CruxBusiness Laws

A limited liability partnership is a partnership formed and registered under the Limited Liability Partnership Act, 2008 (s. 2(1)(n)). Registration is what creates it; an unregistered group of partners is an ordinary firm, not an LLP.

Its legal nature comes from s. 3:

• Body corporate. It is formed and incorporated under the Act and is a legal entity separate from its partners (s. 3(1)). The Act's definition of body corporate (s. 2(1)(d)) expressly includes an LLP registered under it.
• Perpetual succession. It continues to exist whoever its partners are (s. 3(2)). A change in the partners does not touch its existence, its rights or its liabilities (s. 3(3)). Death, retirement, insolvency or unsoundness of mind of a partner leaves the LLP in being; it ends only in the ways the Act provides, such as winding up followed by dissolution.
• Own name, own property, own suits. On registration it can sue and be sued, acquire, hold, develop and dispose of movable and immovable, tangible and intangible property, have a common seal if it chooses, and do whatever bodies corporate may lawfully do (s. 14; see BL17).
• Partnership Act excluded. Except where the 2008 Act says otherwise, the Indian Partnership Act, 1932 does not apply to an LLP (s. 4). Questions about partners are answered from the LLP Act, the LLP agreement and, where the agreement is silent, the Act's First Schedule.

Other definitions you will need:

1. Separate legal entity and body corporate (s. 3(1)). The LLP is liable to the full extent of its own assets; its creditors are its own creditors, not the partners'.
2. Perpetual succession (s. 3(2)–(3)). Its life does not depend on any partner.
3. Limited liability. An obligation of the LLP, in contract or otherwise, is the LLP's alone (s. 27(3)). A partner is not personally liable for it merely because he is a partner (s. 28(1)); his risk is limited to the contribution he agreed to bring. He stays liable for his own wrongful acts (s. 28(2)) and loses the shield in fraud (s. 30).
4. Partners are agents of the LLP only. Every partner is the agent of the LLP for its business, but not of the other partners (s. 26). One partner's misconduct does not make the others personally liable.
5. Formed by registration, for profit. Two or more persons carrying on a lawful business with a view to profit subscribe to an incorporation document and register it (s. 11). An LLP cannot be formed for a charitable or other non-profit object.
6. Minimum two partners, no maximum. Every LLP must have at least two partners (s. 6(1)); the Act fixes no upper limit. Partners may be individuals or bodies corporate (s. 5).
7. Business with one partner. If the partners fall to one and the LLP goes on trading like that for over six months, the sole remaining partner who knows it is carrying on business with him alone becomes personally liable for the LLP's obligations incurred after those six months (s. 6(2)).
8. Designated partners. At least two designated partners who are individuals, at least one of them resident in India (s. 7(1)). They are answerable for the LLP's compliance with the Act (s. 8).
9. Flexible internal structure. The partners' mutual rights and duties are fixed by the LLP agreement (s. 23(1)); where it is silent, the First Schedule fills the gap (s. 23(4)).
10. Common seal optional (s. 14(c)).
11. Contribution in any form. A partner's contribution may be money, tangible or intangible property, promissory notes, agreements to contribute, or services performed or to be performed (s. 32(1)).
12. Disclosure. The LLP keeps proper books, prepares a Statement of Account and Solvency every year within six months of the year's end, and files it and an annual return with the Registrar (ss. 34–35).
13. Conversion and electronic filing. A firm, a private company or an unlisted public company may convert into an LLP (ss. 55–57; BL19). Documents are filed electronically on the Ministry of Corporate Affairs portal and authenticated by a partner or designated partner with a digital signature.
14. Investigation, compromise and winding up are governed by the Act itself, with the Central Government holding powers to investigate.

An LLP is called a hybrid because it takes the corporate form from the company and the internal freedom of the traditional partnership.

Drawbacks of the traditional firm that the LLP removes:

1. Unlimited liability. In a firm a partner's personal property can be taken for the firm's debts; in an LLP his risk is limited to his agreed contribution.
2. Liability for co-partners' acts. In a firm every partner binds the firm and all the other partners; in an LLP a partner binds only the LLP (s. 26), and no partner is personally liable for another partner's wrongful act (s. 28(2)).
3. Instability. A firm may be dissolved or reconstituted when a partner dies or retires; an LLP has perpetual succession.
4. No separate existence. A firm is only a collective name for its partners; an LLP is a person in law.

Burdens of the company that the LLP avoids: a governance structure laid down by statute (a board elected by shareholders, management regulated by the Companies Act), the need to issue shares, and much of the compliance cost.

The 2021 amendment inserted s. 2(1)(ta). A small limited liability partnership is an LLP that satisfies either test A or test B:

• Test A (both limbs together):
  • its contribution does not exceed ₹25 lakh, or a higher amount prescribed by rules, which may not exceed ₹5 crore; and
  • its turnover for the previous financial year, as shown in that year's Statement of Accounts and Solvency, does not exceed ₹40 lakh, or a higher amount prescribed by rules, which may not exceed ₹50 crore.
• Test B: it meets such other requirements as may be prescribed.

In either case it must also fulfil the terms and conditions the rules prescribe.

Why the category exists. It lightens the burden on small businesses. The Act itself gives one concrete relief: where a small LLP, or its partner, designated partner or any other person in respect of it, is liable to a penalty for non-compliance, the penalty is one-half of the amount the provision lays down, subject to a cap of ₹1 lakh for the LLP and ₹50,000 for each partner, designated partner or other person (second proviso to s. 76A(3)(a), inserted in 2021). The same halving applies to a start-up LLP recognised under the Central Government's notifications.

What they share: both are bodies corporate with perpetual succession and limited liability, both are registered with the Registrar, and both can own property and sue in their own name.

The LLP agreement is the written agreement among the partners, or between the LLP and its partners, that fixes their mutual rights and duties and their rights and duties towards the LLP (s. 2(1)(o)). It is to an LLP what the partnership deed is to a firm.

• It governs relations. Subject to the Act, the partners' rights and duties among themselves, and between the LLP and the partners, are governed by the LLP agreement (s. 23(1)).
• It must be filed. The agreement and every change in it are filed with the Registrar in the prescribed form, with the fee (s. 23(2)). Rule 21(1) prescribes Form 3, within thirty days of incorporation; a later change is filed in Form 3 within thirty days of the change.
• Pre-incorporation agreement. A written agreement made before incorporation among the persons who subscribe to the incorporation document can impose obligations on the LLP only if all the partners ratify it after incorporation (s. 23(3)). Rule 21(2) requires the ratification immediately after incorporation and the filing of its contents in Form 3 within thirty days of incorporation.
• Where it is silent. On any matter the agreement does not cover, the default rules of the First Schedule apply (s. 23(4)). They are set out in BL18.
• Who becomes a partner. Beyond the subscribers to the incorporation document, any other person becomes a partner in accordance with the LLP agreement (s. 22), and a partner may become or cease to be a designated partner in accordance with it (s. 7(2)).

Who incorporates (s. 11(1)). For an LLP to be incorporated:

1. Two or more persons who have come together to run a lawful business for profit subscribe their names to an incorporation document;
2. the document is filed, in the prescribed manner and with the prescribed fee, with the Registrar of the State in which the registered office is to be; and
3. with it is filed a statement of compliance in the prescribed form, made by an advocate, company secretary, chartered accountant or cost accountant engaged in forming the LLP, and by any one of the subscribers, declaring that every requirement of the Act and the rules about incorporation and the matters before and incidental to it has been met.

Contents (s. 11(2)). The incorporation document must be in the prescribed form and state:

• the name of the LLP;
• its proposed business;
• the address of its registered office;
• the name and address of each person who is to be a partner on incorporation;
• the name and address of each person who is to be a designated partner on incorporation; and
• any other information the rules prescribe.

False statement (s. 11(3)). A person who makes the statement of compliance knowing it to be false, or not believing it to be true, is punishable with imprisonment up to two years and a fine of ₹10,000 to ₹5 lakh.

Under the LLP Rules, 2009 the incorporation document is filed in Form FiLLiP (rule 11(1)) and the statement of compliance forms Part B of that form (rule 13).

Registration (s. 12(1)). Once the incorporation document and the statement of compliance have been filed, the Registrar keeps the document and, unless the requirement of at least two subscribers carrying on a lawful business for profit has not been met, within fourteen days:

1. registers the incorporation document; and
2. gives a certificate that the LLP is incorporated by the name stated in it.

Reliance on the statement (s. 12(2)). The Registrar may accept the statement of compliance as sufficient evidence that the subscription requirement of s. 11(1)(a) has been satisfied.

The certificate (s. 12(3)–(4)). It is signed by the Registrar and authenticated by his official seal, and it is conclusive evidence that the LLP is incorporated by the name it states. Under rule 11(3) it is issued in Form 16 and carries the LLP's Permanent Account Number and Tax Deduction Account Number.

What "conclusive" means. Once the certificate is issued, nobody can challenge the LLP's existence by showing that some step before registration was irregular or missing. The certificate settles the fact of incorporation and the name. It does not:

• protect a person who made a false statement of compliance from prosecution under s. 11(3);
• protect a name from a later direction to change it under s. 17 if it is too like another's (sub-topic 8); or
• make a business lawful if it is unlawful in itself.

Every LLP form is filed electronically on the Ministry of Corporate Affairs portal and authenticated with a digital signature. The LLP Rules, 2009 turn s. 11 into these steps:

1. Digital signatures. The persons who will sign the forms obtain digital signatures.
2. Reserve the name: RUN-LLP (rule 18(4)–(6)). The applicant applies through the web service RUN-LLP (Reserve Unique Name-Limited Liability Partnership), with the fee, to the Registrar for the place of the intended registered office. The Registrar approves or rejects it after allowing one re-submission within fifteen days to cure defects. An approved name is available for three months from the Registrar's intimation.
3. File Form FiLLiP (Form for incorporation of Limited Liability Partnership; rule 11(1)). The incorporation document goes in FiLLiP to the Registrar of the State of the registered office, with the fee. The same form:
   • carries the application for a Designated Partner Identification Number for any proposed designated partner who has neither a DPIN nor a DIN, for up to five individuals;
   • may itself be used to reserve the name, or takes the name already approved through RUN-LLP; and
   • carries the consent of each person who is to be a partner or designated partner (rule 8, proviso).
4. Statement of compliance: Part B of FiLLiP (rule 13).
5. Scrutiny (rule 11(2)). If the Registrar needs more information or finds the form defective or incomplete, he asks for it to be re-submitted within fifteen days; if it is still defective, he gives one more fifteen days. The re-submissions together may not exceed thirty days.
6. Certificate of incorporation in Form 16, showing the PAN and TAN (rule 11(3)).
7. After incorporation. File the LLP agreement in Form 3 within thirty days (rule 21).

RUN-LLP, FiLLiP and certain other forms are processed by the Registrar at the Central Registration Centre on behalf of the jurisdictional Registrar (rule 3(3)).

On registration an LLP, by its own name, becomes capable of (s. 14):

1. suing and being sued;
2. acquiring, owning, holding, developing or disposing of property, movable or immovable, tangible or intangible;
3. having a common seal, if it decides to have one; and
4. doing and suffering everything else that bodies corporate may lawfully do and suffer.

Together with s. 3 this means the LLP is a separate legal person with perpetual succession; its contracts and property are its own; and the certificate of incorporation is conclusive evidence that it exists (s. 12(4)).

The registered office (s. 13(1)–(2)). Every LLP must keep a registered office: the address where all communications and notices to it are sent and received. A document may be served on the LLP, a partner or a designated partner by post under a certificate of posting, by registered post or in any other prescribed manner, at the registered office or at any other address the LLP has declared for the purpose.

Changing it (s. 13(3) and rule 17). The LLP may change the place of its registered office by filing a notice with the Registrar in the prescribed form and manner; the change takes effect only on that filing. The steps:

1. Decision (rule 17(1)). Follow the procedure in the LLP agreement; if it lays down none, get the consent of all the partners. For a move to another State, an LLP that has secured creditors must also get their consent.
2. Newspaper notice for a move to another State (rule 17(4)). At least twenty-one days before filing any notice with the Registrar, publish a general notice of the change in a daily English newspaper and in a daily newspaper in the principal language of the district of the registered office, circulating in that district.
3. Form 15 (rule 17(2)). Notice of the change goes to the Registrar in Form 15 with the fee, within thirty days of step 1 for a move within the same State, or within thirty days of step 2 for a move to another State.
4. Pending matters (rule 17(3)). If there is any conviction, ruling, order or judgment against the LLP, the notice gives particulars of prosecutions started and show cause notices received for alleged offences under the Act.
5. Change of Registrar (rule 17(5)). If the move takes the office to another Registrar's area within the State, or to another State, Form 15 is filed with the Registrar of the present office, with a copy to the Registrar of the new place.

Default (s. 13(4), as substituted in 2021). If the LLP fails to comply with s. 13, the LLP and every partner are each liable to a penalty of ₹500 for every day the default continues, up to ₹50,000 for the LLP and for each partner.

The name (s. 15). Every LLP's name must end with the words "limited liability partnership" or the acronym "LLP". No LLP may be registered by a name which, in the Central Government's opinion, is:

• undesirable; or
• identical with, or too nearly resembles, the name of any other LLP or company, or a registered trade mark of another person under the Trade Marks Act, 1999 (clause (b) as substituted in 2021).

Reservation (s. 16). A person may apply to the Registrar, in the prescribed form and manner and with the fee, to reserve a name for a proposed LLP or a name to which an existing LLP proposes to change. If the Registrar is satisfied, subject to the rules, that the name is not open to rejection under s. 15(2), he may reserve it for three months from the date of his intimation.

Procedure (rule 18(4)–(6)). The application is made through RUN-LLP to the Registrar for the place where the registered office is, or is to be. The Registrar approves or rejects it after allowing one re-submission within fifteen days to cure defects; an approved name stays available for three months from his intimation.

Rectification on a direction (s. 17, substituted in 2021). If, through inadvertence or otherwise, an LLP is registered (on first registration or under a new name) by a name identical with or too nearly resembling:

• (a) the name of another LLP or a company, or
• (b) a trade mark registered to its owner under the Trade Marks Act, 1999,

so that it is likely to be mistaken for it, the Central Government may, on the application of that other LLP or company (clause (a)) or of the trade-mark proprietor (clause (b)), direct the LLP to change its name or new name within three months of the direction. Then:

1. Time bar for trade-mark owners. A trade-mark proprietor's application lies only within three years of the LLP's incorporation, registration or change of name.
2. Notice (s. 17(2)). Within fifteen days of changing its name under the direction, the LLP gives notice to the Registrar with the Central Government's order; the Registrar amends the certificate of incorporation; and within thirty days of that amendment the LLP changes its name in the LLP agreement.
3. Default (s. 17(3)). If the LLP does not comply, the Central Government allots it a new name in the prescribed manner; the Registrar enters the new name in the register and issues a fresh certificate of incorporation, which the LLP must use from then on. The LLP may still later change that name in the ordinary way.

Section 18, which let an existing entity ask the Registrar for such a direction within twenty-four months, was omitted in 2021.

Voluntary change of name (s. 19 and rule 20). An LLP may change its registered name by filing a notice of the change with the Registrar in the prescribed form, with the fee:

1. Decision (rule 20(1)). Follow the procedure in the LLP agreement; if there is none, get the consent of all the partners.
2. Reserve the new name under s. 16 through RUN-LLP (sub-topic 7).
3. Form 5 (rule 20(2)). Give notice to the Registrar in Form 5, with the fee, within thirty days of the decision.
4. Fresh certificate (rule 20(3)). The Registrar, once satisfied that the new name is the one he reserved, issues a fresh certificate of incorporation in the new name. The change takes effect from the date of that certificate.

Improper use of "LLP" (s. 20). A person who carries on business under a name ending with "Limited Liability Partnership", "LLP" or any contraction or imitation of them, without being incorporated as an LLP, is punishable with a fine of ₹50,000 to ₹5 lakh.

Publication of name (s. 21). Every LLP's invoices, official correspondence and publications must show its name, registered office address and registration number, and a statement that it is registered with limited liability. A contravention makes the LLP liable to a penalty of ₹10,000 (as substituted in 2021).

Who may be a partner (s. 5). Any individual or body corporate may be a partner in an LLP. An individual cannot become a partner if:

1. a court of competent jurisdiction has found him to be of unsound mind, and that finding is still in force;
2. he is an undischarged insolvent; or
3. he has applied to be adjudicated an insolvent and the application is pending.

How one becomes a partner (s. 22). On incorporation, the persons who subscribed to the incorporation document are the partners. Anyone else becomes a partner in accordance with the LLP agreement. Where the agreement is silent, no one may be brought in without the consent of all existing partners (First Schedule, para 7). The LLP files a notice with the Registrar within thirty days of a person becoming a partner, with the incoming partner's signed consent (s. 25).

Number (s. 6). At least two partners; no maximum. For the personal liability of a sole remaining partner after six months, see BL16 sub-topic 2.

A designated partner is a partner designated as such under s. 7 (s. 2(1)(j)). He is the LLP's officer for compliance with the Act.

How many and who (s. 7(1)):

• Every LLP needs two or more individuals as designated partners, and at least one of them must be resident in India.
• Where all the partners are bodies corporate, or the partners are a mix of individuals and bodies corporate, at least two individuals who are either partners or nominees of the bodies corporate act as designated partners. A nominee need not himself be a partner.
• Resident in India: a person whose stay in India in the financial year totals at least 120 days (Explanation, as amended in 2021; the original test was 182 days in the immediately preceding year).

How they are designated (s. 7(2)), subject to s. 7(1):

1. If the incorporation document names the designated partners, they are designated partners on incorporation.
2. If it states that every partner from time to time is to be a designated partner, every partner is one.
3. Later, any partner may become a designated partner, and may cease to be one, in accordance with the LLP agreement.

Steps to appointment (s. 7(3)–(6) and the Rules):

1. Prior consent (s. 7(3)). No individual becomes a designated partner unless he has first given the LLP his consent to act, in the prescribed form and manner: Form 9 (rule 7). At incorporation the consent is filed in Form FiLLiP (rule 8, proviso).
2. Filing with the Registrar (s. 7(4)). The LLP files the particulars of every individual who has consented, in the prescribed form and manner, within thirty days of his appointment: Form 4, with the fee (rule 8).
3. Prescribed conditions (s. 7(5)). The individual must satisfy the conditions and requirements the Rules lay down (rule 9, below).
4. Identification number (s. 7(6)). Every designated partner obtains a Designated Partner Identification Number (DPIN) from the Central Government. The identification-number provisions of the Companies Act apply to it with the necessary changes: since 2021 these are ss. 153–159 of the Companies Act, 2013 (the original text referred to ss. 266A–266G of the 1956 Act).
5. How the DPIN is applied for (rule 10(1)). An individual who is to be appointed designated partner of an existing LLP files an online application in Form DIR-3, the form used for directors under the Companies Act rules of 2014; a Director Identification Number (DIN) is enough for appointment as a designated partner. For a new LLP, a proposed designated partner with neither DPIN nor DIN applies within Form FiLLiP, for at most five individuals (rule 11(1), proviso).

Who cannot be appointed (rule 9(1)). A person is not capable of being appointed a designated partner if he:

• (a) was adjudged insolvent at some point in the last five years;
• (b) is suspending payment to his creditors, or suspended it at some point in the last five years, without having made a composition with them within those five years;
• (c) has been convicted by a court of an offence involving moral turpitude and sentenced to imprisonment for not less than six months; or
• (d) has been convicted by a court of an offence involving s. 30 of the Act (fraud).

Relaxation (rule 9(2)). By a Gazette notification the Central Government can lift a clause (a) or (b) disqualification, for everyone generally or only for the LLP or LLPs it names.

Who can be a designated partner, in sum: an individual (never a body corporate), who is a partner or a body corporate partner's nominee, who has consented, who holds a DPIN or DIN, who is not disqualified by rule 9, and, if he is an individual partner, who is not disqualified as a partner by s. 5.

Liabilities (s. 8). Unless the Act expressly provides otherwise, a designated partner is:

• (a) responsible for doing everything the LLP must do to comply with the Act, including filing any document, return, statement or report under it, and anything else the LLP agreement specifies; and
• (b) liable to all penalties imposed on the LLP for any contravention of those provisions.

In practice the role includes signing the Statement of Account and Solvency (s. 34(2)) and the notices of change in partners (s. 25(3)), and filing the annual return.

Changes in designated partners (s. 9). Whatever the cause of a vacancy, the LLP may fill it within thirty days, and s. 7(4) (filing within thirty days) and s. 7(5) (prescribed conditions) apply to the new designated partner. Proviso: while the LLP has no designated partner appointed, or is down to a single one, each partner is deemed to be a designated partner.

Penalties (s. 10, as substituted in 2021):

For a small LLP or a recognised start-up LLP these penalties are halved (second proviso to s. 76A(3)(a)).

Resignation of a designated partner. Resigning the office of designated partner is not the same as leaving the LLP. Treat the two separately:

1. The office. The vacancy is filled under s. 9 within thirty days, with Form 4 filed within thirty days of the new appointment; if only one designated partner remains meanwhile, every partner is deemed a designated partner.
2. The partnership. He remains a partner unless he also ceases to be one under s. 24 (sub-topic 6). Only then do the s. 24(3) and s. 25 notice rules apply.

The partners' mutual rights and duties, and those between the LLP and its partners, are governed by the LLP agreement (s. 23(1)). Where it says nothing on a matter, the First Schedule applies (s. 23(4)). Its default rules:

How a partner ceases (s. 24(1)–(2)):

1. By agreement with the other partners; or, if there is no agreement on cessation,
2. By notice: at least thirty days' written notice to the other partners of his intention to resign;
3. By operation of law: on his death or the dissolution of the LLP; if a competent court declares him of unsound mind; or if he has applied to be adjudged insolvent or is declared insolvent.

Consequences (s. 24(3)–(6)):

• Holding out to outsiders. A former partner is still treated as a partner by anyone dealing with the LLP, unless that person has notice that he has ceased to be one, or notice of the cessation has been delivered to the Registrar.
• Old obligations remain. Ceasing to be a partner does not by itself discharge him from obligations to the LLP, the other partners or anyone else that he incurred while a partner.
• His entitlement. Unless the LLP agreement provides otherwise, the former partner, or the person entitled to his share on his death or insolvency, receives from the LLP (a) the capital contribution he actually made, and (b) his share in the accumulated profits, after deducting the accumulated losses, both as at the date he ceased to be a partner.
• No say in management. Neither he nor his successor may interfere in managing the LLP.

Registration of changes (s. 25):

• A partner informs the LLP of any change in his name or address within fifteen days (s. 25(1)).
• The LLP files a notice with the Registrar within thirty days of a person becoming or ceasing to be a partner, or of a change in a partner's name or address (s. 25(2)). The notice is in the prescribed form with the fee, signed and authenticated by a designated partner, and, for an incoming partner, carries his signed consent (s. 25(3)).
• Penalties (as substituted in 2021): ₹10,000 on the LLP and on every designated partner for a default under s. 25(2); ₹10,000 on a partner who fails under s. 25(1).
• Self-filing by a leaving partner (s. 25(6)). If he has reasonable cause to believe the LLP will not file the notice, he may file it himself. The Registrar then asks the LLP to confirm, unless it has filed too; if it gives no confirmation within fifteen days, the Registrar registers his notice.

Partner as agent (s. 26). Every partner is, for the purpose of the LLP's business, the agent of the LLP, but not of the other partners. His acts in the course of the business bind the LLP; they do not bind his fellow partners personally. This is the reverse of a firm, where each partner binds the firm and all the others.

When the LLP is not bound (s. 27(1)). The LLP is not bound by a partner's act in dealing with a person if both of these are true:

• (a) the partner actually lacks the LLP's authority for that particular act; and
• (b) the other person knows of that lack of authority, or does not know or believe that he is a partner at all.

When the LLP is liable (s. 27(2)–(4)):

• If a partner is liable to someone for a wrongful act or omission in the course of the LLP's business or with its authority, the LLP is liable as well.
• Any obligation of the LLP, whether in contract or otherwise, is solely the LLP's.
• The LLP's liabilities are met out of the LLP's property.

Extent of a partner's liability (s. 28):

• Being a partner does not, by itself, make a person personally liable, directly or indirectly, for the LLP's obligations (s. 28(1)).
• This does not affect his personal liability for his own wrongful act or omission; but he is not personally liable for another partner's wrongful act or omission (s. 28(2)).

Holding out (s. 29). Someone who presents himself as a partner of an LLP, in speech, in writing or by conduct, or knowingly allows others to present him so, is liable to anyone who gave credit to the LLP on the faith of that representation, whether or not he knew the representation reached that person. If the LLP received credit as a result, it is also liable, to the extent of the credit received or any financial benefit derived from it. Where the business continues after a partner's death under the same name, the use of that name, or of the dead partner's name as part of it, does not by itself make his legal representative or estate liable for the LLP's later acts.

Contribution (ss. 32–33). The amount a partner risks is the contribution he agreed to make. It may be money, tangible or intangible property, promissory notes, other agreements to contribute cash or property, or services performed or to be performed (s. 32(1)); its money value is shown in the LLP's accounts. The obligation to contribute is fixed by the LLP agreement (s. 33(1)). A creditor who gave credit relying on that obligation, without notice of any compromise among the partners, may enforce the original obligation against the partner (s. 33(2)).

Where the shield fails:

Unlimited liability (s. 30(1)). If the LLP or any of its partners carries out an act meant to cheat the LLP's creditors or anyone else, or for any fraudulent purpose, then the LLP and those partners who acted with that intent or purpose bear unlimited liability for all or any of the LLP's debts and other liabilities. Proviso: where a partner carried out the act, the LLP is liable to the same extent as the partner, unless it proves that the act was done without its knowledge or authority.

Punishment (s. 30(2)). Where business is carried on with such intent or for such purpose, every person who was knowingly a party to it is punishable with imprisonment up to five years (raised from two years in 2021) and a fine of ₹50,000 to ₹5 lakh.

Compensation (s. 30(3)). Where the LLP, or any partner, designated partner or employee, has conducted the LLP's affairs fraudulently, the LLP and that person must pay compensation to anyone who suffered loss or damage because of it, without prejudice to any criminal proceedings. Proviso: the LLP is not liable if the partner, designated partner or employee acted fraudulently without the LLP's knowledge.

A person convicted of an offence involving s. 30 is also disqualified from being appointed a designated partner (rule 9(1)(d)).

Whistle-blowing is the disclosure by a partner or employee of an LLP of information about wrongdoing in it. Section 31 encourages it in two ways:

1. Reward: reduction or waiver of penalty (s. 31(1)). A penalty that could be levied on a partner or employee of an LLP may be reduced or waived by the Court or Tribunal, if it is satisfied that:
   • (a) he gave useful information during an investigation of the LLP; or
   • (b) information he gave, whether or not during an investigation, leads to the LLP, or any of its partners or employees, being convicted under the LLP Act or any other Act.
2. Protection: no victimisation (s. 31(2)). No partner or employee may be discharged, demoted, suspended, threatened, harassed or discriminated against in any other way in the terms of his partnership or employment merely because he gave, or caused to be given, such information.

"Convert" means the transfer of the property, assets, interests, rights, privileges, liabilities, obligations and undertaking of the firm or company to the LLP in accordance with the Schedule (para 1(b) of each Schedule). A firm here is a firm as defined in s. 4 of the Indian Partnership Act, 1932, registered or not.

Registration and effect (s. 58). When the Registrar is satisfied that the Schedule has been complied with, he registers the documents and issues a certificate of registration stating that the LLP is registered under the Act from the date the certificate specifies (s. 58(1)). The partners of the firm, or the company and its shareholders, and the LLP are bound by the Schedule (s. 58(2)), and the effects of conversion are those the Schedule sets out (s. 58(3)). From the date of registration, notwithstanding any other law (s. 58(4)):

1. there is an LLP by the name given in the certificate;
2. all the property, tangible and intangible, assets, interests, rights, privileges, liabilities and obligations, and the whole undertaking of the firm or company vest in the LLP without any further assurance, act or deed; and
3. the firm or company is deemed dissolved, and its name comes off the records of the Registrar of Firms or of Companies.

Within fifteen days of registration the LLP informs the Registrar of Firms or Registrar of Companies with whom the old entity was registered of the conversion and of the LLP's particulars (s. 58(1), proviso).

1. Eligibility (Second Schedule, para 3). A firm may apply only if the partners of the proposed LLP are all the partners of the firm and no one else.
2. Statements to be filed (para 4). The firm files with the Registrar:
   • (a) a statement by all its partners, in the prescribed form and with the fee, giving the firm's name and registration number, if any, and the date of its registration under the 1932 Act or any other law, if applicable; and
   • (b) the incorporation document and the statement of compliance under s. 11 (BL17).
3. Registration (para 5). On receiving these, the Registrar, subject to the Act, registers the documents and issues a certificate of registration stating that the LLP is registered from the date it specifies.
4. Notice to the Registrar of Firms (para 5, proviso). Within fifteen days of registration the LLP informs the Registrar of Firms with whom the firm was registered under the 1932 Act of the conversion and of the LLP's particulars. This applies only to a firm that was registered.
5. Refusal (para 6). The Registrar need not register the LLP if the particulars or information given do not satisfy him; an appeal lies to the Tribunal against a refusal (until the Tribunal was constituted, to the Company Law Board). He may also require the documents to be verified as he thinks fit.

Other steps flow from the Act and the Rules: the name must be available and reserved (s. 16), each designated partner needs a DPIN or DIN, and the LLP agreement is filed in Form 3 within thirty days of registration (rule 21). The specific conversion form and any rule on creditors' consent are in rules not reproduced here.

From the date of registration in the certificate (Second Schedule, paras 7–17):

1. New LLP (para 7(a)): an LLP exists by the name in the certificate.
2. Vesting (para 7(b)): all the firm's property, tangible and intangible, all its assets, interests, rights, privileges, liabilities and obligations, and its whole undertaking pass to and vest in the LLP without any further assurance, act or deed.
3. Dissolution (para 7(c)): the firm is deemed dissolved and, if it was registered under the 1932 Act, removed from the records kept under that Act.
4. Registered property (para 8): where any property so vested is registered with an authority, the LLP must, as soon as practicable, take the steps that authority requires to notify it of the conversion and the LLP's particulars.
5. Pending proceedings (para 9): proceedings by or against the firm pending in any court, tribunal or authority may be continued, completed and enforced by or against the LLP.
6. Convictions, rulings, orders, judgments (para 10) for or against the firm can be enforced by or against the LLP.
7. Existing agreements (para 11): every agreement the firm was a party to, even one whose rights and liabilities could not otherwise be assigned, takes effect as if the LLP were the party in place of the firm.
8. Existing contracts and instruments (para 12): deeds, contracts, schemes, bonds, applications, instruments and arrangements relating to the firm continue in force and are enforceable by or against the LLP as if it were named in them.
9. Employment (para 13): contracts of employment continue with the LLP as the employer.
10. Appointments and powers (para 14): any appointment of the firm in any role, and any authority or power conferred on it, operates as if made to or conferred on the LLP.
11. Approvals, permits and licences (para 15): paras 7 to 14 also cover any approval, permit or licence the firm holds under another Act, subject to that Act.
12. Partners stay liable for old debts (para 16): notwithstanding paras 7–14, every partner of the converted firm remains personally liable, jointly and severally with the LLP, for the firm's liabilities and obligations incurred before conversion or arising from a contract made before it. A partner who pays such a liability is entitled to be fully indemnified by the LLP, subject to any contrary agreement with the LLP.
13. Notice in correspondence (para 17): for twelve months, starting not later than fourteen days after registration, every official correspondence of the LLP must state that it was converted from a firm into an LLP from the date of registration, and give the name and registration number, if any, of the firm. Default: a fine of ₹10,000 to ₹1 lakh, plus ₹50 to ₹500 for every day after the first that it continues.

Private company (s. 56, Third Schedule). A company here is a private company as the Companies Act defines it.

1. Eligibility (para 2(2)). It may apply only if (a) no security interest in its assets is subsisting or in force at the time of the application, and (b) the LLP's partners comprise all its shareholders and no one else. On conversion, the company, its shareholders, the LLP and its partners are bound by the Schedule (para 2(3)).
2. Statements (para 3). It files with the Registrar (a) a statement by all its shareholders, in the prescribed form with the fee, giving the company's name, registration number and date of incorporation; and (b) the incorporation document and the statement of compliance under s. 11.
3. Registration (para 4). The Registrar, subject to the Act and the rules, registers the documents and issues a certificate of registration stating that the LLP is registered from the date it specifies. Within fifteen days the LLP informs the Registrar of Companies with whom the company was registered of the conversion and of its particulars.
4. Refusal (para 5). The Registrar may refuse if not satisfied with the particulars, subject to appeal to the Tribunal, and may require the documents to be verified.
5. Effect (paras 6–14). From the date of registration an LLP exists by the name in the certificate; all the company's property, assets, rights, liabilities, obligations and whole undertaking pass to the LLP with no separate deed or transfer; and the company is deemed dissolved and removed from the records of the Registrar of Companies. Registered property, pending proceedings, orders and judgments, existing agreements and contracts, employment, appointments and powers, and approvals, permits and licences carry over to the LLP on the same lines as for a firm.
6. Notice in correspondence (para 15). For twelve months, starting not later than fourteen days after registration, the LLP's official correspondence states that it was converted from a company into an LLP from the date of registration and gives the company's name and registration number. Default: a fine of ₹10,000 to ₹1 lakh, plus ₹50 to ₹500 a day while it continues.

Unlisted public company (s. 57, Fourth Schedule). An unlisted public company is a public company that is not a listed company. The Fourth Schedule follows the same pattern as the Third: the same two eligibility conditions (no subsisting security interest; all shareholders and no one else as partners), a statement by all shareholders with the incorporation document and statement of compliance, registration with a fifteen-day notice to the Registrar of Companies, refusal subject to appeal to the Tribunal, and the same effects of registration.