LLPs were created following the report of the Naresh Chandra committee on ‘Regulation of private companies and partnerships’ and the J.J. Irani committee on ‘Company Law’.
In India, the introduction of an LLP bridged the gap between a company and a partnership by providing a third business entity.
Because it eliminates the risk of personal loss, it is more profitable.
In general, the LLP Act 2008 is based on the UK LLP Act 2000 and the Singapore LLP Act 2005.
LLP was introduced in India for a number of reasons. Among them are:
- Partnerships initially had unlimited liability, which was risky. Whenever a claim exceeds the company’s assets and insurance amount, the partner’s private property is at risk.
- It will be risky for professionals in a Limited Liability Partnership with unlimited liability to be sued more often.
- At the time of incorporation, there are two or more persons carrying on the lawful business of the LLP.
- The incorporation documents and the form for incorporation of an LLP should get filed with the Registrar of companies (ROC) having jurisdiction over the area where the registered head office of LLP is situated.
- Section 11 of the Limited Liability Partnership Act 2008 requires the incorporation documents to be filed in the prescribed manner with the requisite fees.
- The incorporation process requires the designated partner identification number (DPIN).
- Upon registration of the incorporation documents and approval of the FiLLiP form by the ROC, he issues the LLP a certificate of incorporation.
- Names of incorporated companies should include the suffix LLP.
- Corporations, LLPs, and trademarks may not be registered with names that are similar to those of existing corporations, LLPs, and trademarks.
Difference between Partnership and LLP
An LLP agreement differs from a partnership deed in some ways. These are:-
- An Indian partnership deed is governed by the Indian partnership act 1932, while an LLP agreement is governed by the Limited liability partnership act 2008.
- LLPs are registered with the ministry of corporate affairs, while partnerships are registered with the registrar of firms.
- In a partnership, the partners are liable for the partnership’s unlimited liabilities. Partners are not considered separate legal entities from their firms. A partnership is considered a separate legal entity from the firm. Partners’ liability is limited to their share investment in the company.
- Partnership firms require a minimum of 2 partners and a maximum of 20 partners.
- While minors cannot be partners in LLPs, they can be partners in partnerships.
- In an LLP agreement, the management, operation, methods, etc., of the LLP are governed, whereas in a partnership deed, they are governed.
- In contrast, LLPs can own properties in their names while partnerships cannot.
- The incorporation of a partnership is a voluntary process, while the incorporation of an LLP is mandatory.
- Limited liability partnerships can sue and be sued in their own names, whereas partnerships cannot enter into contracts or sue.
- Partnership firms have partners acting as agents of the firm and the other partners, while LLPs have partners acting as agents of each other.
- As a partner in an LLP, foreign nationals are allowed, but not as a partner in a partnership.
Dissolution of Limited Liability Partnership
Two methods are available for dissolving an LLP:
- Declaring an LLP as defunct
- Winding-up and dissolution
- Dissolution by tribunal
Declaring an LLP as defunct
With the introduction of the LLP (amendment) rules in 2017, dissolving a company became easier.
Before the registrar strikes off the name of the LLP from the register, an application named E-FORM 24 under rules 37 (1) (b) and 37 (1A) can be produced.
In this application, you must state that the LLP has ceased to exist or is no longer operating.
When you apply for registration, you must submit some required documents to the registrar.
Dissolution and winding up of an LLP are governed by sections 63, 64, and 65 of the LLP Act 2008. Further, the winding-up process can be divided into two parts:
Voluntary winding up
Limited liability partnerships are terminated at the consent of all partners. LLPs must have the consent of at least 3/4 of the total number of partners in order to wind up.
Within 30 days of passing this resolution, the registrar should receive it.
Winding up with creditors
By announcing this process, the majority of partners can initiate the process. It must be indicated that they have no outstanding debts, or they will pay their debts within an assured period set by the partners, not exceeding one year from the date of the LLP’s winding-up resolution.
Publication of the resolution
Winding-up will take place once a resolution has been passed and creditors have consented. An advertisement in a newspaper should be published within 14 days where the LLP has its registered office or its principal office.
Appointment of LLP liquidator
As soon as the resolution has been passed by partners with consent, the liquidator will be appointed on a voluntary basis.
After receiving the approval of two thirds of the LLP’s creditors, a liquidator will be appointed.
Creditors, partners, or both can appoint the LLP liquidator.
In the event that neither party appoints a liquidator, the tribunal will appoint a liquidator for an LLP.
In winding-up, the liabilities and assets of the limited liability partnership are discharged. To dissolve a LLP, the liquidator will issue a report describing the process of winding up, explaining the closure of accounts.
The LLP is remains dissolved.