CS Executive · Setting Up of Business, Industrial and Labour Laws

Business Collaborations: formula sheet

Full chapter guide

Key formulas

Legal status: LLP = body corporate + separate legal entity + perpetual succession; Section 3 of the LLP Act, 2008 says an LLP is a body corporate and a legal entity separate from its partners.
Minimum partners: Minimum 2 partners; no maximum; If the number falls below two for more than six months, the remaining partner who knows this is personally liable for the LLP's obligations in that period.
Designated partners: At least 2 designated partners (individuals; where partners are bodies corporate, individual nominees act); at least 1 resident in India; Resident in India means a person who has stayed in India for at least 120 days during the financial year immediately preceding the year of appointment as designated partner.
Liability of partner: Liability = limited to agreed contribution, except for own wrongful acts; The LLP is liable for wrongful acts done in the course of its business or with its authority.
Governing agreement: LLP agreement; else First Schedule applies; The agreement is between the partners inter se and between the LLP and its partners.
Formation: Incorporation document filed with Registrar → certificate of incorporation; The LLP is conclusively formed from the date on the certificate.
Capital: No share capital; partners hold contributions; There is no minimum contribution prescribed by the Act.
Minimum partners: At least 2 partners; no maximum limit; If the number falls below 2 for more than 6 months, a person who carries on business knowing this is personally liable for the LLP's obligations arising during that time.
Designated partners: At least 2 individuals; at least 1 resident in India (120 days or more in the financial year); A body corporate partner acts through a nominee. Deemed designated if none named and all partners are bodies corporate nominees or all partners are deemed.
Designated partner identification: DPIN (or DIN) needed for each designated partner; An individual must have a DPIN/DIN before being appointed.
Incorporation steps: Name reservation → FiLLiP with incorporation document → Registrar registers → Certificate of incorporation (LLPIN); Certificate is conclusive evidence that the LLP is incorporated.
Filing of LLP agreement: Form 3 within 30 days of incorporation; Form 4 within 30 days of any change; Without an agreement, the First Schedule governs.
Default rule on profit sharing: All partners share profits equally (First Schedule); Applies only when the LLP agreement does not provide otherwise.
Liability of partner: Not personally liable for LLP obligations; liable for own wrongful act; The LLP is liable for a partner's act done in the course of business. Fraud makes the LLP and the partner liable.
Conversion routes: Firm → Section 55 | Private company → Section 56 | Unlisted public company → Section 57; Conditions for each are in the Second, Third and Fourth Schedules. Section 58 deals with the effect of registration.
Who can become partners on conversion: Firm: all partners of the firm. Company: all shareholders and no one else.; A conversion cannot add outsiders as partners at the time of conversion.
Effect of conversion: Firm is dissolved; a company's name is removed from the register of companies. The LLP succeeds to the assets, liabilities and rights.; Pending proceedings by or against the old entity are not affected. They continue in the LLP's name.
Form 11 (Annual Return): Due within 60 days of the end of the financial year; For a year ending 31 March, the due date is 30 May.
Form 8 (Statement of Account and Solvency): Due within 30 days from the end of six months of the financial year; For a year ending 31 March, the due date is 30 October.
Audit threshold: Turnover above ₹40 lakh in any financial year OR contribution above ₹25 lakh; Either limit being crossed is enough. The turnover limit applies to any financial year. Contribution is the amount actually contributed by the partners.
Voluntary winding up: Resolution by not less than three-fourths of the total number of partners; where creditors exist, consent of creditors holding two-thirds in value of the debts is also needed; The three-fourths is counted on the total number of partners, not only those present. Where creditors exist, the resolution has effect only with the consent of creditors holding two-thirds in value of the amount of debts.
Winding up by Tribunal (Section 64): Grounds include: LLP resolves so; partners below two for over six months; inability to pay debts; acts against sovereignty, integrity or security of India; default in filing Statement of Account and Solvency or Annual Return for any five consecutive financial years; just and equitable; Learn the grounds as a list. Questions often test the five-year default and the six-month partner shortfall.
Definition of a joint venture: Joint venture = two or more independent parties + common business objective + shared control, profit, loss and risk; Use this as your opening line. Parties stay separate and legally independent.
Two main forms: JV = Contractual (no new entity) OR Equity (new entity such as company or LLP); State which form a question involves, because the governing law differs.
Core clauses of a JV agreement: Purpose and scope + contributions + profit and loss sharing + management and voting + exit and transfer + confidentiality + dispute resolution + term and termination; List these as a checklist when asked about the agreement.
Profit sharing rule: Share of profit = as agreed in the JV agreement (usually in proportion to contribution); Proportion to contribution is common but not compulsory. The agreement decides.
Strategic alliance: Alliance = contract + shared objective + separate identities (no new entity needed); Use this as your definition skeleton.
Joint venture test: Joint venture = alliance + jointly owned separate entity or venture + shared control, profit and loss; This is the main point of difference from an alliance.
Franchise: Franchise = brand and system licence from franchisor + fee or royalty + franchisee follows standards; Franchisee owns its business and is independent of the franchisor.
Technical collaboration: Technical collaboration = technology or know-how transfer + fee or royalty; Often part of a foreign collaboration.
Financial collaboration: Financial collaboration = partner brings capital, often as equity; Often accompanied by a share in control or board representation.
Foreign collaboration compliance: Foreign collaboration = Indian entity + foreign partner + contract + FEMA and FDI policy compliance; Check sector caps, entry route and reporting requirements in the study material.
Amalgamation by absorption: Company A + Company B → Company A (B dissolved); One company survives as transferee. The transferor is dissolved without winding up.
Amalgamation by consolidation: Company A + Company B → New Company C (A and B dissolved); A new company is formed. All combining companies are dissolved.
Types of merger: Horizontal = same business; Vertical = different stages of the supply chain; Conglomerate = unrelated business; Add concentric (related business, different products) if the question asks for more types.
Legal route: Scheme of arrangement → meetings of members and creditors → NCLT sanction → filing with Registrar; Sections 230 to 232 of the Companies Act, 2013. Section 232 applies specifically to mergers and amalgamations.
Merger vs takeover: Merger: transferor loses identity. Takeover: target continues as a separate entity under new control.; Use this one-line test whenever a question asks for the difference.

Quick revision

An LLP is formed under the Limited Liability Partnership Act, 2008.
An LLP is a separate legal entity from its partners.
Partners of an LLP have limited liability, but a partner remains liable for their own wrongful acts.
Every LLP must have at least two designated partners who are individuals, and at least one of them must be resident in India. Resident means staying in India for at least 120 days during the immediately preceding one year. A body corporate partner acts through a nominee, and that nominee, being an individual, may be a designated partner.
The LLP agreement governs the mutual rights and duties of the partners and the LLP.
Know the incorporation steps: name reservation, filing of incorporation documents and the certificate of incorporation.
Learn the routes under the LLP Act, 2008 for converting a firm, a private company or an unlisted public company into an LLP. Each has its own Schedule (Second, Third and Fourth respectively). Only a private company or an unlisted public company can convert, and the partners of the resulting LLP must be the company's shareholders only.
Know the annual filing requirements of an LLP and the consequences of default.
A joint venture is a collaboration for a specific purpose and may be contractual or through a separate entity.
A strategic alliance is generally looser than a joint venture and does not necessarily create a new entity.
Learn the difference between merger by absorption and merger by formation of a new entity.
A takeover is acquisition of control over a target, and may be friendly or hostile.

Common mistakes

Saying an LLP is formed by a partnership deed and is governed by the Indian Partnership Act, 1932. Fix: Remember that an LLP is incorporated under the LLP Act, 2008 and is governed by its LLP agreement. The 1932 Act applies only where the LLP Act expressly says so.
Claiming that partners have no liability at all. Fix: State that liability is limited to the agreed contribution, but a partner remains liable for their own wrongful acts and for fraud.
Saying a company's nominee is not needed because a body corporate can be a designated partner directly. Fix: A body corporate can be a partner, but only an individual can be a designated partner. It acts through a nominee.
Stating that all designated partners must be resident in India. Fix: Only at least one designated partner must be resident, meaning 120 days or more in the financial year.
Saying outsiders can be admitted as partners at the time of conversion from a company. Fix: Remember that on conversion all shareholders become partners and no other person does. New partners can join after the LLP is registered.
Mixing up Form 8 and Form 11 and their due dates. Fix: Form 11 is the Annual Return, due in 60 days from year end (30 May). Form 8 is the Statement of Account and Solvency, due 30 October.
Treating a joint venture as the same as a partnership. Fix: A JV is usually for a specific project and may be run through a company or contract. A partnership is a continuing business relationship governed by the Indian Partnership Act, 1932. Mention purpose, duration and form.
Saying a JV always creates a new legal entity. Fix: State both forms. A contractual JV creates no new entity. An equity JV does.
Treating a strategic alliance and a joint venture as the same thing Fix: State that an alliance is contractual and need not create an entity, while a joint venture usually creates a separate jointly owned venture with shared control.
Saying a franchisee is an employee or agent of the franchisor Fix: Say the franchisee is an independent business owner who pays fees or royalty and follows agreed standards.

Exam tips

Start every answer with the Act: LLP Act, 2008 and the body corporate status. It sets up the rest of your answer.
For difference questions, use at least five clear heads and cover both sides on each. Do not write one-sided points.
In case-based questions, name the partner and state who is liable and why. The conclusion earns marks.
Do not give a section number unless you are sure of it. A correct rule without a section is safer than a wrong section.
Mention the limits on limited liability, such as own wrongful acts and fraud, to show a complete understanding.
Practise the list of who can be a designated partner; it is a frequent short-answer question.
Write the sequence of incorporation as numbered points; it earns marks for each step.
Always mention the First Schedule when the question says there is no LLP agreement.