With the development of the Indian economy, the part enacted by its capitalists and its industrial and specialized human resource has been recognized globally. It is felt apt that entrepreneurship, understanding and risk resources unite to supply a further drive to India’s economic development. In this backdrop, a requirement has been felt for an innovative corporate structure that would endow with a substitute. It should be a substitute to the conventional partnership. It should contain limitless personal accountability on the one hand, and, the law-based control organization of the limited accountability company on the other. This will facilitate specialized knowledge and capitalist enterprise to unite, arrange and function in supple, pioneering and well-organized way.
Thus the Limited Liability Partnership is observed as a substitute company form of business medium. This form of business offers the advantages of limited liability at the same time providing its members the suppleness of arranging their in-house organization as a partnership. The partnership should be founded on a jointly arrived contract. Because of the flexibility offered in the operation and structure the LLP is suitable for small enterprises as well as investments via venture capital. Therefore with this background in mind the Parliament passed the Limited Liability Partnership Act, 2008 which obtained the agreement of the President on 7th January, 2009.
Law relating to incorporation of a LLP
The procedure for incorporating a LLP is very easy. The Registrar of Companies has the authority and command over the integration. The following steps are required:
- Take a decision with regard to Partners and the Designated Partners.
- Acquire Designated Partner Identification Number along with a certificate of digital signature.
- Choose a name for your LLP and check its availability.
- Outline the LLP contract.
- Finally you will have to file the Agreement along with the different incorporation documents to get the Incorporation Certificate.
Present position of LLP law in India
The LLP Act grants for the creation and bylaw of limited liability firms and issues linked therewith and supplementary thereto. The Act expresses an LLP as a body corporate created and included under Chapter III of the Act. It presents on an LLP the position of a disconnected legal body. All the other features are also bestowed on it by the Act like perpetual succession and the capability and control of suing and being sued. It is a must that an LLP also assign as a minimum two partnership as designated partners. Out of these two partners one must be Indian individual.
If there takes place an alteration in the partners then it will have no effect on the survival, privileges or responsibilities of the LLP. The association among the partners, with any admittance to and termination from the LLP, is mainly administered by the restricted liability firm contract. But if there is no such agreement then they are governed by the rules enclosed in the First Schedule to the Act.
Termination of partnership concern can also be conveyed about by demise or by suspension of the LLP. The reasons for termination are more equivalent to the winding up of a corporation. Termination can either be voluntary or by an order of the court.
Liability of LLP and Partners
The Act at the beginning, in addition to granting the separate legal traits, says that every partner is the representative of the LLP. But every partner cannot be a representative of another partner. This is a clear shift from the present form of partnership. Here the agency relationship rule is extended further still. It in a way states the liability of the partners for the acts of other partners.
In spite of the likely disparagement, the Indian LLP Act appears to go behind the Minnesota Model. The personal liability of a partner is excluded under Section 28(1). The liability may be direct or indirect but still it is excluded for an obligation. It is not bestowed only for the mere reason of being a partner of the LLP. The Act further states that a duty of the limited liability partnership even if occurring out of agreement or else, is exclusively the responsibility of the LLP. This provides an Indian LLP, the equal position as a company inside the sense of Section 3 of the Companies Act