Every LLP must have at least two individuals as the designated partners. At least one of the designated partners must be resident in India (i.e., person who has stayed in India for not less than 182 days in the immediately preceding one year). A body corporate may appoint an individual to act as a designated partner. The incorporation document may specify who will be the designated partners. Any partner may become a designated partner or cease to be a designated partner in accordance with the LLP Agreement. An individual has to give prior consent to become a designated partner. The consent has to be filed with the Registrar. Every designated partner must obtain Designated Partner Identification Number (DPIN). For obtaining DPIN the individual has to apply in Form 7. An LLP may appoint a designated partner within 30 days of vacancy arising for any reason. If there is no designated partner, or if at any time there is only one designated partner, each partner is deemed to be a designated partner.

Designated partners are responsible for doing all acts, matters and things that are required to be done for complying with the provisions of the LLP Act. They are liable to all penalties imposed on the LLP.

A person may apply in Form 1 for reservation of name for the proposed LLP. The name cannot be one prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950. Rule 18 of LLP Rules also provides cases in which name will not be reserved.

Two or more persons coming together for carrying on a lawful business with a view to earn profit have to subscribe their names to the ‘Incorporation Document’ (Form 2). This is filed with the Registrar along with a Statement in Part B of the Form 2. The Registrar has to register the Incorporation Document and issue certificate indicating incorporation of the LLP. Each LLP is assigned LLP Identification Number (LLPIN).

LLP has to provide address for service of documents. In addition to the registered office address, it may declare any other address as its address for service of documents.

Persons who subscribe their names to the ‘Incorporation Document’ are the first partners of the LLP. Any other person may become partner in accordance with the LLP Agreement.

Mutual rights and duties of partners and mutual rights and duties of LLP and its partners are governed by the LLP Agreement between the partners, or between the LLP and its partners. Information relating with regard to the LLP Agreement and any changes therein is required to be filed with the Registrar in Form 3. In case the LLP Agreement is silent on any matter, provisions in the first Schedule relating to that matter will apply.

A person may cease to be a partner of the LLP in accordance with the agreement with the other partners or by giving a notice in writing of not less than 30 days. A person also ceases to be a partner on his death, dissolution of LLP, if he is declared to be of unsound mind or applies to be adjudged as an insolvent or is declared as an insolvent.

Right of a partner to share profits and losses is transferable. However, the transferee does not, on account of transfer, get right to participate in the management of the LLP or right to access information. The transfer by itself does not result in dissociation of the partner from the LLP or dissolution of the LLP.

Every partner of an LLP for the purpose of its business is an agent of the LLP but is not an agent of other partners.

Obligations of LLP are solely its obligations and liabilities of LLP are to be met out of properties of LLP.

LLP is not bound by anything done by a partner in dealing with another person if the partner had no authority to do the act on behalf of the LLP and the person either knows that the partner had no authority; or did not know or did not believe him to be a partner of the LLP.

LLP is liable for wrongful act or omission of a partner done in the course of business or with the authority of the LLP.

A partner is not personally liable for obligations of the LLP. However, he is liable for his own wrongful act or omission.

A person who represents (holds out) himself to be a partner or knowingly permits himself to be represented as a partner is liable to any person who, based on such representation, has given credit to the LLP. The LLP receiving the credit is liable to the extent of the credit received or any financial benefit derived thereon.

If an LLP or any of its partners act with the intent to defraud creditors of the LLP or any other person or for any fraudulent purpose, then the liability of the LLP and the concerned partners is unlimited. However, where the fraudulent act is carried out by a partner, the LLP is not liable if it is established by the LLP that the act was without the knowledge or authority of the LLP.

Where the business is carried out with fraudulent intent or for fraudulent purpose, every person who was knowingly a party is punishable with imprisonment and fine. Also the LLP, its partners and designated partners or employees conducting its affairs in a fraudulent manner are liable to pay compensation.

The obligation of a partner to contribute shall be as per the LLP Agreement. Contribution may consist of tangible or intangible, movable or immovable property or other benefit to the LLP including contract of services performed or to be performed. The contribution of each partner along with the nature of contribution has to be disclosed in the accounts of the LLP. The monetary value of the contribution is to be valued by a Chartered Accountant or a Cost Accountant or an Approved Valuer.

A creditor of an LLP, who extends credit relying on the obligation of the partner to make contribution as recorded in the LLP Agreement, may enforce such obligation against the partner.

LLP is required to maintain proper books of account which may be on cash basis or on accrual basis. The books of account should disclose the financial position, particulars of money received and expended, record of assets and liabilities, cost of goods purchased, inventories, work in progress, finished goods and cost of goods sold. Books of account should enable the designated partner to ensure that Statement of Account and Solvency complies with the LLP Act.

Every LLP is required to file Statement of Account and Solvency in Form 8 within 30 days from the end of six months of the financial year.

Accounts of LLP are required to be audited. However, an LLP whose turnover in any financial year does not exceed Rs. 40 lakhs or the contribution (capital) does not exceed Rs. 25 lakhs is exempt from the provisions of audit. For the first year, the auditor may be appointed any time before the end of the financial year. Thereafter, the auditor is to be appointed at least 30 days prior to the end of the financial year. The designated partners shall appoint the auditors. If they fail to do so, the partners may appoint the auditors. Provisions have been made regarding filling up of casual vacancy in the office of the auditors, reappointment of the auditors, deemed reappointment of the auditors and removal of the auditors.

An auditor may resign or may express his unwillingness to be reappointed by a notice in writing. In either case, he is required to enclose with the notice a statement of circumstances connected with his ceasing to hold office.

Within 60 days from the end of the financial year, the LLP is required to file Annual Return in Form 11. Where the annual turnover of the LLP is up to Rs. 5 crore or the contribution is up to Rs. 50 lakhs, the Annual Return is to be accompanied by a certificate from a designated partner other than the signatory to the Annual Return, to the effect that the Annual Return contains true and correct information. In other cases, the Annual Return is to be accompanied by a certificate from a Company Secretary.

A partnership firm under the Partnership Act, 1932, a private company or an unlisted public company may be converted into an LLP in accordance with the provisions of Second Schedule, Third Schedule and Fourth Schedule respectively.

A firm may be converted into LLP only if all the partners of the firm and no one else become partners of the LLP into which the firm is converted. A private company or an unlisted public company may be converted into an LLP provided the partners of LLP to which the company converts comprise of all the shareholders of the company and no one else; and there is no ‘Security Interest’ in its assets subsisting at the time of application for conversion. ‘Security Interest’ has not been defined in the LLP Act. However, it has been defined u/s 2(1)(zf) of Securitisation and Reconstruction of Financial Assets and Enforcement of Financial Security Interest Act, 2002.

For the purposes of conversion of a firm or a company into an LLP, a statement signed by all the partners or the shareholders, as the case may be, giving the name, registration No. and the date of formation of the firm or incorporation of the company, as the case may be, is to be filed. This is accompanied by the Incorporation Document and the Statement required to be filed u/s. 11 of the LLP Act while incorporating a new LLP. The Registrar on being satisfied about the compliance has to register the document and issue certificate of registration. Within 15 days of conversion the LLP has to inform the Registrar of Firms or the Registrar of Companies, as the case may be, where it was originally registered about its conversion into an LLP by filing in Form 14.

On registration as LLP, the partnership firm or the company, as the case may be, is deemed to be dissolved and removed from the records maintained under the Partnership Act, 1932 or the concerned Registrar of Companies.

On conversion, all tangible and intangible property, all assets, interests, rights, privileges, undertakings, liabilities, obligations stand transferred to and vest in the LLP without any further act, deed or assurance. All pending proceedings, convictions, rulings, orders, judgements, agreements, contracts, approvals, etc. continue to remain in force. Similarly, all contracts of employment continue to remain in force with the LLP as the employer. Every appointment of the company or the firm, as the case may be, in any role or capacity operates as if the LLP was appointed. Every authority or power conferred on the company or the firm continues to remain in force as if it was conferred on the LLP.

If the converted firm or the company owned any property that was registered with any authority, then the LLP is required to take necessary steps to notify such authority about the conversion and the particulars of LLP. The form and the manner of notification are to be determined by such registering authority.

Even after the conversion of the firm into LLP, the partners of the firm continue to be personally liable for liabilities and obligations incurred prior to the conversion or which arose from any contract entered prior to the conversion. If any partner discharges any such liability or obligation he is entitled to be fully indemnified by the LLP.

For a period of 12 months commencing not later than 14 days after the registration as LLP, every official correspondence should bear a statement that the LLP was, as from the date of registration, converted from a company or a firm, as the case may be, and the name and registration number of the company or the firm from which it was so converted.

Provision has been made regarding establishment of a place of business by a foreign LLP. A foreign LLP within 30 days of establishing a place of business in India has to file with the Registrar Form 27 along with a copy of certificate of incorporation or registration or other document evidencing the constitution of the LLP, full address of the registered/principal office of the LLP in the country of incorporation, address of the principal place of business in India, list of partners and designated partners, if any, and names and addresses of two or more persons resident in India authorised to accept service of notices, documents, etc. Any change in the above particulars has to be intimated in the prescribed forms. If the documents are not in English language, the certified translation is also required to be filed.

A foreign LLP is also required to file Statement of Account and Solvency every year.

The winding up of an LLP may be either voluntary or by the Tribunal (yet to be set up). Section 64 of the LLP Act provides for circumstances in which an LLP may be wound up by the Tribunal.

Section 75 of the LLP Act provides for power to the Registrar to strike off the name of a defunct LLP the register of Limited Liability Partnership. Before striking off the name of an LLP, the Registrar is required to give reasonable opportunity to the LLP of being heard. The Registrar may exercise the power suo motu if the LLP is not carrying on any business for two years or more; or on application by the LLP made with the consent of all partners if the LLP is not carrying on business for one year or more.

The Government may by notification direct that provisions of the Company Act, 1956 specified in the notification shall apply to any LLP with or without such exception, modification or adoption as specified in notification.

Under the LLP Act and LLP Rules every form, application, document or declaration shall be filed in ‘Portable Document Format’ (PDF) through the portal maintained by the Ministry of Corporate Affairs on its website or through any other website approved by the Central Government. Documents so filed are to be authenticated by valid digital signature. In cases where document is required to filed be on non-judicial stamp paper, the LLP has to submit such document in physical form in addition to submission in the electronic form.

The Central Government is to set up and maintain secure electronic registry. It will allow access to the public to inspect documents which are required to be in public domain under the LLP Act on payment of fees.

Section 2(23) of the Income-tax Act, 1961 has been amended. The amended definition of ‘firm’ includes an LLP and definition of ‘partner’ includes a partner of an LLP. Thus, for the purposes of taxation, an LLP is treated as a firm and all the provisions applicable to a firm will apply to an LLP. Accordingly, provisions contained in section 40(b) relating to remuneration to the working partners and payment of interest to the partners will apply to an LLP. Provisions relating to Minimum Alternate Tax in section 115JB, Dividend Distribution Tax in section
115-O, Deemed Dividend in section 2(22) will not apply to an LLP. Under section 44AD as substituted by the Finance (No. 2) Act, 2009, an LLP is not eligible for the scheme of presumptive taxation.

There is no specific provision in the Income-tax Act, 1961 for exemption from taxation on conversion or a partnership firm under the Partnership Act, 1932 (general partnership) into an LLP. However, in case of conversion of a General Partnership into an LLP, the Explanatory Memorandum to the Finance (No. 2) Bill, 2009 clarifies that since a general partnership and an LLP are considered equivalent, conversion of a general partnership into an LLP will be tax neutral if the rights and obligations of the partners remain the same and there is no transfer of assets or liabilities.

The Finance Act, 2010, has introduced section 47(xiiib) w. e. f.
1-4-2011. The newly introduced section exempts from Capital Gains, any transfer of a capital assets by private company or unlisted public company to a Limited Liability transfer or any transfer of shares held in the company by a shareholder as a result of conversion of the company into a Limited Liability Partnership. The conversion must satisfy conditions laid down in sections 56 & 57 of the Limited Liability Partnership Act and satisfaction of various condition prescribed under this section itself.

Under section 140 of the Income-tax Act, 1961, return of income of an LLP is to be signed by a designated partner. However, if for any unavoidable reason the designated partner is unable to sign or where there is no designated partner, any partner may sign the return.

Under the new section 167C, each partner of an LLP is jointly and severally liable for tax due from an LLP if it cannot be recovered from the LLP unless he proves that the non recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP. This section is similar to section 179 applicable to directors of a private company. It is materially different from section 188A already existing and applicable to partners of a partnership firm.

Effective F. Y. 2011-12, i.e. Assessment Year 2012-13, The Finance Act, 2011 has introduced new Chapter XX-BA titled as ‘Special Provisions Relating to certain Limited Liability Partnership’. It consists of Sections 115JC to 115JF.

Section 115JC provides for Levy of AMT payable @ 18.5% as increased by Surcharge, Education Cess and Secondary and Higher Education Cess on ‘Adjusted Total Income’ of the LLP, where Income Tax payable on Regular Income is less than AMT.

The 'Adjusted Total Income' shall be total income as increased by deductions claimed under any sections of Chapter VI-A and deductions claimed under section 10AA.

A report is required to be obtained from an Accountant and furnish on or before the due date of the filing return u/s 139(1). The report has to certify that total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter. Section 115JF defines the expressions ‘accountant’, alternate minimum tax’ ‘Limited Liability Partnership’ and ‘regular income tax’ for the purpose of Chapter XII-BA of the Act.

Section 115JD provides for credit of AMT paid over and above regular tax payable by the LLP. The credit shall be allowed to be carried forward up to 10th Assessment Year. The said credit is allowed to be set off in an assessment year in which regular income tax is more than AMT to an extent of excess of the regular income tax over AMT. The tax credit shall vary with the subsequent change in regular income tax on AMT as a result of any order passed under this Act. Further, it has been provided that no interest shall be payable to tax credit allowed.

The Government of India has reviewed the extant policy on FDI and decided to permit FDI in LLP firms vide Press Note No. 1 (2011 Series), dated 20-5-2011, effective from 1st April, 2011, subject to specified conditions as follows.

1. FDI in LLPs will be allowed, through the Government approval route, only for LLPs operating in sectors/activities where 100 per cent FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions (such as ‘Non Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development Projects, etc.).

2. LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business.

3. An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both – the company, as well as the LLP – are operating in sectors where 100 per cent FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions.

4. LLPs with FDI will not be eligible to make any downstream investments.

5. Foreign Capital participation in the capital structure of LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank. (Note: In case of companies, FDI can be received by conversion of royalty/lumpsum fees due for payment or conversion of ECB. These conversions are not possible, if FDI is to be received in LLP.

6. Investment in LLPs by Foreign Institutional Investors (FIIs) and Foreign Venture Capital Investors (FVCIs) will not be permitted. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs).

7. In case the LLP with FDI has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of section 7 of the LLP Act, 2008, such a body corporate should only be a company registered in India under the Companies Act, 1956 and not any other body, such as an LLP or a trust.

8. For such LLPs, the designated partner "resident in India", as defined under the ‘Explanation’ to section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of "person resident in India", as prescribed under section 2(v)(i) of the Foreign Exchange Management Act, 1999.

9. The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.

10. Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations are met and with the prior approval of FIPB/Government.