CMA Intermediate · Business Laws and Ethics

Limited Liability Partnership Act, 2008: formula sheet

Full chapter guide

Key formulas

Section 3(1): Legal status: LLP = body corporate + legal entity separate from its partners; Formed and incorporated under the LLP Act, 2008.
Section 3(2) and 3(3): Continuity: Perpetual succession; change in partners does not affect existence, rights or liabilities; Death, retirement or admission of a partner does not dissolve the LLP.
Section 2(1)(n): Definition of LLP: LLP = partnership formed and registered under the LLP Act; Registration under the Act is essential.
Section 27(3) and (4): Liability: LLP obligation = solely the LLP's obligation; met out of LLP property; Partners are not personally liable merely for the LLP's obligations; the Act's text states the LLP's own liability.
Section 5: Who may be a partner: Any individual or body corporate; not an unsound-mind, undischarged insolvent or pending-insolvency-applicant individual; The bar applies to individuals only.
Section 20: Misuse of name: Fine from ₹50,000 up to ₹5 lakh; Applies to those using LLP as last word of the name without incorporation.
Section 2(1)(l): Financial year: 1 April to 31 March; If incorporated after 30 September, the first year may end on 31 March of the year next following.
Subscribers: Minimum 2 persons, associated for a lawful business with a view to profit; Section 11(1)(a). They subscribe their names to the incorporation document.
Filing: Incorporation document + compliance statement → Registrar of the State of the registered office; Section 11(1)(b) and (c), with prescribed fees and form.
Who makes the compliance statement: Advocate / Company Secretary / Chartered Accountant / Cost Accountant engaged in formation + any one subscriber; Section 11(1)(c). Both must sign the statement.
Contents of incorporation document: LLP name; proposed business; registered office address; name and address of partners; name and address of designated partners; other prescribed information; Section 11(2).
False statement penalty: Imprisonment up to 2 years and fine ₹10,000 to ₹5,00,000; Section 11(3). Applies if the maker knows it is false or does not believe it to be true.
Registration time: Registrar registers and issues certificate within 14 days; Section 12(1). Certificate is conclusive evidence of incorporation (Section 12(4)).
Name reservation: Reserved for 3 months from date of Registrar's intimation; Section 16(2). Applies to a proposed LLP name or a proposed changed name.
Change of registered office: Effective only upon filing notice with the Registrar; Section 13(3). Default penalty under Section 13(4) is ₹500 per day, maximum ₹50,000 for the LLP and for each partner.
Becoming a partner (Section 22): Subscribers to the incorporation document = first partners; any other person = by and in accordance with the LLP agreement; Joining after incorporation depends on the agreement.
Governing rule (Section 23): Agreement governs; if silent on a matter → First Schedule; Agreement and changes are filed with the Registrar. Pre-incorporation agreement binds the LLP only if all partners ratify it after incorporation.
Agency (Section 26): Partner = agent of the LLP, not of other partners; Contrast with the Indian Partnership Act, 1932 position.
Cessation by choice (Section 24(1)): As per agreement; if no agreement, written notice of not less than 30 days to the other partners; Resignation route.
Automatic cessation (Section 24(2)): Death or dissolution of the LLP; declared of unsound mind by a competent court; applied to be adjudged insolvent or declared insolvent; No notice needed in these cases.
Former partner treated as partner (Section 24(3)): Regarded as partner for outsiders unless the person has notice of cessation or notice is delivered to the Registrar; Protects third parties.
Payout on cessation (Section 24(5)): Capital contribution actually made + share in accumulated profits after deducting accumulated losses, as at the date of cessation; Applies unless the LLP agreement provides otherwise.
Designated partners (Sections 7, 9): At least 2 individuals, at least 1 resident in India; fill a vacancy within 30 days; If none or only one, each partner is deemed designated.
LLP's own obligation: Obligation of LLP (contract or otherwise) = solely the LLP's obligation, met from LLP property; Section 27(3) and 27(4). Creditors cannot ordinarily go to partners' personal assets.
Partner's status protection: Partner not personally liable for LLP's obligation solely by being a partner; Section 28(1).
Own wrong versus another's wrong: Partner liable for his own wrongful act or omission; not liable for another partner's; Section 28(2).
LLP liability for partner's wrong: Partner liable for wrong in course of LLP business or with its authority ⇒ LLP also liable; Section 27(2).
Unauthorised act: LLP not bound if (a) partner has no authority AND (b) the person knows this, or does not know or believe him to be a partner; Section 27(1). Both conditions must be met for the LLP to escape.
Fraud: Fraud ⇒ unlimited liability of the LLP and of the partners who acted with fraudulent intent; Section 30(1). The LLP is liable to the same extent as the partner unless it proves the act was without its knowledge or authority.
Fraud penalty: Imprisonment up to five years and fine of ₹50,000 to ₹5,00,000; Section 30(2). Applies to every person knowingly a party to carrying on the business fraudulently.
Fraud compensation: LLP, partner, designated partner or employee who acted fraudulently pays compensation for loss; Section 30(3). The LLP is not liable if the person acted fraudulently without its knowledge.
Contribution: Obligation to contribute = as per LLP agreement; Section 33(1). A creditor who relied on it, without notice of a compromise between partners, may enforce the original obligation (Section 33(2)).
Books of account: Proper books | cash or accrual basis | double entry | at registered office | for prescribed period; Section 34(1). Books and period are prescribed by rules.
Statement of Account and Solvency: Prepare within 6 months from end of financial year; signed by designated partners; file with Registrar within prescribed time; Section 34(2) and (3). Prepared as at the last day of the financial year.
Annual return: File within 60 days of closure of financial year; Section 35(1). Must be duly authenticated.
Audit: Accounts audited as per prescribed rules; Central Government may exempt classes by notification; Section 34(4). No monetary limit is stated in the Act.
Penalty for late filing (Statement or annual return): ₹100 per day; maximum ₹1,00,000 for the LLP and ₹50,000 for each designated partner; Sections 34(5) and 35(2), as substituted w.e.f. 1-4-2022.
Fine for default in books, preparing the statement, or audit: LLP: ₹25,000 to ₹5,00,000; each designated partner: ₹10,000 to ₹1,00,000; Section 34(6), covering sub-sections (1), (2) and (4).
Winding up for default: Default in filing Statement of Account and Solvency or annual return for any five consecutive financial years; Section 64(e). The Tribunal may wind up the LLP.
Form of contribution: Property (tangible or intangible), money, promissory notes, agreements to contribute, contracts for services performed or to be performed; Section 32(1). Value is accounted for and disclosed as prescribed (Section 32(2)).
Who can convert, and under which Schedule: Firm: s.55 + Second Schedule | Private company: s.56 + Third Schedule | Unlisted public company: s.57 + Fourth Schedule; Match the entity to its section and Schedule. Listed companies are not covered.
Registration and effective date (s.58(1)): Registrar satisfied → registers documents → certificate of registration → LLP registered from the date specified in the certificate; The date in the certificate, not the date of application, is the effective date.
Intimation after conversion (s.58(1) proviso): LLP informs the Registrar of Firms or Registrar of Companies within 15 days of registration; Include the particulars of the LLP in the prescribed form and manner.
Effects of conversion (s.58(4)): New LLP by the name in certificate; all property, assets, rights, liabilities and the undertaking vest in the LLP; old firm or company deemed dissolved; Vesting is without further assurance, act or deed.
Foreign LLP (s.59): Central Government rules; Companies Act, 2013 provisions applied with modifications, or a prescribed regulatory mechanism; The Act itself leaves the details to rules.
Compromise majority (s.60(2)): Majority representing three-fourths in value of creditors or partners at the meeting + Tribunal sanction; The test is value, not number of persons.
Filing of Tribunal order (s.60(3) and s.62(3)): File with Registrar within 30 days of the order; Under s.60(3) the order takes effect only after it is filed. Default penalty: ₹10,000, plus ₹100 per day after the first, capped at ₹1,00,000 for the LLP and ₹50,000 for each designated partner.
Amalgamation limit (s.62 Explanation): An LLP shall not be amalgamated with a company; Amalgamation under this section is between LLPs only.
Misuse of the name (s.20): Fine of ₹50,000 to ₹5,00,000 for carrying on business with 'LLP' as the last word unless duly incorporated as an LLP; Applies to the person or each of the persons.
Modes of winding up: Winding up = voluntary OR by the Tribunal (section 63); An LLP so wound up may be dissolved.
Tribunal grounds (section 64): (a) LLP's own decision; (b) partners below two for more than six months; (d) against sovereignty, integrity, security of State or public order; (e) default in filing Statement of Account and Solvency or annual return for any five consecutive financial years; (f) just and equitable; Clause (c) omitted w.e.f. 15-11-2016. The Tribunal may wind up, it is not bound to.
Strike off (section 75): Registrar's reasonable cause to believe LLP is not carrying on business or operation + reasonable opportunity of being heard → name struck off; Done in the prescribed manner.
Failed compromise (section 61(2)): Compromise under section 60 unworkable → Tribunal may order winding up, deemed under section 64; Tribunal may act on its own motion or on application of an interested person.

Quick revision

An LLP is a body corporate and a separate legal entity from its partners.
An LLP has perpetual succession; changes in partners do not affect its existence.
An LLP is created by filing the incorporation document and getting a certificate of incorporation.
The LLP Agreement governs mutual rights and duties of partners and of the LLP and its partners.
If there is no agreement, the default provisions of the Act apply.
A designated partner is responsible for specified compliances of the LLP.
A partner is generally not personally liable for the LLP's debts beyond their agreed contribution.
A partner is personally liable for his own wrongful acts or omissions, but not for those of other partners (s.28). Under s.30, where the LLP's business is carried on with intent to defraud creditors or for a fraudulent purpose, the persons knowingly party to it are personally liable without limit for all or any of the LLP's debts.
Every LLP must maintain proper books of account and file annual documents with the Registrar.
Audit is required only where the Act and Rules prescribe it, so check the stated conditions.
Certain entities can convert into an LLP by following the prescribed procedure.
An LLP can be wound up voluntarily or by the Tribunal.

Common mistakes

Saying an LLP dissolves on the death or retirement of a partner. Fix: Remember Section 3(2) and (3): perpetual succession, and a change in partners does not affect existence, rights or liabilities.
Treating an LLP as a firm under the Indian Partnership Act. Fix: An LLP is formed and registered under the LLP Act 2008 and is a body corporate, separate from its partners.
Saying an LLP can be formed by one person or needs seven persons. Fix: For an LLP, remember two or more persons subscribe to the incorporation document.
Saying only a Chartered Accountant or Company Secretary can make the compliance statement. Fix: Remember all four: advocate, Company Secretary, Chartered Accountant or Cost Accountant, plus one subscriber.
Saying a partner is the agent of the other partners. Fix: Under Section 26 of the LLP Act, a partner is agent of the LLP only, not of other partners.
Treating the LLP agreement as optional and unwritten. Fix: Section 2(1)(o) defines it as a written agreement. If it is absent or silent, the First Schedule fills the gap.
Saying every partner is personally liable for the LLP's debts like in a firm. Fix: Remember that Section 27(3) makes the obligation solely the LLP's and Section 28(1) protects partners.
Saying a partner is liable for another partner's wrongful act. Fix: Section 28(2) says a partner is not personally liable for another partner's wrong. The LLP is liable, not that partner.
Saying the annual return is due in six months. Fix: Remember 60 days for the return (Section 35) and six months to prepare the statement (Section 34(2)).
Quoting a turnover or contribution limit for audit as if it is in the Act. Fix: Say audit is as per prescribed rules under Section 34(4) and that the Central Government may exempt classes. Quote a limit only if the question supplies it.

Exam tips

Learn Section 3 almost word for word; it is the most testable provision in this topic.
In MCQs, watch options that say the LLP ends on a partner's death or is not a separate entity; both are wrong.
Know the section map: 1 extent and commencement, 2 definitions, 3 body corporate, 5 partners, 20 name misuse, 27 liability.
In comparison answers, write points in a two-column layout of LLP versus firm so each point earns a mark.
Quote the section number only when sure of it; use the ones in this guide.
Learn the numbers: 2 persons, 14 days, 3 months, 2 years, ₹10,000 to ₹5,00,000, ₹500 per day up to ₹50,000. MCQs test these directly.
For a 14-mark question, write the sequence in order: subscribe, contents, filing, compliance statement, registration, certificate. Quote section numbers.
Do not confuse Section 11 (incorporation document) with Section 23 (LLP agreement). Examiners often set a distinction question.