Limited Liability Partnership: formula sheet

Key formulas

Section 3(1): Status

LLP = body corporate + legal entity separate from its partners

Formed and incorporated under the LLP Act, 2008.

Section 3(2): Succession

LLP has perpetual succession

It continues despite death, retirement or insolvency of partners.

Section 3(3): Change of partners

Change in partners ⇒ no effect on existence, rights or liabilities of the LLP

Quote this when the question mentions a partner's death or exit.

Section 15(1): Name

Last words of the name = "limited liability partnership" or "LLP"

Section 20 fines a business that uses these words without being incorporated as an LLP: not less than ₹50,000, up to ₹5,00,000.

Section 5: Who can be a partner

Any individual or body corporate; except an individual of unsound mind (court finding in force), an undischarged insolvent, or one whose insolvency application is pending

The disqualifications apply to individuals only.

Who can subscribe (Section 11(1)(a))

Two or more persons + lawful business + with a view to profit

They subscribe their names to the incorporation document. A single person cannot form an LLP.

Where to file (Section 11(1)(b))

Registrar of the State of the proposed registered office

Filed in the prescribed manner with the prescribed fee.

Statement of compliance (Section 11(1)(c))

Advocate / Company Secretary / Chartered Accountant / Cost Accountant engaged in formation + any one subscriber

Confirms compliance with the Act and rules for incorporation and matters precedent and incidental.

Contents of incorporation document (Section 11(2))

Name; proposed business; registered office address; partners' names and addresses; designated partners' names and addresses; other prescribed information

Must also be in the prescribed form.

Penalty for false statement (Section 11(3))

Imprisonment up to 2 years and fine of ₹10,000 to ₹5,00,000

Applies if the person knows the statement is false or does not believe it to be true.

Registration (Section 12)

Registrar registers and issues certificate within 14 days

Certificate is signed, sealed and is conclusive evidence of incorporation by that name.

Name reservation (Section 16)

Reserved for 3 months from the date of intimation by the Registrar

Available for a proposed LLP or for a name to which an existing LLP proposes to change. Registrar must be satisfied that the name is not one rejectable under Section 15(2).

Registered office (Section 13)

Change takes effect only on filing notice with Registrar; default penalty ₹500 per day, maximum ₹50,000

The penalty applies to the LLP and to every partner, each up to the maximum.

Who are the first partners (Section 22)

Subscribers to the incorporation document = partners on incorporation

Any other person becomes a partner by and in accordance with the LLP agreement.

Minimum designated partners (Section 7(1))

At least 2 designated partners, all individuals; at least 1 resident in India

Resident means stayed in India for not less than 120 days during the financial year.

Body corporate partners (proviso to Section 7(1))

At least 2 individuals (partners or nominees of bodies corporate) act as designated partners

Applies where all partners are bodies corporate, or partners are individuals and bodies corporate.

How designated partners are fixed (Section 7(2))

Named in incorporation document, OR every partner is designated; later changes per LLP agreement

A partner may become or cease to be a designated partner in accordance with the agreement.

Consent and filing (Section 7(3) and (4))

Prior consent of the individual; particulars filed with the Registrar within 30 days of appointment

Form and manner are prescribed by rules.

DPIN (Section 7(6))

Every designated partner must obtain a DPIN from the Central Government

Sections 153 to 159 of the Companies Act, 2013 apply mutatis mutandis.

LLP agreement (Section 23)

Agreement governs mutual rights and duties; filed with Registrar; silence means First Schedule applies

Section 23(1), (2) and (4).

Pre-incorporation agreement (Section 23(3))

Binds the LLP only if ratified by all partners after incorporation

Agreement in writing between persons who subscribe to the incorporation document.

LLP not bound by partner's act (S.27(1))

Not bound only if: (a) partner had no actual authority AND (b) person knew of no authority OR did not know/believe him to be a partner

Both limbs (a) and (b) are needed. Limb (b) itself has two alternatives.

Liability for wrongful act (S.27(2))

Partner liable for wrongful act or omission in course of LLP business or with its authority ⇒ LLP is liable

The wrong must be in the course of business or with authority.

Obligations and assets (S.27(3) and (4))

Obligation = solely the LLP's; liabilities met out of LLP property

This is the basis of limited liability of partners.

Books of account (S.34(1))

Proper books, cash or accrual basis, double entry, kept at registered office

Form of books and period of retention are as prescribed.

Statement of Account and Solvency (S.34(2),(3))

Prepare within 6 months from end of financial year; signed by designated partners; file with Registrar

Filing time, form and fee are as prescribed.

Annual return (S.35(1))

File with Registrar within 60 days of closure of financial year

Form, manner and fee are as prescribed.

Penalty for late filing (S.34(5), S.35(2))

₹100 per day of default; maximum ₹1,00,000 for LLP and ₹50,000 for each designated partner

Applies to default in filing the Statement (S.34(3)) and the annual return.

Fine for failure under S.34(1), (2), (4)

LLP: ₹25,000 to ₹5,00,000; each designated partner: ₹10,000 to ₹1,00,000

Covers books of account, preparing the Statement and audit.

Tribunal winding up for default (S.64(e))

Default in filing Statement of Account and Solvency or annual return for any five consecutive financial years

One of the grounds for winding up by the Tribunal.

Conversion of a firm

Firm → LLP: Section 55 + Second Schedule

Registrar registers documents and issues a certificate of registration under Section 58(1).

Conversion of a private company

Private company → LLP: Section 56 + Third Schedule

Shareholders become partners and are bound by the Schedule.

Conversion of an unlisted public company

Unlisted public company → LLP: Section 57 + Fourth Schedule

Only unlisted public companies qualify. A listed company is not covered.

Intimation after conversion

Inform the Registrar of Firms or Registrar of Companies within 15 days of the date of registration

Proviso to Section 58(1). The LLP gives this notice, with prescribed particulars, to the Registrar with whom the firm or company was registered.

Effects of conversion

From date of certificate: new LLP exists; property and liabilities vest without further assurance, act or deed; firm or company deemed dissolved

Section 58(4), which applies notwithstanding any other law.

Foreign LLP

Section 59: Central Government may make rules on place of business and carrying on business in India

Rules may apply Companies Act, 2013 provisions with modifications, or a prescribed regulatory mechanism.

Misuse of LLP name

Section 20: fine of ₹50,000 to ₹5,00,000

For carrying on business with 'LLP' or 'Limited Liability Partnership' (or a contraction or imitation) as the last words without being duly incorporated as an LLP.

Majority required (Section 60(2))

Agreement of a majority representing ¾ in value of the creditors or partners at the meeting

The test is value, not just number of persons. The scheme binds all only if the Tribunal also sanctions it.

Who may apply (Section 60(1))

LLP, any creditor, any partner; the liquidator if the LLP is being wound up

The compromise is between the LLP and its creditors, or the LLP and its partners.

Filing of order under Section 60

File with Registrar within 30 days; effective only after it is filed

Default: penalty of ₹10,000 on the LLP and every designated partner, plus ₹100 per day after the first day, up to ₹1,00,000 for the LLP and ₹50,000 for each designated partner.

Filing of order under Section 62

Certified copy filed with Registrar within 30 days of the order

The same penalty structure applies on default (Section 62(4)).

Transfer by order (Section 62(2))

Property vests in, and liabilities become those of, the transferee LLP by virtue of the order

If the order so directs, property passes free of any charge that ceases under the scheme.

Safeguards in Section 62 provisos

Amalgamation of an LLP being wound up: Registrar's report needed. Dissolution of a transferor LLP: Official Liquidator's report needed.

Each report must say the affairs were not conducted in a manner prejudicial to partners or public interest.

Amalgamation with a company

An LLP shall not be amalgamated with a company

Stated in the Explanation to Section 62.

Modes of winding up (Section 63)

Winding up = Voluntary OR by the Tribunal; the LLP so wound up may be dissolved

Winding up is the process. Dissolution is the end of the LLP.

Grounds for Tribunal winding up (Section 64)

(a) LLP decides to be wound up by Tribunal; (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) was omitted w.e.f. 15-11-2016. Do not cite it as a ground.

Strike off of defunct LLP (Section 75)

Registrar has reasonable cause to believe LLP is not carrying on business or operation, then strike off after a reasonable opportunity of being heard

Hearing is mandatory under the proviso.

Central Government petition (Section 51)

Central Government may present a petition on the just and equitable ground, on the basis of an inspection report under Section 49, unless the LLP is already being wound up by the Tribunal

It links investigation to winding up.

Failed compromise (Section 61(2))

Tribunal may order winding up if a sanctioned compromise or arrangement cannot be worked satisfactorily; the order is deemed made under Section 64

Can be made on the Tribunal's own motion or on application of an interested person.

Rule-making (Section 65)

Central Government may make rules on winding up and dissolution

Detailed procedure sits in the rules.

Appeal (Section 72)

Appeal to Appellate Tribunal within 60 days; further period up to 60 days if sufficient cause; no appeal from a consent order

Applies to Tribunal orders, including winding up orders.

Quick revision

• An LLP is a body corporate formed under the LLP Act, 2008, with a separate legal identity from its partners.
• Section 7(1): at least two designated partners who are individuals, and at least one resident in India.
• Resident in India for section 7 means stay in India of not less than 120 days during the financial year.
• Section 7(3): an individual must give prior consent before becoming a designated partner.
• Section 7(4): particulars of each consenting individual must be filed with the Registrar within thirty days of appointment.
• Section 7(6): every designated partner must obtain a DPIN.
• Section 22: those who subscribe to the incorporation document are the first partners; others join as per the LLP agreement.
• Section 23: mutual rights and duties are governed by the LLP agreement; if it is silent, the First Schedule applies.
• Section 60(2): a majority representing three-fourths in value of creditors or partners at the meeting, plus Tribunal sanction, binds all.
• Sections 60(3) and 62(3): the order must be filed with the Registrar within thirty days; a section 60 order takes effect only after filing.
• Section 61(2): if a sanctioned arrangement cannot be worked satisfactorily, the Tribunal may order winding up.
• Section 62: an LLP cannot be amalgamated with a company.

Common mistakes

• Saying an LLP is just a partnership with limited liability. Fix: Say it is a body corporate with separate legal entity under Section 3(1), unlike a firm.
• Saying the LLP dissolves when a partner dies or retires. Fix: Cite Section 3(2) and (3): perpetual succession, and change of partners does not affect the LLP.
• Saying an LLP can be formed by one person or that any number is fine. Fix: Remember Section 11(1)(a): two or more persons subscribe their names. State this first in your answer.
• Naming only the Chartered Accountant or Company Secretary as the person who gives the statement. Fix: Learn all four: advocate, Company Secretary, Chartered Accountant or Cost Accountant, engaged in formation. Also add that one subscriber joins in the statement.
• Saying a company can be a designated partner by itself. Fix: Section 7(1) requires designated partners to be individuals. A body corporate acts through a nominee individual.
• Writing the old residence test of 82 days in the preceding year. Fix: The current text says not less than 120 days during the financial year.
• Saying the LLP is not bound whenever the partner had no authority. Fix: Both limbs must be present. The outsider must know of the lack of authority, or not know or believe him to be a partner.
• Mixing up the two time limits: 60 days and 6 months. Fix: Annual return: 60 days (Section 35). Statement of Account and Solvency: prepared within 6 months (Section 34).
• Saying any public company can convert into an LLP. Fix: Always write 'unlisted public company' as in Section 57. A listed company is outside the conversion route.
• Mixing up the Schedules. Fix: Remember the order: firm, private company, unlisted public company map to Second, Third, Fourth.

Exam tips

• Always quote Section 3(1), (2) and (3) in the opening lines. Examiners look for them.
• For difference questions, write at least five points in a table-like list with both sides covered.
• In case-based questions, apply Section 3(3) when a partner dies, retires or joins.
• Give section numbers only when sure. Sections 3, 5, 15 and 20 are safe to cite.
• End every answer with a one-line conclusion.
• Write the section number with each point: 11 for the document and statement, 12 for registration, 13 for the registered office, 16 for name reservation.
• Learn the contents of the incorporation document as a list. Short notes on this topic are common and marks go for complete lists.
• In fact-based questions, check the numbers and time limits first: two or more persons, 14 days, 3 months, ₹500 per day and ₹50,000.