NATURE OF LIMITED LIABILITY PARTNERSHIP

[Mr. M. GOVINDARAJAN]

The Government had introduced the Limited Liability Partnership Bill, 2006 on 15^th December 2006 in the Rajya Sabha.  The said bill was referred to the Department Related Parliamentary Standing Committee on Finance for examination and to submit their report.   The Committee presented its report to the Lok Sabha on 27^th November 2007.   The said report was laid in the Rajya Sabha on the same day.   The committee made several recommendations.   The recommendations of the committee were examined and considered by the government.   The Government accepted most of the recommendations of the Government.  Since extensive changes were found to be necessary in the Bill, it was proposed to withdraw the Limited Liability Partnership Bill, 2006 and introduced a fresh bill incorporating the changes.   The new bill viz., Limited Liability Partnership Bill, 2008 was introduced in the Rajya Sabha.   The Rajya Sabha approved the bill.

This article will analyze the nature of Limited Liability Partnership in the new Limited Liability Partnership ('LLP' for short) Bill, 2008.

The LLP is neither having the characteristics of partnership or Companies Act and a hybrid of the same.  The Partnership Act will subsist even after the introduction of LLP.   The Statement of Objects and Reasons of the bill indicated that the LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement.   

Clause 4 of the bill provides that the provisions of the Indian Partnership Act, 1932 shall not apply to a LLP.  LLP is not a special law.   Clause 71 provides that the provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.

The term 'partner' in relation to a partner of a LLP means any person who becomes a partner in the limited liability partnership in accordance with the limited liability partnership agreement.  Limited liability partnership agreement means any written agreement between the partners of the LLP or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP.

A LLP is -

·  A body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners;

·  Shall have perpetual succession;

Any change in the partners of a LLP shall not affect the existence, rights or liabilities of the limited liability partnership.

Who are partners?  Any individual or body corporate may be a partner in LLP.  An individual shall not capable of becoming of a partner of LLP, if- 

·  He has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;

·  He is an undischarged insolvent; or

·  He has applied to be adjudicated as an insolvent and his application is pending.  

No qualification has been prescribed for becoming a partner in LLP.   Even age qualification is also not there.  A minor, therefore, become a partner in LLP. 

What are the minimum number and maximum number of partners in LLP?  In the bill only minimum number of partners is prescribed.   It is provided that every LLP shall have at least two partners.  It further provides that if at any time the number of partners of a LLP is reduced below two and the LLP carries on business for more than six months while the number is so reduced, the person, who is the only partner of the LLP during that time that it so carries on business after those six months and has the knowledge of the fact that it is carrying on business with him alone, shall be liable personally for the obligations of the LLP incurred during that period.   The bill does not provide for the maximum number of partners.  It can be presumed that any number of partners may be there in LLP.

The bill provides for designated partners, the concept of which was not found in the LLP Bill, 2006.   Clause 2(j) defines 'designated partner' as any partner designated as such pursuance to Sec.7.   It is provided that every LLP shall have at least two designated partners who are individuals and at least one of them shall be a resident in 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 designated partners.

If the incorporation document specifies who are to be designated partners, such persons shall be designated partners on incorporation.  This provision is similar to that of provisions of companies act appointing first directors.  If the incorporation document states that each of the partners from time to time of LLP is to be designated partner, every partner shall be a designated partner.

Any partner may become a designated partner by and in accordance with the LLP agreement and a partner may cease to be a designated partner in accordance with the LLP agreement.   An individual shall not become a designated partner in any LLP unless he has given his prior consent to act as such to the LLP in such form and manner as may be prescribed.   This is similar to the provisions of the Companies Act, 1956 which requires that the consent of the Director is to be obtained if a person is appointed as Director of the company.   Every LLP shall file with the Registrar the particulars of every individual who has given consent to act as designated partner in such form and manner as may be prescribed within thirty days of his appointment.  There is no separate Registrar appointed by the Central Government for this purpose.   The Registrar of Companies will act as Registrar of LLP.

An individual, eligible to be a designated partner, shall satisfy such conditions and requirements as may be prescribed. 

The Bill also seeks a partner to obtain a personal identification number as that of Directors obtaining identification number.   It is provided that every designated partner of a LLP shall obtain a Designated Partner Identification Number (DPIN) from the Central Government and the provisions of Sections 266A to Sec. 266G (both inclusive) of the Companies Act, 1956 shall apply mutatis mutandis for the said purpose.

The liability of the designated partner is also fixed.   It is provided that unless expressly provided otherwise in this Act, a designated partner shall be-

§  Responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuance to the provisions of this Act and as may be specified in the LLP agreement; and

§  Liable to all penalties imposed on the LLP for any contravention of those provisions.

The bill also provides for the procedure in case there is a change in designated partners.  A LLP may appoint a designated partner within thirty days of a vacancy arising for any reason.  Such designated partner shall satisfy such conditions and requirements as may be prescribed and has to give his consent to act a designated partner in such form and manner as may be prescribed within thirty days of his appointment.  If no designated partner is appointed, or if at anytime there is only one designated partner, each partner shall be deemed to be a designated partner.

The bill provides for punishment for contravening the provisions relating to appointment of designated partner, liabilities of the designated partner and the changes in designated partners.  It is provided that the LLP contravenes of the above the LLP and every partner shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to five lakh rupees.   If the LLP contravenes the provisions of giving consent to act as a designated partner and to satisfy the conditions and requirements for a designated partner or change in the designated partners, the LLP and its every partner shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.