HIDAY HIDAYATULLAH NATIONAL LAW UNIVERSITY UNIVERSI TY
CORPORATE PROJECT ON
“Limited Liability Partner!i" in India# C$m"ari$n %it! &'ine(
SU&)ITTED TO )r* )r* S!yamtan' S! yamtan' Pal
AJAY AJAY LA+RA LA+ RA SEC-B Roll - 9
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ACKNOWLEDGMENTS
At the outset, I would like to express my heartfelt gratitude and thank my teacher, Mr. Shyamtanu Pal for putting his trust in me and giving me a project topic such as this and for having the faith in me to deliver. Sir, thank you for an opportunity to help me grow. My gratitude also goes out to the staff and administration of !"# for the infrastructure in the form of our li$rary, I% "a$ and my friends that was a source of great help for the completion of this project.
AJAY LAKRA
,
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TABLE OF CONTENTS
1. #. ". ).
Introdut!on.................................................................................................................." O$%&t!'&(......................................................................................................................) R&(&*r+ M&t+odolo,.................................................................................................) C+*t&r!(*t!on I. /!(tor!*l $*0,round.........................................................................................1 II. Or!,!n *nd d&'&lo2&nt......................................................................................11 III. T+& L!2!t&d L!*$!l!t 3*rtn&r(+! At4 #5....................................................1# I6. S!l&nt 7&*tur& o7 LL3 B!ll4 #5...........................................................................1) 6. Bu(!n&((.................................................................................................................18 6I.
Co2!l*t!on o7 D!77&r&n&( $&t&&n 3*rtn&r(+! F!r24 :LL3;4 3r!'*t& L!2!t&d Co2*n *nd On& 3&r(on Co2*n...................................................1<
8. Conlu(!on...................................................................................................................15 <. B!$lo,r*+................................................................................................................ -.
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INTROD=CTION
&usiness is a legally recognised organisation designed to provide goods and services to consumers. &usiness is an economic activity that is carried '$y the people, and for the people(. It involves activities such as manufacturing, trading, etc. Profit is a primary mechanism for monitoring such activities. &usiness is, thus a group of persons organised to produce goods and services and sell them at a gain. Success and failure depends upon the environment where operates.
&usiness is classified in to two are corporate form of $usiness organisation and non ) corporate form of $usiness organisation. %he popular forms of non corporate $usiness organi*ation are sole proprietorship, .#.+ indu #ndivided family-, Partnership. Partnership is a form of $usiness where two or more person operates for the common goal of making profit. ach Partner has personal lia$ility for personal de$ts incurred $y the $usiness. #nder section / of the Partnership Act 0123 defines Partnership as a 45elationship $etween persons who have agreed to share profit of $usiness carried on $y all or any of them acting for all6. Persons who enter in to Partnership are individually called as Partners and collectively called Partnership firm. %he name under which they carry a $usiness is called +irm !ame. In India the law relating to Partnership was originally contain in 7hapter 8I, Section 321 to 399 of Indian 7ontract Act. &ut, the said 7hapter was repealed with effect from the 0st :cto$er, 0123, and the Partnership Act, Act I8 of 0123, has $een $rought into force.0Partnership are classified into two general partnerships and limited partnerships. "imited lia$ility partnership is the part of general partnership.
""P"imited "ia$ility Partnership-It is similar to general Partnership. xcept general Partners have limited lia$ility. “An LLP is a form of separate legal business entity that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. They are intended for businesses which carry on trade or profession, and particularly attractive to larger professional partnerships” 3
1
%.S ;enhatesa Iyer(s, "aw of Partnership, ;III d. S.
??www.$reckmanandcompany.co.uk?content?forums@partnerships?limited@[email protected]
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RE6IEW OF LITERAT=RE L* R&l*t!n, to L!2!t&d L!*$!l!t 3*rtn&r(+! !n Ind!* : 30-, pg. 23 discussed the historical $ackground of the limited lia$ility Partnership..
Indian Partnership Act with "imited "ia$ility Partnership30-. pg.3BC300, discussed the o$jective and nature of "imited lia$ility Partnership.
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OBJECTI6ES
I. II.
%o Study the concept of "imited "ia$ility partnership in India %o make a comparison $etween "imited "ia$ility partnership and other $usiness forms.
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/Y3OT/ESIS
%he limited lia$ility partnership '""P(- is viewed as an 'alternate corporate vehicle( which seeks to attain the principal $enefits of $oth forms of $usiness organi*ationC partnerships and companies. %his is achieved $y granting, to the mem$ers of the ""P, the flexi$ility of organi*ing their internal managerial structure as a partnership $ased on mutual agreement, while limiting the lia$ility of the partners to the extent of their interest in the partnership, which is akin to the separate legal personality of a company.
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RESEARC/ >=ESTIONS
I. II.
W+*t !( L!2!t&d L!*$!l!t 3*rtn&r(+!? /o !t !( d!77&r&nt 7ro2 *n ot+&r 7or2 o7 Bu(!n&(( or,*n!@*t!on?
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RESEARC/ MET/ODOLOGY
%he method of research adopted for the project is analytical methodology. +or the present project relevant data and information has $een received and collected from secondary sources and there has $een use of authentic $ooks and we$sites which provided relia$le information and data.
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/ISTORICAL BACKGRO=ND An 4""P6 was first conceptuali*ed to address the dismal saga of professionals like lawyers and chartered accountants who surprisingly $ecame the centre of a whooping num$er of court proceedings once the financial institutions they had advised failed and went $ust during the real estate and energy prices crumple in the 01Bs. 2 %he legislative history of ""Ps dates $ack to 0110 when the %exas ouse &ill !o. 3DB was enacted. :ther states in the #S soon followed, as also did several other countries. +ollowing the success of ""Ps in the #S and some other countries, the #nited Eingdom and Singapore enacted their ""P laws in 3 and 3F respectively. %he Indian ""P Act, 3B is su$stantially and su$stantively $ased on the ""P laws in the #E and Singapore In India, on the recommendations of the G. G. Irani and the !aresh 7handra 7ommittees, the Ministry of 7orporate Affairs floated a 7oncept Paper on ""P, the response to which formed the $ack$one of the first draft ""P &ill, 39. Su$seHuently, $ased on the 5eport of a Parliamentary Standing 7ommittee on +inance, a revised version of the ""P &ill, called the ""P &ill, 3B, was introduced in the Parliament. aving $een passed $y $oth the ouses of Parliament, the &ill received the Presidential Assent on Dth Ganuary, 31 to $ecome the ""P Act, 3B 4the Act6-. Section 03- of the Act empowered the 7entral
/
Similarly, the 7entral
See, amilton, 45egistered "imited "ia$ility Partnership> Present at the &irth http://www.llp.gov.in, 5 %he ""P 5ules may $e accessed at http>??www.llp.gov.in?tolink?""P5ulesasnotified.doc. 4
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ORIGIN AND DE6ELO3MENT
0. 198 %he Dth "aw 7ommission on Partnership Act, 0123 rejected the suggestion to introduce ""P legislation made $y the !ron4 (t&&l *nd +*rd*r& 2&r+*nt( +*2$&r4 $ecause they did not want to fail the purpose of recent 7ompanies Act
amendment. 3. 199- %he A$!d/u((*!n Co22!tt&& on Small Scale Industries recommended legislation on ""P in India. 2. #"- %he N*r&(+ C+*ndr* Co22!tt&& set up on regulation of private companies and Partnerships suggested application of "imited "ia$ility Partnerships to service industry. /. #8- %he recommendation for introducing a ""P law was again made $y the JJ Ir*n! E&rt Co22!tt&& on Co2*n L* :#8;. It suggested to have a separate
""P Act and to include the small enterprises with the scope of ""Ps. %hey were of the view that in this way flexi$ility could $e provided to the small enterprises to enter into the joint venture agreements and to access technology. F. #"rd Jul #8- %he #ndN*r&(+ C+*ndr* Co22!tt&& su$mitted its report and made the following o$servations> JIn increasing litigious market environment, prospect of $eing a mem$er of a partnership firm with unlimited lia$ility is, to say the least, risky and unattractive. Indeed the chief reason why the firms of professionals, such as accountants, have not grown in si*e to successfully meet the challenge of the international competition. %his makes an ".".P a most attractive vehicle for partnership among professionals such as lawyers and accountants.J9 9. #<- :n Kecem$er Dth, ""P $ill was approved $y #nion 7a$inet. :n Kecem$er 0Fth, ""P $ill was introduced in 5ajya Sa$ha. D. #- %he ""P $ill of 39 was referred to Parliamentary Standing 7ommittee PS7-. :n !ovem$er 3Dth, PS7 su$mitted its report to the Parliament with recommends for some changes to the 39 ""P $ill. B. #5- :n May 0st, the introduction of new $ill 3B ""P $ill- was approved $y the #nion 7a$inet replacing the 39 ""P $ill. :n :cto$er 30st, the ""P $ill was introduced in the Parliament. :n :cto$er 3/th, the ""P $ill was passed $y the 5ajya Sa$ha. :n Kecem$er 02th, ""P $ill was passed $y "ok Sa$ha.
6
http>??www.icai.org?resource@file?00D[email protected]
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1. #9- :n Ganuary Dth, President gave his assent to the ""P $ill 3B. :n Ganuary 1th, ""P Act 3B was pu$lished in the :fficial
T/E LIMITED LIABILITY 3ARTNERS/I3 ACT4 #5
%he 7entral
7
http>??www.llp.gov.in?tolink?pressreleaseon""Ptaxation.pdf
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Since different dates may $e appointed for coming into force of different provisions of the Act, some sections of the Act were made applica$le on 20.2.31 itself, and the provisions on conversion of firms?companies to ""P were made applica$le w.e.f 20.F.31. xcept Sections 3 0- c- and u-, F0, FFCFB, 92C9F, D3 and D2 the Act came into force on 20st March 31. Sections FF ) FB, Second, %hird and +ourth Schedule came into force on 20st May 31. In order to $ring out the Procedural aspects of the "imited "ia$ility Partnership Act, 3B, and in exercise of the powers conferred $y su$Csections 0- and 3- of section D1 of the "imited "ia$ility Partnership Act, 3B the 7entral
S*l!&nt F&*tur&( o7 LL3 B!ll4 #5 13 | P a g e
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%he ""P shall $e a $ody corporate and a legal entity separate from its partners. . Any two or more persons, associated for carrying on a lawful $usiness with a view to profit, may $y su$scri$ing their names to an incorporation document and filing the same with the 5egistrar, form a "imited "ia$ility Partnership. very registered ""P shall $e assigned a ""P identification num$er ""PI!- in one consecutive series. %he ""P will have perpetual succession.. %he mutual rights and duties of partners of an ""P inter se and those of the ""P and its partners shall $e governed $y an agreement $etween partners or $etween the ""P and the partners su$ject to the provisions of the ""P Act 3B. %he Act provides flexi$ility to devise the agreement as per their choice. owever in the a$sence of any such agreement, the mutual rights and duties shall $e governed $y the provisions of the +irst Schedule to the ""P Act 3B. %he ""P will $e a separate legal entity, lia$le to the full extent of its assets, with the lia$ility of the partners $eing limited to their agreed contri$ution in the ""P which may $e of tangi$le or intangi$le nature or $oth tangi$le and intangi$le in nature. !o partner would $e lia$le on account of the independent or unCauthori*ed actions of other partners or their misconduct.. %he lia$ilities of the ""P and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall $e unlimited for all or any of the de$ts or other lia$ilities of the ""PL very ""P shall have at least two partners and shall also have at least two individuals as Kesignated Partners, of whom at least one shall $e resident in India. %he duties and o$ligations of Kesignated Partners shall $e as provided in the lawL. !o 5estriction as to the maximum num$er of partners in a ""P.. %he ""P shall $e under an o$ligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall $e filed $y every ""P with the 5egistrar every year. %he accounts of ""Ps shall also $e audited, su$ject to any class of ""Ps $eing exempted from this reHuirement $y the 7entral
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o$ligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall $e transferred to and shall vest in the ""P without further assurance, act or deed and the firm or the company, shall $e deemed to $e dissolved and removed from the records of the 5egistrar of +irms or 5egistrar of 7ompanies, as the case may $eL %he winding up of the ""P may $e either voluntary or $y the %ri$unal to $e esta$lished under the 7ompanies Act, 01F9. %ill the %ri$unal is esta$lished, the power in this regard has $een given to the igh 7ourtL %he ""P Act 3B confers powers on the 7entral
Bu(!n&(( A $u(!n&((, also known as an &nt&rr!(& or a 7!r2, is an organi*ation involved in the trade of goods, services or $oth to consumers &usinesses are prevalent in capitalist economies where most of them are privately owned and provide goods and services to customers in exchange for other goods, services, or money. &usinesses may also $e notCforCprofit or stateCowned. A $usiness owned $y multiple individuals may $e referred to as a company. %he etymology of J$usinessJ stems from the idea of $eing $usy, and implies socially valua$le and rewarding work. &usiness can refer to a particular organi*ation or, more generally, to an entire market sector, e.g. Jthe music $usinessJ. 7ompound forms such as agri$usiness represent su$sets of the words $roader meaning, which encompasses all activity $y suppliers of goods and services.
orms of !usiness "rgani#ations in $ndia 0- Sole Proprietorship
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3- Partnership 2- 7ompanies a- Private limited companies $- Pu$lic limited companies /- indu #ndivided +amily #+F- Private %rusts 9- 7oCoperative societies D- :ne Person 7ompany
Co2!l*t!on o7 D!77&r&n&( $&t&&n 3*rtn&r(+! F!r24 L!2!t&d L!*$!l!t 3*rtn&r(+! :LL3;4 3r!'*t& L!2!t&d Co2*n *nd On& 3&r(on Co2*n O3C
S.
.
No. 3*rt!ul*r(
..
L!2!t&d
3*rtn&r(+!
L!*$!l!t
F!r2
3*rtn&r(+!
. 3r!'*t&
On& 3&r(on
L!2!t&d
Co2*n
Co2*n
It is governed
0.
Statute
It is governed
$y 4%he
It is governed
$y 4%he Indian
"imited
$y '%he
Partnership
"ia$ility
7ompanies Act,
Act, 0123.J
Partnership
3o02J.
It is governed $y 4%he 7ompanies Act, 3026
Act, 3BJ. %his is regulated $y the 3.
5egulated $y
5egistrar of +irms of the State
2.
7reation
7reated $y
%his is regulated $y the 5egistrar o7 7ompanies of the 7entral
%his is regulated
%his is regulated
$y the 5egistrar
$y the 5egistrar
of 7ompanies of of 7ompanies of the 7entral
the 7entral
7reated $y "aw
7reated $y "aw
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7ontract
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"aw
%he /.
5egistration
registration is
%he registration
%he registration
%he registration
formialities
!ot
is Mandatory.
is Mandatory.
is Mandatory.
"imited
Memorandum
Memorandum of
Partnership
lia$ility
of Association
Association and
Keed is the
partnership
and Articles of
Articles of
main
agreement is
Association are
Association are
incorporation
the main
the main
the main
document.
incorporation
incorporation
incorporation
document.
documents.
documents.
It is a separate
It is a separate
legal entity,
legal entity,
separate from its
separate from its
mem$er,
mem$er,
directors.
directors.
It has perpetual
It has perpetual
It has perpetual
succession.
succession.
succession.
change of
change of
registered
registered office
office from one
from one state
state to another
to another state
state is allowed
is allowed with
with some
lot of
formiialities.
formalities.
Mandatory.
F.
Incorporation documents
It is not a separate legal
9.
Separate "egal ntity
entity from partners. Partners are collectively referred as firm
D.
Perpetual Succession
It does not have perpetual succession. change of
change in B.
registered office
registered office from one state to another state is easily allowed.
1.
It is a separate legal entity, separate from its partnersN designated partners.
change of registered office from one state to another state is allowed with lot of formalities.
!um$er of
Minimum two
Minimum two
Shareholders>
shareholders>
Partners ?
partners and
partners and
Minimum %wo
only one
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maximum Shareholders
twenty partners are included.
maximum limit is not specified.
SECURITIES
and maximum %wo undred
Shareholder.
mem$ers.
CONCL=SION
%his paper has endeavored to provide a thorough analysis of a new concept called the limited lia$ility partnership. +irst and foremost, it has traced the evolutionary history of the ""P, from its creation and its spread to other jurisdictions. As it gained worldwide acceptance, the concept of ""Ps widened and envisaged several new advantages for partners within its am$it. Kuring the drafting of the Indian legislation for ""Ps, the main source of inspiration was the nglish and Singaporean concept of ""P. %heir concept of ""P is distinctly separate from the %exan model. Prior to the passing of the ""P Act, there were several de$ates $y various committeesL a concept paper was also floated $y the
%he Indian ""P, a creation of the ""P Act, has successfully attained a middle path $etween a partnership and a company. %he ""P Act has provisions starting from the incorporation of, or conversion to, an ""P, up to the winding up of the ""P. Ketailed emphasis has $een given to the role of partners. %heir rights and lia$ilities have $een elucidated. Su$seHuent to the passing of the +inance Act, 30, the taxation of an ""P has $een clarified to $e similar to the taxation of a partnership.
BIBLIOGRA3/Y
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JO=RNALS BOOKS •
"aw 5elating to "imited "ia$ility Partnership in India #1;
ARTICLES REFERED
•
Robert W. Hillman, The Bargain in the Firm: Partnership Law, Corporate Law, an Private !rering within Closel"#Hel Business $sso%iations. &llinois Law Review, Forth%oming.
•
'tuart R. Cross, Limite Liabilit" Partnerships $%t , ())) : Problems $hea, *.B.L., ())+, $- , (#(+
•
Raghav
'harma,
Limite
Liabilit"
Partnerships
in
&nia.
$vailable
at
http://ssrn.%om/abstra%t01(2134 •
*.*. Henning, Partnership Law Review: The *oint Consultation Papers an the Limite Liabilit" Partnership $%t in Brie5 Histori%al an Comparative Perspe%tive, Comp. Law. ())4, (367, 1+#18),p. 1
•
9rutesh
Patel,
Limite
Liabilit"
Partnership.
$vailable
at
http://www.%a%lubinia.%om/arti%les/limite#liabilit"#partnership#413.asp •
'aleem 'heih, Limite Liabilit" Partnerships: $ ;ew Traing
WEBSITES •
http://business.gov.in/starting=business/limite=liabilit"
•
http://www.m%a.gov.in/LLP/
•
patan>aliasso%iates.%om/uploae=5iles/news/1(3)+32).p5
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