Most important question of (Limited Liability Partnership) Business law CA foundation

Question 1

 "LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership". Explain. 

 Answer:  LLP is an alternative corporate business form that gives the benefits oflimited liability of a company and the flexibility of a partnership Limited Liability: Every partner of an LLP is, for the purpose of the business of LLP, the agent of the LLP, but not of other partners (Section 26 of the LLP Act, 2008). The liability of the partners will be limited to their agreed contribution in theLLP. while the LLP  itself will be liable for the full extent of its assets. 

Flexibility of a partnership: The LLP allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The LLP form enables entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements. Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises and for investment by venture capital. 

Question 2

 What is Small Limited Liability Partnership as per Limited Liability Partnership (Amendment) Act, 2021?

Answer:  "Small Limited Liability Partnership [Section 2(ta) of the Limited Liability Partnership Act, 2008]: Itmeans a Limited Liabiliy Partnershipー

 (i) the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, not exceeding five crore rupees, as may be prescribed; and

 (ii) the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed; or 

(iii) which meets such other requirements as may be prescribed and fulfils such terms and conditions as may be prescribed.

Question 3 

Who are the individuals which shall not be capable of becoming a partner   Liability Partnership? 

Answer:  Partners (Section 5 ofLimited Liability Partnership Act, 2008): Any individual or body corporate may be a partner in a LLP.

 However, an individual shall' not be capable of becoming a partner of a LLP, if 

(a) he has been found to be of unsound mind by a Court of competent jurisdiction and finding is in force: 

(b) he is an undischarged insolvent: 

 (c) he has applied to be adjudicated as an insolvent and his application is pending. 

Question 4 

 What do you mean by Designated Partner? Whether it is mandatory to appoint Designated partner  in a LLP? 

Answer:   Designated partners (Section 7) 

 (1) Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India: 

Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act a designated partners. 

Explanation. For the purposes of this section, the term resident in India means a person who has stayed in India for a period of not less than one hundred and twenty days during the financial year. 

(2) Subject to the provisions of sub-section (1),

(i) if the incorporation document  

 (a) specifies who are to be designated partners, such persons shall be designated partners on  incorporation; or 

(b) states that each of the partners from time to time of limited liability partnership is to be designated partner, every parthenr shall be a designated partner

 (3)  An indiviidual shall not become a designated partner in any limited liability partnership unless who  has given his prior consent to act as such to the limited liability partnership in such form and manner as may be prescibed

(4) Every limited liability parthership shall file with the Registrar the particulars of every individual has given his consent to act as designated partner in such form and manner as may be prescribed within thirty days of his appointment. 

(5) An individual eligible to be a designated partner shall satisfy such conditions and requirements as may be prescribed. 

(6) Every designated partner of a limited liability partnership shall obtain a Designated Partners Identification Number (DPIN) from the Central Government and the provisions of sections 153 to 159 (both inclusive) of the Companies Act, 2013 shall apply mutatis mutandis for the said purpose. 

Question 5

 Explain the incorporation by registration of a Limited Liability Partnership and its essential elements under the LLP Act, 2008. 

Answer :  Meaning:  A LLP is a new form of legal business entity with limited liability. It is an alternative corporate business vehicle that not only gives the benefits of limited liability at low compliance cost but allows its partners the flexibility of organising their internal structure as a traditional partnership. 

The LLP is a separate legal entity and. while the LLP itself will be liable for the full extent of its assets, the liability of the partners will be limited. 

Incorporation by registration (Section 12 of LLP Act, 2008): 

(1) When the requirements imposed by clauses (b) and (c) of sub-section (1) of section 11 have been Complied with, the Registrar shall retain the incorporation document and, unless the requirement   imposed by clause (a) of that sub-section has not been complied with, he shall. within a period of 14 days--

 (a) register the incorporation document; and 

(b) give a certificate that the LLP is incorporated by the name specified therein. 

(2)  The Registrar may accept the statement delivered I under clause (c) of f sub-section (1) of section . 1l as sufficient evidence that the requirement imposed by clause (a) of that sub section has been complied with. 

(3)  The certificate issued under clause (b) of 「sub-section (1) shall be signed by the Registrar and  authenticated by his official seal.  

(4)  The cetificate shall be conclusive evidence that the LLP is incorporated by the name specified therein.

Question 6

Explain the essential elements to incorporate a Limited Liability Partnership and the steps involved therein under the LLP Act, 2008

Answer:  Essential elements to incorporate Limited Liability Partnership (LLP)- Under the LLP Act. 2008 the followving elements are very essential to form a LLP in India: ) 

(i) To complete and submit incorporation document in the form prescribed with the Registrar electronically; 

(ii) To have at least two partners for incorporation of LLP [Individual or body corporatel; 

(ii) To have registered office in India to which all communications will be made and received; 

(iv) To appoint minimum two individuals as designated partners who will be responsible for number of duties including doing of all acts, matters and things as are required to be done by the LLP. Atleast one of them should be resident in India. 

(v) A person or nominee of body corporate intending to be appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by Ministry of Corporate Affairs. 

(vi) To execute a partnership agreement between the partners inter se or between the LLP and its partners. In the absence of any agreement the provisions as set out in First Schedule of LLP Act, 2008 will be applied. 

(vii) LLP Name. 

Question 7

State the meaning of Limited Liability Partnership (LLP). What are the relevant steps to incorporate LLP? 

Answer:  Steps to incorporate LLP: 

1. Name reservation:

• The first step to incorporate Limited Liability Partnership (LLP) is reservation of name ot LLP. 
• Applicant has to file e-Form 1, for ascertaining availability and reservation of the name of a LLP business. 

 2. Incorporate LLP: 

•  After reserving a name, user has to file e- Form 2 for incorporating 3a new Limited Liability Partnership (LLP)
• e-Form 2 contains the details of LLP proposed to be incorporated, partners'/ designated partners' details and consent of the partners/designated partners to act as partners/ designated partners 

3. LLP Agreement 

• Execution of LLPAgreement is mandatory as per Section 23 of the Act.
• LLP Agreement is required to be filed with the registrar in e-Form 3 within 30 days of incorporation of LLP.

 Question 8

 What do you mean by Limited Liability Partnership (LLP)?  What are the advantages for forming a LLP for doing business? 

Answer:  Meaning- Same as above. 

Since LLP contains elements of both 'a corporate structure' as well as 'a partnership firm structure LLP is called a hybrid betwveen a company and a partnership. 

Characteristic/Silent Features of LLP 

1. LLP is a body corporate: Section 2(1)(d) of the LLP Act, 2008 provides that a LLP is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners and shall have perpetual succession. Therefore, any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP. Section 3 of LLP Act provides that a LLP is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners. 

2. Perpetual Succession:  The LLP can continue its existence irrespective of changes in partners. Death, insanity, retirement or insolvency of partners has no impact on the existence of LLP. It is capable of entering into contracts and holding property in its own name. 

(3). Separate Legal Entity: The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. In other words, creditors of LLP shall be the creditors of LLP alone.

(4). Mutual Agency: Further, no partner IS liable on account of the independent or un- authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner's wrongful business decisions or misconduct. In other words, all partners will be the agents of the LLP alone. No one partner can bind the other partner by his acts 

(5). Arificial Legal Person: A LLP Is an artiticial legal person because it is created by a legal process and is clothed with all rights of an individual. It can do everything which any natural person can do excent of course that, it cannot be sent to jail, cannot take an oath, cannot marry or get divorce   nor can it practice a learned profession like CA or Medicine. A LLP is invisible, intangible. immortal  (it can be dissolved by law alone) but not fictitious because it realy exists. 

(6). Common Seal:  A LLP being an artificial person can act through  its partners and designated partners. LLP may have a common seal, if it decides to have one (Section 14(c)]. Thus, it is not mandatory or d LLP to have a common seal t chall wonnoin under the custody of some responsible official and it shall be affixed in the presence of at least 2 designated partners of thr LLP. 

7. Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent of ue LLP, but not of other partners (Section 26) The liability of the partners will be limited to their agreed contribution in the LLP Such contribıution may be of tangible or intangible nature or both. 

(8). Management of Business: The Partners in the LLP are entitled to manage the business of LLP. But only the designated partners are responsibie for legal compliances. 

(9). Minimum and Maximum number of Partners: Every LLP shall have least two partners and shall also have at least 2 individuals as designated partners, of whom at least one shall be resident in India. There is no maximum limit on the partners in LLP. 

(10.) Business for Profit Only: The essential requirement for forming LLP is carrying on a lawful business with a view to earn profit. Thus. LLP cannot be formed for charitable or non-economic purpose. 

Question 9

State the rules regarding the registered office of a Limited Liability Partnership (LLP) and change therein as per provisions of the Limited Liability Partnership Act. 2008. 

Answer:  Registered office ofLLP and change therein (Section 13):

 1  Every limited liability partnership shall have a registered office to which all communications and notices may be addressed and where they shall be received. 

2. A document may be served on a limited liability partnership or a partner or designated partner thereof by sending it by post under a certificate of posting or by registered post or by any other manner, as may be prescribed, at the registered office and any other address specifically declared by the limited liability partnership for this purpose in such form and manner as many be prescribed.

3. A limited liability partnership may change the place of its registered office and file the notice of such change with the Registrar in such form and manner and subject to such conditions as may be prescribed and any such change shall take effect only upon such filing. 

4.  If any default is made in complying with the requirements of this section, the limited liability partnership and its every partner shall be liable to a penalty of five hundred rupees for each day during which the default continues, subject to a maximum of fifty thousand rupees for the limited liability partnership and its every partner. 

Question 10 

What are the effects of registration of LLP? 

Answer: Efiect of registration (Section 14 of Limited Liability Partnership Act, 2008):

 On registration, a LLP shall, by its name, be capable of 

(a) suing and being sued; 
(b) acquiring, owning, holding and developing or disposing of property, whether movable or                          immovable, tangible or intangible; 
(c) having a common seal, if it decides to have one: and 
(d) doing and suffering such other acts and things as bodies corporate may lawfully do and suffer. 

Question 11

What is the procedure for changing the name of Limited d Liability Partnership (LLP) under the LLP Act. 2008? 

 Answer: Change of name of LLP (Section 17): 

(1) Not with standing anything contained in sections 15 and 16, if through inadvertence or otherwise, a limited liability partnership, on its first registration or on its registration by a new body corporate its registered name;"name, is registered by a name which is identical with or too nearly reset to- 

• (a) that of any other limited liability partnership or a company: or 
• (b) a registered trade mark of a proprietor under the Trade Marks Act, 1999, as is likely mistaken for it. then on an application of such limited liability partnership or proprietor referve to in clauses (a) and (b) respectively or a company, the Central Government may direct that suot limited liability partnership to change its name or new name within a period of three monthe from the date of issue of such direction: 

Provided that an application of the proprietor of the registered trade marks shall be maintainable within a period of three years from the date of incorporation or registation or change of name of the limited liability partnership under this Act.

(2)  Where a limited liability partnership changes its name or obtains a new name under sub-section (1), itshall withina period of fifteen days from the date of such change, give notice of the change to Registrar along with the order of the Central Government, who shall carry out necessary changes in the certificate of incorporation and within thirty days of such change in the certificate of incorporation, such limited liability partnership shall change its name in the limited liability partnership agreement. 

(3)  If the limited liability partnership is in default in complying with any direction given under sub- section (1), the Central Government shall allot a new name to the limited liability partnership in such manner as may be prescribed and the Registrar shall enter the new name in the register of limited liability partnerships in place of the old name and issue a fresh certificate of incorporation with new name, which the limited liability partnership shall use thereafter: 

Provided that nothing contained in this sub-section shall prevent a limited liability partnership from subsequently changing its name in accordance with the provisions of (section 16). 

[[ Section 16 - Reservation of name :- A person may apply in such form and manner and accompanied by such fee as may be prescribed to the Registrar for the reservation of a name set out in the application as-

•  the name of the proposed LP; or
•  the name to which a LLP proposes to change its name   ]]

Question 12

Discuss the conditions under which LLP will be liable and not liable for the acts of the partner. 

Answer: Conditions under which LLP will be liable [Section 27(2) of the LLP Act, 2008] 

The LLP is liable ifa partner of a LLP is liable to any person as a result of a wrongful act or omission on his part in the course of the business of the LLP or with its authority. 

Conditions under which LLP will not be liable [Section 27(1) of the LLP Act, 2008] 

A LLP is not bound by anything done by a partner in dealing with a person if-

•  a) the partner in fact has no authority to act for the LLP in doing a particular act; and
•  b) the person knows that he has no authority or does not know or believe him to be a partner of the LLP. 

Question 13

State the circumstances under which a LLP and its partners may face unlimited liability under the Limited Liability Partnership Act, 2008. 

OR

Discuss the liabilities of Limited Liability Partnership (LLP) and its partners in case of fraud as per |the provisions of the Limited Liability Partnership Act, 2008

Answer:  Unimited liability in case of fraud (Section 30 of the Limited Liability Partnership Act 2008):

(1)  In case of fraud: 

• In the event of an act caried out by a limited liability partnership, or any of its partners
• With intent to defraud creditors of the limited liability partnership or any other person, for any fraudulent purpose, 
• The liability ofthe limited liability partnership and partners who acted with intent to defraud creditors or for any fraudulent purpose 
• Shall be unlimited for all or any of the debts or other liabilities of the limited liak partnership: 

Provided that in case any such act is carried out bya partner, the limited liability partnersk: is liable to the same extent as the partner unless it is established by the limited liabili partnership that such act was without the knowledge or the authority of the limited liability  partnership.

 (2) Punishment:   Where any business is carried on with such intent or for such purpose as mentioned in sub-section (1), every person who was knowingly a party to the carrying on of the business in the manner aforesaid shall be punishable with imprisonment for a term which may extend to five years and with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

(3) Compensations on commission of fraud: Where a limited liability partnership or any partner or designated partner or employee of such limited liability partnership has conducted the affairs of the limited liability partnership in a fraudulent manner, then without prejudice to any criminal proceedings which may arise under any law for the time being in force, the limited liability partnership and any such partner or designated partner or employee shall be liable to pay compensation to any person who has suffered any loss or damage by reason of such conduct: 

Provided that such limited liability partnership shall not be liable if any such partner or designated partner or employee has acted fraudulently without knowledge of the limited liability partnership. 

Question 14

What is the procedure for maintenance of books of account, other records and audit of Limited Liability Partnership under LLP Act, 2008? 

Answer: Maintenance of books of account, other records and audit, etc. (Section 34): |の The limied iabiliy partnership shall maintain such proper books of account as may be prescribed relating to its affairs for each year of its existence on cash basis or accrual basis and 

according to  double entry system of accounting and shall maintain the same at its registered office for such period as may be prescribed, 

 (2) Every limited liability partnership shall, within a period of six months from the end of each financial year,  prepare a Statement of Account and Solvency for the said  financial year as at the last  day of the said financial year in such form as may be prescribed, and such statement shall be signed by the designated partners of the limited liability partnership

(3) Every limited liability partnership shall file within the prescribed time, the Statement of Account  and Solvency prepared pursuant to sub-section (2) with the Registrar every year in such form and  manner and accompanied by such fees as may be prescribed. 

4)  The accounts of limited liability partnerships shall be audited in accordance with such rules as may be prescribed:

 Provided that the Central Government may, by notification in the Official Gazette, exempt any class or classes of limited liability partnerships from the requirements of this sub-section. 

(5)  Any limited liability partnership which fails to comply with the provisions of sub-section (3), such  limited liability partnership and its designated partners shall be liable to a penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of one lakh nees for the limited liability partnership and fifty thousand rupees for every designated partner. 

(6)  Any limited liability partnership which fails to comply with the provisions of sub-section (1). sub-section (2) and sub-section (4), such limited liability partnership shall be punishable with fine which shall not be less than twenty-five thousand rupees, but may extend to five lakh rupees and every designated partner of such limited liability partnership shall be punishable with fine which shall not be less than ten thousand rupees, but may extend to one lakh rupees. 

Question 15

Explain the circumstances in which LLP may be wound up by Tribunal under the LLP Act, 2008 ?? 

Answer:   Circumstances in which LLP may be wound un by Tribunal (Section 64 of the LLP Act, 2008): A LLP may be wound up by the Tribunal: 

1.  if the LLP decides that LLP be wound up by the Tribunal; 
2.  if, for a period of more than six months. the number of partners of the LLP is reduced below two; 
3.  if the LLP is unable to pay its debts; 
4.  if  the LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or public order; 
5.  if the LLP has made a default in fling with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or 
6.  if the Tribunal is of the opinion that itis iust and cquitable that the LLP be wound up.

Important Note: Don't miss the question ( difference between the LLP and Partnership firm)