Limited Liability Partnership Act, 2008
What the exam tests
The Limited Liability Partnership Act, 2008 tests incorporation, the LLP agreement, partners and designated partners, contribution, liability, authority, accounts and winding up.
Core rules
- An LLP is a body corporate with perpetual succession and a separate legal entity (s 3). It has unlimited capacity, can own property, sue and be sued. Partners' liability is limited to their agreed contribution, except for their own fraud or wrongful acts (ss 26-28).
- Minimum two partners; no maximum. At least two designated partners, and at least one must be a resident of India (s 7). The incorporation document and statement are filed with the Registrar; the certificate of incorporation is conclusive (ss 11-12).
- Mutual rights and duties are governed by the LLP agreement (s 23); in its absence, the First Schedule applies. Contribution may be tangible, intangible, money or services (s 32).
- Every partner is an agent of the LLP for business in the ordinary course (s 24). A partner's authority can be restricted, but the restriction binds third parties only if they know of it. A partner ceases on death, insanity, insolvency, resignation or as agreed (s 24).
- Accounts must be kept; annual return and statement of accounts are filed (ss 34-35). Audit is required if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh. Winding up may be voluntary or by the Tribunal (ss 63-65).
Worked example
An LLP has two partners, but only one is resident in India and neither is designated. The incorporation is defective because at least two designated partners are required and one must be resident. If a partner signs a supply contract for office equipment, the LLP is bound because the act is in the ordinary course.
Traps
- Saying partners are personally liable for all LLP debts.
- Confusing a partner with a designated partner.
- Ignoring the resident-designated-partner requirement.
- Treating the First Schedule as mandatory even when an agreement exists.