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.
This article is selective extract from the FAQ’s of LLP from http://www.llp.gov.in . It is classified into 5 heads for the purpose of understanding – Basics, Transactional, Compliance, Penal & Conversion provisions on LLP.
BASICS
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.
Likely users/beneficiaries of the LLP Law?
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
What are the restrictions in respect of minimum and maximum number of partners in an LLP?
A minimum of two partners will be required for formation of an LLP. There will not be any limit to the maximum numberof partners.
Whether a body corporate may be a partner of an LLP?
Yes.
What are the qualifications for becoming a partner?
Any individual or body corporate may be a partner in a LLP. However an individual shall not be capable of becoming a partner of a LLP, if—
(a) he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;
(b) he is an undischarged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his application is pending.
What are the requirements in respect of “Designated Partners”?
Appointment of at least two “Designated Partners” shall be mandatory for all LLPs. “Designated Partners” shall also be accountable for regulatory and legal compliances, besides their liability as ‘partners, per-se”.
Who can be a “Designated Partner”?
Every LLP shall be required to have atleast 2 Designated Partners who shall be individuals and at least 1 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.
Should the number of designated partners resident in India not be more than partners from outside India?
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.
Whether there would be any requirement of ‘identification number’ of Designated Partner? Whether Designated Partners would be subject to any other condition/requirement before they are appointed as such?
Every Designated Partner would be required to obtain a “Designated Partner’s Identification Number” (DPIN) on the lines similar to “Director’s Identification Number” (DIN) required in case of directors of companies. Enabling provisions have been made to prescribe under rules conditions, which would have to be fulfilled by an individual who is eligible to be appointed as a ‘designated-partner’.
TRANSACTIONAL PROVISIONS
Whether LLP Agreement would be mandatory for all LLPs?
As per provisions of the LLP Act, in the absence of any LLP agreement, 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.
What is the manner in which a partner of an LLP can bring his contribution? How will it be recorded/disclosed in the accounts?
Partner’s contribution may consist of both tangible and/or intangible property and any other benefit to the LLP. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed in the rules (see section 32).
Whether a partner would be able to give loan to or transact other commercial transactions with LLP? What will be his rights and obligations in this regard?
A partner may lend money to and transact other business with the LLP and shall have the same rights and obligations with respect to the loan or other transactions as a person who is not a partner.
What is the 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.
How penal action on errant partners who are not residents of India will be taken?
For statutory compliances provisions of at least one resident designated partner (DP) in every LLP is would ensure that at least one partner 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. Civil liability on such a partner would be adjudicated by the courts under civil law which recognises ‘foreign awards’. Criminal liability would require adjudication/ enforcement by the courts including using the extradition process. Position would be similar to the cases of directors of companies who are foreign nationals.
COMPLIANCE PROVISIONS
Whether every LLP would be required to maintain and file accounts?
An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A “Statement of Accounts and Solvency” in prescribed form shall be filed by every LLP with the Registrar every year.
Whether audit of all LLPs would be mandatory?
Audit of LLPs shall be mandatory. However a more simplified compliance regime for small LLPs is being proposed by exempting such LLPs from the requirement of audit by exemption through notification by the Central Government.
Whether any Annual Return would be required to be filed by an LLP?
Every LLP would be required to file with ROC, every year, an Annual Return, contents of which would be prescribed under rules.
Which documents will be available for public inspection in the office of Registrar?
The following documents/information will be available for inspection by any person:-
· Incorporation document,
· Names of partners and changes, if any, made therein,
· Statement of Account and Solvency
· Annual Return
The manner and fees for such inspection shall be prescribed in the rules.
How would compliance management (i.e. ensuring that LLPs file their documents with Registrars timely and otherwise comply with other procedural requirements under the Act) be ensured in the Act?
The provisions of the Act require LLPs to file the documents like Statement of Account and Solvency (SAS) and Annual Return (AR) and notices in respect of changes among partners etc. within the time specifically indicated in relevant provisions. The Act contains provisions for allowing LLPs to file such documents after their due dates on payment of additional fees. It has been provided that in case LLPs file relevant documents after their due dates with additional fees upto 300 days, no action for prosecution will be taken against them. In case there is delay of 300 days or more, the LLPs will be required to pay normal filing fees, additional fee and shall also be liable to be prosecuted.
The Act also contains provisions for compounding of offences which are punishable with fine only.
PENAL PROVISIONS
The offences can be punished either (i) through payment of fine or (ii) through payment of fine as well as imprisonment of the offender. The Judicial Magistrate of the first class, or, as the case may be, the Metropolitan Magistrate shall have jurisdiction to try offences under the LLP Act.
Though most of the offences in the Act provide for punishment by way of charging fine, imprisonment has been provided for in respect of violations relating to
(i) making by any person a false statement at the time of incorporation of LLP (ii) carrying on business of LLP with intent to defraud or for any fraudulent purposes and (iii) making, knowingly, false statements or omitting any material fact, in any return, documents etc under the Act. The offences which are punishable with fine only can be compounded by the Central Government, by collecting a sum not exceeding the amount of maximum fine prescribed for the offence.
Further, for defaults/non-compliance on procedural matters such as time limits for filing requirements provisions have been made for charging default fees (on daily basis) in a non-discretionary manner.
CONVERSION PROVISIONS
Limited Liability Partnership Act, 2008 provides for conversion of partnership firm, private limited company and unlisted public limited company into an LLP but all such provisions are not made effective till date. Only new LLP’s can be formed from 1st April 2009.
Further, provision to convert a private limited company or an unlisted public limited company may be enabled by amending the Companies Act, 1956 by providing a provision for the same.
