the provisions of the Act, the name of such LLP may be struck off from the register in the prescribed manner. The Registrar has to give the LLP a reasonable opportunity to be heard before taking the drastic step.
Offences by LLPs
Where an offence under the Act committed by an LLP is proved to have been committed with the consent or connivance of partner or designated partner or is attributable to any neglect on the part of a partner or designated partner, then such partner or designated partner as well as the LLP are to be regarded as guilty of the offence and liable to be proceeded against and punished accordingly.
Jurisdiction of court
The Judicial Magistrate of the First Class or the Metropolitan Magistrate has been conferred with the jurisdiction to try any offence under the Act and shall have power to impose punishment in respect of the offence. The section opens with the words: “Notwithstanding any provision to the contrary in any Act for the time being in force”.
Power to alter Schedules
The Central Government may, by notification in the Official Gazette, alter any of the provisions contained in any of the Schedules to the Act. Any alteration thus notified is to have the effect as if enacted in the Act. It is to come into force on the date of notification unless some other date is specified.
As soon as it may be any such alteration has to be laid before each House of Parliament while it is in session for a total period of 30 days.
Power to make rules
(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:
(a) form and manner of prior consent to be given by designated partner under Sub-section (3) of Section 7;
(b) the form and the manner of particulars of every individual agreeing to act as a designated partner of limited liability partnership under Sub-section (4) of Section 7;
(c) the conditions and requirements relating to the eligibility of an individual to become a designated partner under Sub-section (5) of Section 7;
(d) the manner of filing the incorporation document and payment of fees payable thereof under clause (b) of Sub-section (1) of Section 11;
(e) the form of statement to be filed under clause (c) of Sub-section (1) of Section 11;
(f) the form of incorporation document under clause (a) of Sub-section (2) of Section 11;
(g) the information to be contained in the incorporation document concerning the proposed limited liability partnership under clause (g) of Sub-section (2) of Section 11;
(h) the manner of serving the documents on a limited liability partnership or a partner or a designated partner and the form and manner in which any other address may be declared by a limited liability partnership under Sub-section (2) of Section 13;
(i) the form and manner of notice to the Registrar and the conditions in respect of change of registered office under Sub-section (3) of Section 13;
(j) the form and manner of application and amount of fee payable to the Registrar under Sub-section (1) of Section 16;
(k) the manner in which names will be reserved by the Registrar under Sub-section (2) of Section 16;
(l) the manner in which an application may be made by an entity under Sub-section (1) of Section 18;
(m) the form and manner of notice of change of name of limited liability partnership and the amount of fee payable under Section 19;
(n) the form and manner of the limited liability partnership agreement and the changes made therein and the amount of fee payable under Sub-section (2) of Section 23;
(o) the form of notice, the amount of fee payable and the manner of authentication of the statement under clauses (a),(b) and (c) of Sub-section (3) of Section 25;
(p) the manner of accounting and disclosure of monetary value of contribution of a partner under Sub-section (2) of Section 32;
(q) the books of account and the period of their maintenance under Sub-section (1) of Section 34;
(r) the form of Statement of Account and Solvency under Sub-section (2) of Section 34;
(s) the form, manner, fee and time of filing of Statement of Account and Solvency under Sub-section (3) of Section 34;
(t) the audit of account of a limited liability partnership under Sub-section (4) of Section 34;
(u) the form and manner of annual return and fee payable under Sub-section (1) of Section 35;
(v) the manner and amount of fee payable for inspection of incorporation document, names of partners and changes made therein, statement of Account and Solvency and Annual Return under Section 36;
(w) the destruction of documents by Registrar in any form under Section 40;
(x) the amount required as security under clause (a) of Sub-section (3) of Section 43;
(y) the amount of security to be given under Section 44;
(z) the fee payable for furnishing a copy under clause (b) of Sub-section (2) of Section 49;
(za) the manner of authentication of report of inspector under Section 54;
(zb) the form and manner of particulars about conversion under the proviso to Sub-section (1) of Section 58;
(zc) in relation to establishment of place of business and carrying on business in India by foreign limited liability partnership and regulatory mechanism and composition under Section 59;
(zd) the manner of calling, holding and conducting meeting under Sub-section (1) of Section 60;
(ze) in relation to winding up and dissolution of limited liability partnership under Section 65;
(zf) the manner and conditions for filing document electronically under Sub-section (1) of Section 68;
(zg) the manner for striking of the names of limited liability partnership form the register under Section 75;
(zh) the form and manner of statement containing particulars and amount of fee payable under sub-paragraph (a) of Paragraph 4 of the Second Schedule;
(zi) the form and manner of particulars about conversion under the proviso to Paragraph 5 of the Second Schedule;
(zj) the form and manner of the statement and the amount of fee payable under sub-paragraph (a) of Paragraph 3 of the Third Schedule; and
(zk) the form and manner of particulars about conversion under the proviso to Paragraph 4 of the Third Schedule;
(zl) the form and manner of the statement and amount of fee payable under sub-paragraph (a) of Paragraph of the Fourth Schedule; and
(zm) the form and manner of particulars about conversion under the proviso to Paragraph 5 of the Fourth Schedule.
(3) Every rule made under this Act by the Central Government shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of 30 days which may be comprised in ;one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule, or both House agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so that any such modification or annulment shall be without prejudice to the validity or anything previously done under that rule.
Power to remove difficulties
(1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions, not inconsistent with the provisions of this Act as may appear to it to be necessary removing the difficulty:
Provided that no such order shall be made under this section after the expiry of a period of two years from the commencement of this Act.
(2) Every order made under this section shall be laid, as soon as may be, after it is made, before each House of Parliament.
Transitional provisions
Until the Tribunal and the Appellate Tribunal are constituted under the provisions of the Companies Act, 1956 the LLP Act would apply with the following modifications:
(a) for the word “Tribunal” occurring in Section 41, Section 43 and Section 44, the words “Company Law Board” are to be substituted;
(b) for the word “Tribunal” occurring in Section 51 and Sections 60 to 64, the words “High Court” are to be substituted;
(c) for the words “Appellate Tribunal” occurring in Section 72(2), the words “ High Court” are to be substituted.
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