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HIDAYATULLAH NATIONAL LAW UNIVERSITY

CORPORATE PROJECT ON

Limited Liability Partnership in India, Comparisons with


Business

SUBMITTED TO
Mr. Shyamtanu Pal

AJAY LAKRA
SEC-B
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ACKNOWLEDGMENTS

At the outset, I would like to express my heartfelt gratitude and thank my teacher, Mr.
Shyamtanu Pal for putting his trust in me and giving me a project topic such as this and for
having the faith in me to deliver. Sir, thank you for an opportunity to help me grow. My
gratitude also goes out to the staff and administration of HNLU for the infrastructure in the
form of our library, IT Lab and my friends that was a source of great help for the completion
of this project.

AJAY LAKRA

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TABLE OF CONTENTS

1.
2.
3.
4.

Introduction..................................................................................................................3
Objectives......................................................................................................................4
Research Methodology.................................................................................................4
Chapterisation
I.
Historical background.........................................................................................10
II.
Origin and development......................................................................................11
III.
The Limited Liability Partnership Act, 2008....................................................12
IV. Silent feature of LLP Bill, 2008...........................................................................14
V. Business.................................................................................................................15
VI.

Compilation of Differences between Partnership Firm, (LLP), Private


Limited Company and One Person Company...................................................16

5. Conclusion...................................................................................................................18
6. Biblography................................................................................................................19

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INTRODUCTION
Business is a legally recognised organisation designed to provide goods and services to
consumers. Business is an economic activity that is carried by the people, and for the
people. It involves activities such as manufacturing, trading, etc. Profit is a primary
mechanism for monitoring such activities. Business is, thus a group of persons organised to
produce goods and services and sell them at a gain. Success and failure depends upon the
environment where operates.
Business is classified in to two are corporate form of business organisation and non
corporate form of business organisation. The popular forms of non corporate business
organization are sole proprietorship, H.U.F (Hindu Undivided family), Partnership.
Partnership is a form of business where two or more person operates for the common goal of
making profit. Each Partner has personal liability for personal debts incurred by the business.
Under section 4 of the Partnership Act 1932 defines Partnership as a Relationship between
persons who have agreed to share profit of business carried on by all or any of them acting
for all. Persons who enter in to Partnership are individually called as Partners and
collectively called Partnership firm. The name under which they carry a business is called
Firm Name. In India the law relating to Partnership was originally contain in Chapter XI,
Section 239 to 266 of Indian Contract Act. But, the said Chapter was repealed with effect
from the 1st October, 1932, and the Partnership Act, Act IX of 1932, has been brought into
force.1Partnership are classified into two general partnerships and limited partnerships.
Limited liability partnership is the part of general partnership.
LLP(Limited Liability Partnership)It is similar to general Partnership. Except general
Partners have limited liability. An LLP is a form of separate legal business entity that gives
the benefits of limited liability but allows its members the flexibility of organising their
internal structure as a traditional partnership. They are intended for businesses which
carry on trade or profession, and particularly attractive to larger professional
partnerships2

1
2

T.S Venhatesa Iyers, Law of Partnership, VIII Ed. S. Gogio & Company Publisher. Page no. 4.
http://www.breckmanandcompany.co.uk/content/forums_partnerships/limited_liability_partnerships.html

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REVIEW OF LITERATURE
Law Relating to Limited Liability Partnership in India (2010), pg. 302 discussed the
historical background of the limited liability Partnership..

Indian Partnership Act with Limited Liability Partnership(2010). pg.208-211, discussed the
objective and nature of Limited liability Partnership.

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OBJECTIVES
I.
II.

To Study the concept of Limited Liability partnership in India


To make a comparison between Limited Liability partnership and other
business forms.

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HYPOTHESIS

The limited liability partnership (LLP) is viewed as an alternate corporate vehicle which
seeks to attain the principal benefits of both forms of business organization- partnerships and
companies. This is achieved by granting, to the members of the LLP, the flexibility of
organizing their internal managerial structure as a partnership based on mutual agreement,
while limiting the liability of the partners to the extent of their interest in the partnership,
which is akin to the separate legal personality of a company.

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RESEARCH QUESTIONS

I.
II.

What is Limited Liability Partnership?


How it is different from any other form of Business organization?

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RESEARCH METHODOLOGY

The method of research adopted for the project is analytical methodology. For the
present project relevant data and information has been received and collected from
secondary sources and there has been use of authentic books and websites which
provided reliable information and data.

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HISTORICAL BACKGROUND
An LLP was first conceptualized to address the dismal saga of professionals like lawyers
and chartered accountants who surprisingly became the centre of a whooping number of court
proceedings once the financial institutions they had advised failed and went bust during the
real estate and energy prices crumple in the 1980s.3 The legislative history of LLPs dates
back to 1991 when the Texas House Bill No. 278 was enacted. Other states in the US soon
followed, as also did several other countries. Following the success of LLPs in the US and
some other countries, the United Kingdom and Singapore enacted their LLP laws in 2000 and
2005 respectively. The Indian LLP Act, 2008 is substantially and substantively based on the
LLP laws in the UK and Singapore
In India, on the recommendations of the J. J. Irani and the Naresh Chandra Committees, the
Ministry of Corporate Affairs floated a Concept Paper on LLP, the response to which formed
the backbone of the first draft LLP Bill, 2006. Subsequently, based on the Report of a
Parliamentary Standing Committee on Finance, a revised version of the LLP Bill, called the
LLP Bill, 2008, was introduced in the Parliament. Having been passed by both the Houses of
Parliament, the Bill received the Presidential Assent on 7th January, 2009 to become the LLP
Act, 2008 (the Act).
Section 1(2) of the Act empowered the Central Government to bring into force the Act on a
date to be appointed by it by notification in the Official Gazette. Vide Notification No. S.O.
891(E), dated 31.03.2009, the Central Government has appointed the 31st day of March,
2009 as the date on which most of the provisions of the Act have been brought into force. 4
Similarly, the Central Government has also notified the LLP Rules which are effective from 1
April 2009.5
Through the LLP law, the Government endeavours to give to the entrepreneurs, the benefits
of separate legal entity, together with organizational suppleness and narrow disclosure
requirements. With that view, the Act provides for the formation and regulation of limited
liability partnerships in India, thus founding a legal basis for this hybrid of a company and a
traditional partnership, as also having some features of a sui generis nature. We may now
consider some of the provisions of the Act in some detail so as to better acquaint ourselves .
3

See, Hamilton, Registered Limited Liability Partnership: Present at the Birth


http://www.llp.gov.in,
5
The LLP Rules may be accessed at http://www.llp.gov.in/tolink/LLPRulesasnotified.doc.
4

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ORIGIN AND DEVELOPMENT


1. 1957: The 7th Law Commission on Partnership Act, 1932 rejected the suggestion to
introduce LLP legislation made by the iron, steel and hardware merchants
chamber, because they did not want to fail the purpose of recent Companies Act
amendment.
2. 1997- The AbidHussain Committee on Small Scale Industries recommended
legislation on LLP in India.
3. 2003- The Naresh Chandra Committee set up on regulation of private companies
and Partnerships suggested application of Limited Liability Partnerships to service
industry.
4. 2005- The recommendation for introducing a LLP law was again made by the JJ
Irani Expert Committee on Company Law (2005). It suggested to have a separate
LLP Act and to include the small enterprises with the scope of LLPs. They were of the
view that in this way flexibility could be provided to the small enterprises to enter into
the joint venture agreements and to access technology.
5. 23rd July 2005- The 2ndNaresh Chandra Committee submitted its report and made
the following observations: "In increasing litigious market environment, prospect of
being a member of a partnership firm with unlimited liability is, to say the least, risky
and unattractive. Indeed the chief reason why the firms of professionals, such as
accountants, have not grown in size to successfully meet the challenge of the
international competition. This makes an L.L.P a most attractive vehicle for
partnership among professionals such as lawyers and accountants."6
6. 2006- On December 7th, LLP bill was approved by Union Cabinet. On December
15th, LLP bill was introduced in Rajya Sabha.
7. 2007- The LLP bill of 2006 was referred to Parliamentary Standing Committee (PSC).
On November 27th, PSC submitted its report to the Parliament with recommends for
some changes to the 2006 LLP bill.
8. 2008- On May 1st, the introduction of new bill (2008 LLP bill) was approved by the
Union Cabinet replacing the 2006 LLP bill. On October 21st, the LLP bill was
introduced in the Parliament. On October 24th, the LLP bill was passed by the Rajya
Sabha. On December 13th, LLP bill was passed by Lok Sabha.

http://www.icai.org/resource_file/11703nccr_pc.htm

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9. 2009- On January 7th, President gave his assent to the LLP bill 2008. On January 9th,
LLP Act 2008 was published in the Official Gazette. The rules in respect of
operational aspects under the LLP Act, 2008 (the LLP Rules 2009), were broght on
1st April, 2009. The rules in respect of conversion of a partnership firm, a private
company and an unlisted public company into LLPs were made effective w.e.f. 31st
May, 2009. The Government has also launched a website namely, www.llp.gov.in on
1st April, 2009 for operationalization of various processes provided under the LLP
Rules, 2009.7

THE LIMITED LIABILITY PARTNERSHIP ACT, 2008

The Central Government has exclusive power to make law with respect to Incorporation,
regulation and winding up of Limited Liability Partnership under Entry 44 of List I of the
Seventh Schedule to the Constitution of India. Limited Liability Partnerships (LLP) are
governed by the Limited Liability Partnership Act, 2008 (LLP Act 2008) which came into
effect by way of
notification dated 31st March 2009. Various committees and Expert Groups have, from time
to time, recommended introduction of LLP legislation in India. Taking into account the
recommendations of the various Committees, The Limited Liability Partnership Bill 2006
(LLP bill 2006) was introduced in the Rajya Sabha on 15th December 2006. The Bill had 14
chapters containing 73 Sections and 4 schedules. The LLP Bill 2006 was later referred to the
Department Related Parliamentary Standing Committee on Finance for examination and
report. The Committee submitted its recommendations in its report to both Houses of
Parliament on 27th November, 2007.
The LLP Bill 2006 was then withdrawn. The LLP Bill, 2008 which had taken in view the
recommendations made by the Standing Committee and other relevant inputs was introduced
in the Rajya Sabha on 21.10.2008 and in the Lok Sabha on 12.12.2008 and received the
Presidents assent on 07.01.2009. Parliament enacted the Limited Liability Partnership Act
2008 and notified it on 31.03.2009. The Act extends to the whole of India. The LLP Act 2008
has 14 chapters containing 81 Sections and 4 schedules.

http://www.llp.gov.in/tolink/pressreleaseonLLPtaxation.pdf

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Since different dates may be appointed for coming into force of different provisions of the
Act, some sections of the Act were made applicable on 31.3.2009 itself, and the provisions on
conversion of firms/companies to LLP were made applicable w.e.f 31.5.2009. Except
Sections 2 (1) (c) and (u), 51, 55-58, 63-65, 72 and 73 the Act came into force on 31st March
2009. Sections 55 58, Second, Third and Fourth Schedule came into force on 31st May
2009. In order to bring out the Procedural aspects of the Limited Liability Partnership Act,
2008, and in exercise of the powers conferred by sub-sections (1) and (2) of section 79 of the
Limited Liability Partnership Act, 2008 the Central Government through notification dated
1st April 2009 made the Limited Liability Partnership Rules, 2009. The LLP Rules are
divided into 18 Chapters containing 41 Rules, with 31 Forms and 4 Annexures to the Rules.
Accordingly, the forms to be filed under the Act are annexed to these Rules and the fees to be
paid in pursuance of various provisions of the Act are laid down in Annexure A to the Rules.
Rules 1- 31, 34-37 and 41 came into force on 1st April 2009. Rules 32 and 33, and 38 to 40
came into force on 31st May 2009.
The LLP (Winding Up & Dissolution) Rules 2010, were notified on 30th March, 2010.
However, the Ministry of Corporate Affairs (MCA) notified new Limited Liability
Partnership (Winding Up and Dissolution) Rules, 2012 on 10th July 2012 in supersession of
earlier rules notified, namely, Limited Liability Partnership (Winding Up and Dissolution)
Rules, 2010. Limited Liability Partnership is managed as per the LLP Agreement, however in
the absence of such agreement the LLP would be governed by the framework provided in
Schedule 1 of Limited Liability Partnership Act, 2008 which describes the matters relating to
mutual rights and duties of partners of the LLP and of the limited liability partnership and its
partners. The LLP Act 2008 empowers the Central Government under section 67 to apply the
provisions of the Companies Act 1956 or any other Act with appropriate exception,
modifications and adaptation to LLP.
The Indian Partnership Act, 1932 - the existing partnership law is specifically excluded from
application to LLP and should not be looked upon as applying in any form of default basis.
The Ministry of Corporate Affairs (MCA) and the Registrar of Companies (ROC) are the
administrative bodies to regulate the LLP Act 2008. The Ministry is primarily concerned with
the administration of the Limited Liability Partnership Act 2008 and the rules framed there
under.

Salient Features of LLP Bill, 2008


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The LLP shall be a body corporate and a legal entity separate from its partners. . Any two or
more persons, 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 Limited Liability Partnership. Every registered LLP shall be assigned a LLP
identification number (LLPIN) in one consecutive series. The LLP will have perpetual
succession.. 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 LLP Act 2008. The Act provides flexibility to
devise the agreement as per their choice. However in the absence of any such agreement, the
mutual rights and duties shall be governed by the provisions of the First Schedule to the LLP
Act 2008. 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 un-authorized actions of other partners or their
misconduct.. The liabilities of the LLP and partners who are found to have acted with intent
to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts
or other liabilities of the LLP; Every LLP shall have at least two partners and shall also 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;. No
Restriction as to the maximum number of partners in a LLP.. 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 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;
. The Central Government has powers to investigate the affairs of an LLP, if required, by
appointment of competent Inspector for the purpose; 14. The compromise or arrangement
including merger and amalgamation of LLPs shall be in accordance with the provisions of the
LLP Act 2008
A firm, private company or an unlisted public company is allowed to be converted into LLP
in accordance with the provisions of the Act. Upon such conversion, on and from the date of
certificate of registration issued by the Registrar in this regard, the effects of the conversion
shall be such as are specified in the LLP Act. On and from the date of registration specified in
the certificate of registration, all tangible (moveable or immoveable) and intangible property
vested in the firm or the company, all assets, interests, rights, privileges, liabilities,
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obligations relating to the firm or the company, and the whole of the undertaking of the firm
or the company, shall be transferred to and shall vest in the LLP without further assurance, act
or deed and the firm or the company, shall be deemed to be dissolved and removed from the
records of the Registrar of Firms or Registrar of Companies, as the case may be; The
winding up of the LLP may be either voluntary or by the Tribunal to be established under the
Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given
to the High Court; The LLP Act 2008 confers powers on the Central Government to apply
provisions of the Companies Act, 1956 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 Houses; Taxation for LLP notified on 10.07.2009.
The Indian Partnership Act, 1932 shall not be applicable to LLPs.

Business
A business, also known as an enterprise or a firm, is an organization involved in the trade of
goods, services or both to consumers Businesses are prevalent in capitalist economies where
most of them are privately owned and provide goods and services to customers in exchange
for other goods, services, or money. Businesses may also be not-for-profit or state-owned. A
business owned by multiple individuals may be referred to as a company.
The etymology of "business" stems from the idea of being busy, and implies socially valuable
and rewarding work. Business can refer to a particular organization or, more generally, to an
entire market sector, e.g. "the music business". Compound forms such as agribusiness
represent subsets of the word's broader meaning, which encompasses all activity by suppliers
of goods and services.

Forms of Business Organizations in India


1) Sole Proprietorship
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2) Partnership
3) Companies
(a) Private limited companies
(b) Public limited companies
4) Hindu Undivided Family (HUF)
5) Private Trusts
6) Co-operative societies
7) One Person Company

Compilation of Differences between Partnership Firm, Limited Liability


Partnership (LLP), Private Limited Company and One Person Company
[OPC]

S.

No. Particulars

..

Limited

Partnership

Liability

Firm

Partnership

.
Private

One Person

Limited

Company

Company

It is governed

1.

Statute

It is governed

by The

It is governed

by The Indian

Limited

by The

Partnership

Liability

Companies Act,

Act, 1932."

Partnership

2o13".

It is governed by
The Companies
Act, 2013

Act, 2008".
This is
regulated by
the
2.

Regulated by

Registrar of
Firms of the
State
Government.

3.

Creation

Created by

This is
regulated by
the
Registrar of
Companies of
the
Central

This is regulated This is regulated


by the Registrar

by the Registrar

of Companies of of Companies of
the Central

the Central

Government.

Govemnment.

Created by Law

Created by Law

Government.
Created by

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Contract

Law

The
4.

Registration

registration is

The registration The registration

The registration

formialities

Not

is Mandatory.

is Mandatory.

is Mandatory.

Limited

Memorandum

Memorandum of

Partnership

liability

of Association

Association and

Deed is the

partnership

and Articles of

Articles of

main

agreement is

Association are

Association are

incorporation

the main

the main

the main

document.

incorporation

incorporation

incorporation

document.

documents.

documents.

It is a separate

It is a separate

legal entity,

legal entity,

Mandatory.

5.

Incorporation
documents

It is not a
separate legal
6.

Separate
Legal Entity

entity from
partners.
Partners are
collectively
referred as firm

7.

Perpetual
Succession

It does not
have perpetual
succession.
change of

change in
8.

registered
office

registered
office from one
state to another
state is easily
allowed.

9.

It is a separate
legal entity,
separate from
its partners\

separate from its separate from its


member,

member,

directors.

directors.

It has perpetual

It has perpetual

It has perpetual

succession.

succession.

succession.

change of

change of

registered

registered office

office from one

from one state

state to another

to another state

state is allowed

is allowed with

with some

lot of

formiialities.

formalities.

designated
partners.

change of
registered office
from one state to
another state is
allowed with lot
of formalities.

Number of

Minimum two

Minimum two

Shareholders:

shareholders:

Partners /

partners and

partners and

Minimum Two

only one

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maximum
Shareholders

twenty partners
are included.

maximum limit
is not specified.

and maximum
Two Hundred

Shareholder.

members.

CONCLUSION
This paper has endeavored to provide a thorough analysis of a new concept called the
limited liability partnership. First and foremost, it has traced the evolutionary history of
the LLP, from its creation and its spread to other jurisdictions. As it gained worldwide
acceptance, the concept of LLPs widened and envisaged several new advantages for
partners within its ambit. During the drafting of the Indian legislation for LLPs, the main
source of inspiration was the English and Singaporean concept of LLP. Their concept of
LLP is distinctly separate from the Texan model. Prior to the passing of the LLP Act,
there were several debates by various committees; a concept paper was also floated by the
Government. It is evident that there was much deliberation directed towards achieving the
most viable form of LLPs..

The Indian LLP, a creation of the LLP Act, has successfully attained a middle path
between a partnership and a company. The LLP Act has provisions starting from the
incorporation of, or conversion to, an LLP, up to the winding up of the LLP. Detailed
emphasis has been given to the role of partners. Their rights and liabilities have been
elucidated. Subsequent to the passing of the Finance Act, 2010, the taxation of an LLP
has been clarified to be similar to the taxation of a partnership.

BIBLIOGRAPHY

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JOURNALS & BOOKS

Law Relating to Limited Liability Partnership in India (2010)

ARTICLES REFERED

Robert W. Hillman, The Bargain in the Firm: Partnership Law, Corporate Law, and
Private Ordering within Closely-Held Business Associations. Illinois Law Review,
Forthcoming.

Stuart R. Cross, Limited Liability Partnerships Act , 2000 : Problems Ahead, J.B.L.,
2003, MAY , 268-283

Raghav

Sharma,

Limited

Liability

Partnerships

in

India.

Available

at

http://ssrn.com/abstract=1291854

J.J. Henning, Partnership Law Review: The Joint Consultation Papers and the
Limited Liability Partnership Act in Brief Historical and Comparative Perspective,
Comp. Law. 2004, 25(6), 163-170,p. 168

Krutesh

Patel,

Limited

Liability

Partnership.

Available

at

http://www.caclubindia.com/articles/limited-liability-partnership-4158.asp

Saleem Sheikh, Limited Liability Partnerships: A New Trading Vehicle, I.C.C.L.R.


1997, 8(8), 270-277

WEBSITES

http://business.gov.in/starting_business/limited_liability

http://www.mca.gov.in/LLP/

patanjaliassociates.com/uploaded_files/news/1250663590.pdf

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