2. PREFACE
This book aims to cogitate the raison d'être, which beget the evolution of the limited
liability partnership (LLP) form of business structure. It discusses the LLP Statutes in
United States of America, Channel Island of Jersey, United Kingdom, Canada, Dubai
International Financial Centre, Singapore and Australia. It further draws a
comparison of the limited liability partnership laws prevalent in these places and
identifies the best practices, which with apposite adaptations can be made a part of a
similar legislation in India.
It is felt that the concept of Limited Liability Partnerships can be better understood in
the light of the laws already in place in other countries. The book being a first edition
aims to develop a scalable framework for future research work in the area.
METHODOLOGY
This book adopts a desk research method, which involves Internet research,
literature review and analysis, and correspondence with the relevant authorities in
the places studied.
2
3. ACKNOWLEDGEMENTS
I would like to acknowledge the valuable contributions made by a number of people
who helped me in the development and refinement of this text. First I would like to
thank Prof. Prem Sikka, Professor of Accounting, Department of Accounting, Finance
and Management, University of Essex, United Kingdom for his guidance on the
subject. Second I would like to thank James J. Tucker III, A ssociate Professor of
Accounting and Taxation, Widener University, United States of America.
My heartiest thanks also goes to Mr. Angelo Veljanovski, Lecturer, School of Law,
Victoria University of Technology, Australia, whose work on limited liability
partnership inspired me to write this book. I would also like to thank David Forde
from the Companies Office Information Service, New Zealand for replying to my
queries.
Special thanks go to Ms. Toh Wee San, Senior Assistant Registrar ACRA, Singapore
who gave my queries a patient listening and guided me in understanding the most
technical issues of the subject.
Aurobindo Saxena
3
4. CONTENTS
S. No. Particulars Page No.
1. Chapter 1: Introduction 5
2. Chapter 2: Limited liability partnership laws in the 49
United States of America
3. Chapter 3: Limited liability partnership laws in the 204
Channel Island of Jersey
4. Chapter 4: Limited liability partnership laws in the 243
United Kingdom
5. Chapter 5: Limited liability partnership laws in 441
Canada
6. Chapter 6: Limited liability partnership laws in Dubai 456
International Financial Centre
7. Chapter 7: Limited liability partnership laws in 464
Singapore
8. Chapter 8: Limited liability partnership laws in 558
Australia
9. Chapter 9: Analysis 685
10. References 718
11. Internet Support 720
4
5. CHAPTER 1: INTRODUCTION
1.0 INTRODUCTION
The inclination to collaborate to accomplish certain commercial objectives has a long
history. The commercial magnetism of such collaborations and a need to govern their
business ultimately led to the codification of corporate and partnership laws.
Corporations and Partnerships have been a primary form of business structure for a
long time now. For more than a century, partnership law has offered an all-
embracing and lucid alternative to corporate law. Although, the two bodies of law
have much in common, historically they differed sharply on the role of the contract
and private ordering in structuring the firm.
Partnership law encourages private ordering through bargaining by providing a set of
statutory default norms that, with only a few exceptions, yield to agreements
negotiated by partners. In contrast, corporate law historically has provided a
mandatory framework for firm structure highly resistant to shareholders’ attempts to
define their relationships through bargaining1 . Proponents of private ordering within
firms prefer the freedoms of partnership law to the mandates of corporate law, and
over time they have enjoyed success in extending the bargaining model from
partnership law to corporate law.
However, the inherent limitations of both these forms of businesses have made them
unsuitable for certain businesses and ultimately hybrid forms of business structures
such as limited partnerships, limited liability partnership, limited liability limited
partnerships etc. evolved.
1.1 GENESIS AND DEVELOPMENT OF PARTNERSHIP LAWS
Partnership laws around the world have evolved over a period of time in consonance
with the changing business requirements. Broadly, the partnership laws can be
classified in three generations 2 viz. General Partnership Laws (First Generation),
Limited Partnership Laws (Second Generation) and Limited Liability Partnership Laws
(Third Generation).
1.1.0 First Generation
The UK Partnership Act, 1890 is an archetypal example of first generation of
partnership laws. A general partnership firm is not a separate legal entity. A partner
is considered as the agent of the firm and of other partners for the purpose of the
business of the firm. Further, every partner is liable, jointly and severally with all the
other partners, for all acts of the firm done while he is a partner. Where, by the
wrongful act or omission of a partner acting in the ordinary course of the business of
a firm, or with the authority of his partners, loss or injury is caused to any third
party, or any penalty is incurred, the firm is liable therefore to the same extent as
the partner.
General partnership is regarded by the public as the type of business structure
providing the optimal protection to members of the public, because partners are not
1
Robert W. Hillman, The Bargain in the Firm: Partnership Law, Corporate Law, and Private Ordering
Within Closely -Held Business Associations.
2
This concept has been developed by Aurobindo Saxena.
5
6. protected by limited liability and the claimants can always go after the personal
assets of each partner to meet his or her claim. 3
However, the characteristic of "unlimited liability" ensures that the partners maintain
a direct interest in the affairs of the partnership and conduct of its partners,
especially in small practices where the partners are likely to work in the same
location. For large practices, they may have offices in several places, and thus
partners may not be able to keep track of all aspects and transactions of the
partnership. Nonetheless, under a general partnership, partners still have to share
the liabilities for the negligence of those partners whom they may barely know or
meet.4
The advantage of this structure is that its business affairs are entirely private. A
partnership agreement is also a private confidential document providing the flexibility
in which the partners can determine how the internal structure and relationship
between partners and between partners and the partnership are governed.5
1.1.1 Second Generation
The UK Limited Partnership Act, 1907 is an archetypal example of second generation
of partnership laws. A limited partnership is different from a general partnership to
the extent that it classifies the partners into two classes: a general partner and a
limited partner. Limited partnerships must have at least one general and one limited
partner. The essence of a limited partnership is that it bestows on the partnership
the benefit of limited liability to a certain extent. In a limited partnership, the liability
of the limited partner is limited to the amount of his contribution. He is like an
investor and usually does not take part in the management or day-to-day running of
the firm.
However, if a limited partner takes part in the management, he can be held liable for
all debts and obligations of the firm incurred while he so takes part in the
management, as though he were a general partner. As against this, the general
partner is responsible for the management of the firm and has unlimited liability.
Further, limited partnerships do not specifically deal with the issue of joint and
several liabilities. Partners can still be held liable for the wrongful acts or omissions
of their fellow partners. For tax purposes, a limited partnership is not considered as a
taxable entity and its income and capital transactions flow through to the partners.
Limited Partnerships are increasingly being used for private equity and fund
investment businesses.
1.1.2 Third Generation
The UK Limited Liability Partnership Act, 2000 is an archetypal example of third
generation of partnership laws. A limited liability partnership (LLP) is an alternative
corporate business vehic le that not only provides the benefits of limited liability but
also allows its partners the flexibility of organizing their internal structure as a
general partnership. The limited liability partnership 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. In LLP, each partner is the agent of the LLP but not of other
partners.
3
Kitty LAM, Limited Liability Partnership and Liability Capping Legislation for the Practice of Law in
Selected Places.
4
Ibid.
5
Ibid.
6
7. 1.2 GLOBAL SCENARIO
The limited liability partnership structure has gained importance in the last one and a
half decade and is now available in United States of America, Channel Island of
Jersey, United Kingdom, Canada, Dubai International Financial Centre, Singapore
and Australia.
The push for the creation of limited liability partners hip grew from several factors,
such as general increase in the incidence of litigation for professional’s negligence
and the size of claims; the risk to a partner's personal assets, when the claim
exceeds the sum of the assets and insurance cover of the partnership; the growth in
the size of partnerships; increase in specialization among partners and the coming
together of different professions within a partnership.
There are also concerns about the shifting of the business structure of a firm from a
general partnership to an LLP, albeit there is no empirical data supporting them. One
of the concerns is about the impact upon the culture of a law firm. For instance, the
practice of law in high-risk areas often yields high rewards commensurate with the
increased risk of liability. Partners in a general partnership usually share both the
risk and risk-related gains with their fellow partners. If a shift to an LLP causes a
member/partner to shoulder a higher risk of liability than others, he or she may
demand a larger share of the rewards. Similarly, the risk of some members/partners
may increase where the legislation provides that members/partners of LLPs have to
be liable for the acts of those under their direct supervision; in particular, if some
members/partners have to supervise less experienced staff.6
Some consider that shifting from the general partnership status to the LLP status
may result in less incentive for members/partners to monitor and control the quality
of work by other members/partners of the firm, as they are no longer liable for the
acts of their fellow members/partners. The breakdown of internal procedures at
Arthur Andersen, the accounting firm operating as an LLP, in connection with the
collapse of the Enron Corporation, is often quoted as an example of such
disincentive.7
However, the level of protection that an LLP affords partners of a LLP is an important
factor in why LLP is fast becoming the preferred structure for major professional
services firms.
1.3 INDIAN SCENARIO
In India, businesses mainly operate as companies, sole proprietorships and
partnerships. Each of these business structures has its own advantages and
shortcomings and is subject to different regulatory and tax regimes. The idea that
there should be the opportunity in India to organize as an LLP emerged out of the
Report of the Naresh Chandra Committee on Regulation of Private Companies and
Partnership and Report of the Dr. J. J. Irani Expert Committee on Company Law.
Acting on the recommendations of the reports of these committees the Ministry of
Company Affairs on November 2, 2005 released a concept paper on limited liability
partnership (See Annexure 1), which will be kept open for public comments till
December 31, 2005. The concept paper comprises of sixteen chapters and five
6
Johnson, J. (1995).
7
Hamilton, Robert W. and Macey, Jonathan R. (2003).
7
8. schedules. A closer look into the provisions of the paper reveal that it is based on the
Singapore LLP Act, 2005, UK LLP Act, 2000, Companies Act, 1956 and certain LLP
statutes prevalent in US like the Delaware Code.
1.4 ISSUES FOR CONSIDERATION
It is anticipated that the paper will provoke critical examination by all chambers of
commerce, business organizations, professional bodies, academicians and persons
connected with corporate sector.
However, some of the important issues that need in-depth analysis, debate,
discussion and deliberations are as under:
1. Whether LLP form of business structure should be made available to
Professionals only?
2. Whether LLP Agreement should be made mandatory to be filed with the
Registrar?
3. What contents of the LLP agreement should be filed with the Registrar?
4. Whether foreign individuals should be allowed to be a partner or not?
5. Whether LLPs should be allowed to have one general partner with unlimited
liability or not?
6. Whether manager should be a partner of LLP or not?
7. Whether LLP should have a limit on the number of partners it can have?
8. What should be the extent of liability of a partner?
9. How should the LLPs be taxed?
10. What should be the disclosure requirements for an LLP?
11. What should be the procedure for existing firms, private companies and
unlisted public companies to convert to LLP?
12. How should the Act deal with foreign LLPs?
13. What should be the procedure for the merger, amalgamation and demerger of
LLPs?
14. What should be the procedure for the winding up and dissolution of LLPs?
15. What provisions of the Companies Act, 1956 should be applicable to LLPs?
16. What other legislations, rules, regulations and procedures need to be
amended for facilitating a smooth entry of LLPs?
17. What all provisions should form part of the default provisions?
18. What can be the various forms of contribution?
19. Whether a partner can bring his share of contribution in installments?
20. For how long an LLP should be allowed to carry on business with less than two
partners?
21. Should the audit of financial records be made mandatory for all LLPs?
22. Should LLPs be required to file an annual report with the Registrar?
23. What should be the period of claw back?
24. What should be the disqualifications of a partner and manager?
25. Who should regulate and administer the LLPs?
1.5 CONCLUSION
Following international trends, predominantly those in the United States of America,
United Kingdom, Jersey, Canada, Dubai International Financial Centre, Australia and
Singapore, India has recently undertaken the introduction of Limited Liability
Partnership (LLP) structure. This structure is recognized as the “world’s best
practice” structure, designed to not only attract venture capital from offshore
institutional investors but also to retain domestic investment. Some of the
advantages of this form of business structure include low cost of incorporation,
8
9. unlimited capacity, limited individual liability, flexible management structure, tax
benefits and less audit and filing requirements.
However, at the same time this form of business structure is susceptible to abuse as
well. Especially, after the Enron collapse, it is felt that limited liability has a degree of
correlation with professional lapses and malpractices. The OECD also identifies
limited liability partnership as being a corporate vehicle, which is vulnerable to
misuse, principally for the reason that it is less regulated than corporations.
The limited liability partnership form of business structure is keenly awaited in India.
However, such introduction will require amendments in several legislations and
Regulations for example the SEBI Regulations, Tax Laws, Banking Regulations, the
parent Acts of Statutory Bodies like ICSI, ICAI and ICWAI and their respective Rules
and Regulations etc. Therefore, an in-depth understanding of the concept is
inexorable.
The following chapters will discuss and analyse the limited liability partnership laws
around the world and attempt to find solutions to the issues under consideration
stated above.
9
10. ANNEXURE 1
CONCEPT PAPER ON LIMITED LIABILITY PARTNERSHIPS
Chapter I
Preliminary
1. Short title, commencement and extent.
(1) This Act may be called the Limited Liability Partnerships Act, 2006.
(2) It shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint.
(3) It extends to the whole of India.
2. Definitions.
In this Act, unless the context otherwise requires,-
(1) "address" in relation to a partner of a limited liability partnership,
means-
(a) if an individual, his usual residential address, and
(b) if a body corporate , address of its registered office;
(2) “Appellate Tribunal” means the National Company Law Appellate
Tribunal constituted under the Companies Act, 1956;
(3) “body corporate” means a company as defined in section 3 of the
Companies Act, 1956 and includes:
(a) a limited liability partnership registered under this Act;
(b) a limited liability partnership incorporated outside India; and
(c) a company incorporated outside India
but does not include-
(i) a corporation sole;
(ii) a co-operative society registered under any law relating to co-
operative societies; and
(iii) any other body corporate (not being a company as defined above),
which the Central Government may, by notification in the Official
Gazette, specify in this behalf;
(4) "business" includes every trade, profession and occupation;
(5) “chartered accountant” means a chartered accountant as defined in
clause (b) of sub-section (1) of section 2 of the Chartered
Accountants Act, 1949 and who has obtained a certificate of
practice under sub-section (1) of section 6 of that Act;
(6) “company secretary” means a company secretary as defined in
clause (b) of sub-section (1) of section 2 of the Company
Secretaries Act, 1980 and who has obtained a certificate of practice
under sub-section (1) of section 6 of that Act;
(7) "court" means court as defined under the Companies Act, 1956;
(8) "economic rights" means the rights of the partner to a share of
the profits and losses of the partnership and to receive
distributions in accordance with the limited liability partnership
agreement;
(9) “financial year” means in relation to a limited liability partnership, the
period in respect of which any profit and loss account of the limited
10
11. liability partnership is made up, and shall not be less than six months
but not exceed fifteen months.
(10) “foreign limited liability partnership" means a partnership that is
(a) formed, registered or incorporated outside India
which, after the commencement of this Act,
establishes a place of business within India; and
(b) formed, registered or incorporated outside India
which have, before the commencement of this Act,
established a place of business within India and
continue to have an established place of business
within India at the commencement of this Act; and
(c) which if incorporated in India, would be a limited
liability partnership within the meaning of this Act.
(11) "incorporation document" shall be construed in accordance with
section 8;
(12) "limited liability partnership" has the meaning given to it by
section 3;
(13) "limited liability partnership agreement" means any w ritten
agreement of the partners as to the affairs of a limited liability
partnership and the conduct of its business;
(14) “manager” in relation to a limited liability partnership, means any
person (whether or not a partner of the limited liability
partnership) who is concerned in or takes part in the management
of the limited liability partnership;
(15) "modification" shall include the making of additions and omissions;
(16) "name" in relation to a partner of a limited liability partnership,
means-
(a) if an individual, h is forename, middlename and surname, and
(b) if a body corporate, its registered name;
(17) "partner" in relation to a limited liability partnership, means any
person who has been admitted as a partner in the limited liability
partnership in accordance with the limited liability partnership
agreement;
(18) “register” means any register kept and maintained under this Act;
(19) "Registrar" means Registrar as defined in the
Companies Act, 1956;
(20) “Tribunal” means the National Company Law Tribunal constituted
under the Companies Act, 1956.
Chapter II
Applicability
3. Limited Liability Partnership.
(1) A limited liability partnership is a body corporate which is formed by
being incorporated under this Act and which has legal entity separate
from that of its partners.
(2) A limited liability partnership shall have perpetual succession.
11
12. (3) Any change in the partners of a limited liability partnership shall not
affect the existence, rights or liabilities of the limited liability
partnership.
4. Non-applicability of partnership law.
Except as otherwise provided by this Act or any other enactment, the law
relating to partnerships shall not apply to a limited liability partnership.
5. Partners.
Any individual or body corporate may be a partner in a limited liability
partnership.
6. Minimum and Maximum Number of Partners.
(1) Every limited liability partnership shall have at least two partners.
(2) If at any time the number of partners of a limited liability partnership,
is reduced, below two, and the limited liability partnership carries on
business for more than six months while the number is so reduced, a
person who is a partner of the limited liability partnership during the
time that it so carries on business after those six months and is
cognizant of the fact that it is carrying on business with fewer than two
partners shall be liable jointly and severally with the limited liability
partnership for the obligations of the limited liability partnership
incurred during that period.
(3) A limited liability partnership has unlimited capacity.
7. Manager.
(1) Every limited liability partnership shall have a manager who is an
individual and is resident in India.
(2) For the purpose of sub-section (1), resident in India includes a person
who has been staying in India for a continuous period of not less than
twelve months immediately preceding the date of his appointment as a
manager and who has come to stay in India, -
(a) for taking up employment in India, or
(b) for carrying on a business or vocation in India.
(3) Every limited liability partnership shall within 30 days ensure that the
particulars of every person who acts as manager of the limited liability
partnership, his consent to act as such and any change of manager are
lodged with the Registrar in such ma nner and form as may be
prescribed.
(4) If the incorporation document specifies who is to be a manager -
(a) that person shall be the manager on incorporation, and
(b) if no manager is appointed, each partner resident in India shall
be deemed to be a manager.
(5) Every limited liability partnership shall appoint a person as manager
within sixty days from the date on which a person ceases to be a
manager.
(6) A manager shall be —
12
13. (a) answerable for the doing of all acts, matters and things, as are
required to be done by the limited liability partnership; and
(b) personally liable to all penalties imposed on the limited liability
partnership for any contravention of those sections unless he
satisfies the Tribunal that he should not be so liable.
(7) If a limited liability partnership contravenes any sub-section of this
section, the limited liability partnership and every partner of the
limited liability partnership shall be punishable under the Act.
Chapter III
Incorporation
8. Incorporation Document.
(1) For a limited liability partnership to be incorporated-
(a) two or more persons associated for carrying on a lawful business
with a view to profit must have subscribed their names to an
incorporation document,
(b) there must have been delivered to the Registrar of the State in
which the registered office of the limited liability partnership is
to be situate, the incorporation document in a manner as may
be prescribed, and
(c) there must have been so delivered a statement in the prescribed
form, made by either an advocate, or a Company Secretary,
or, a Chartered Accountant, who is engaged in the formation of
the limited liability partnership and by anyone who subscribed
his name to the incorporation document, that all the
requirements of this Act and Regulations thereunder have been
complied with, in respect of incorporation and matters
precedent and incidental thereto.
(2) The incorporation document must-
(a) be in a form as may be prescribed,
(b) state the name of the limited liability partnership,
(c) state the proposed business of the limited liability partnership;
(d) state the address of the registered office of the limited liability
partnership,
(e) state the name and address of each of the persons who are to be
partners of the limited liability partnership on incorporation,
(f) state the name and address of the person (s) who is/are to be
manager (s) of the limited liability partnership on incorporation;
(g) be accompanied by the photographs of the persons who are to be
partners and manager(s) of the limited liability partnership.
(3) If a person makes a statement under sub-section (1)(c) which he-
(a) knows to be false, or
(b) does not believe to be true,
he shall be punishable under the Act.
13
14. 9. Incorporation by Registration.
(1) When the requirements imposed by clause (b) and (c) of sub-section (1)
of section 8 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 limited liability partnership is
incorporated by the name specified in the incorporation
document.
(2) The Registrar may accept the statement delivered under clause (c) of
sub-section (1) of section 8 as sufficient evidence that the requirement
imposed by clause (a) of that sub-section has been complied with.
(3) The certificate shall be signed by the Registrar and authenticated by his
official seal.
(4) The certificate is conclusive evidence that the requirements of sub-section
2 of section 8 are complied with and that the limited liability
partnership is incorporated by the name specified in the incorporation
document.
10. Registered Office.
(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 manager thereof by sending it by post under a certificate of
posting or by registered post or by any other mode, which may be
prescribed, or by leaving at its registered office.
(3) A limited liability partnership may change the address of its registered
office by lodging with the Registrar notice of such change in such
manner and form as may be prescribed and any such change shall
take effect only upon such lodgment.
(4) A person guilty of an offence under sub-section (3) shall be punishable
under the Act.
11. Powers.
A limited liability partnership shall, by its name have the power of-
(a) suing and being sued;
(b) acquiring, owning, holding and developing or disposing of
property, both movable and immovable;
(c) having a common seal; and
(d) doing and suffering such other acts and things as bodies
corporate may lawfully do and suffer.
12. Names of limited liability partnerships.
14
15. (1) Every limited liability partnership shall have either the words “limited
liability partnership” or the acronym “LLP” as the last words of its
name.
(2) No limited liability partnership shall be registered by a name which, in
the opinion of the Central Government is -
(a) undesirable;
(b) identical or too nearly resembles to that of any other limited
liability partnership or body corporate or to a registered trade
mark, or a trade mark which is subject of an application for
registration, of any other person under the Trade Marks Act,
1999.
(3) A person may apply in the prescribed manner to the Registrar for the
reservation of a name set out in the application as —
(a) the name of a proposed limited liability partnership; or
(b) the name to which a limited liability partnership proposes to
change its name.
(4) Upon receipt of an application under sub-section (3) and on payment
of the prescribed fee, the Registrar may, if he is satisfied that the
name to be reserved is not one which may be rejected on any ground
referred to in sub-section (2), reserve the name for a period of three
months from the date of intimation by the Registrar.
(5) Notwithstanding anything contained in this section, where the Central
Government is satisfied that a limited liability partnership has been
registered (whether through inadvertence or otherwise and whether
originally or by a change of name) under a name which —
(a) is a name referred to in sub-section (2); or
(b) so nearly resembles the name of any other limited liability
partnership or body corporate or other name as to be likely to
be mistaken for it, the Central Government may direct the
limited liability partnership to change its name, and the limited
liability partnership shall comply with the direction within three
months after the date of the direction or such longer period as
the Central Government may allow.
(6) Any person may apply, in a manner as may be prescribed, to the
Registrar to give a direction to any limited liability partnership, on a
ground referred to in sub-section (5), to change its name.
(7) The Registrar shall not consider any application under sub-section (6)
to give a direction to a limited liability partnership on the ground
referred to in sub-section (5) (b) unless the Registrar receives the
application within twelve months from the date of registration of the
limited liability partnership under that name.
(8) Any limited liability partnership which fails to comply with a direction
given under sub-section (5) shall be punishable under the Act.
15
16. (9) Any limited liability partnership may change its name by lodging with
the Registrar notice of such change in such manner and form as may
be prescribed.
13. Publication of name and limited liability.
(1) Every limited liability partnership shall ensure that its invoices and
official correspondence bear the following:
(a) the name and registration number of the limited liability
partnership; and
(b) a statement that it is registered with limited liability.
(2) Any limited liability partnership which contravenes sub-section (1)
shall be punishable under the Act.
Chapter IV
Partnership
14. Partner.
(1) On the incorporation of a limited liability partnership its partners are
the persons who subscribed their names to the incorporation
document.
(2) Any other person may become a partner of a limited liability
partnership by and in accordance with an agreement with the existing
partners.
15. Relationship of Partners.
(1) Except as far as otherwise provided by this Act or any other enactment,
the mutual rights and duties of the partners of a limited liability
partnership, and the mutual rights and duties of a limited liability
partnership and its partners, shall be governed by agreement
between the partners, or between the limited liability partnership and
its partners.
(2) The contents as may be prescribed in Regulations and form part of
limited liability partnership agreement and any changes made therein
shall be filed with the Registrar in the manner and form as may be
prescribed.
(3) An agreement in writing made before the incorporation of a limited
liability partnership between the persons who subscribe their names to
the incorporation document may impose obligations on the limited
liability partnership as a pre-incorporation agreement, provided such
agreement is ratified by all the partners after the incorporation of the
limited liability partnership.
(4) In the absence of agreement as to any matter, the mutual rights and
duties of the partners and the mutual rights and duties of the limited
liability partnership and the partners shall be determined by any
provision relating to that matter as is set out in the First Schedule.
16
17. 16. Cessation of partnership interest.
(1) A person may cease to be a partner of a limited liability partnership in
accordance with an agreement with the other partners or, in the absence of
agreement with the other partners as to cessation of being a partner, by
giving 30 days notice to the other partners of his intention to resign as
partner.
(2) A person may also cease to be a partner of a limited liability partnership by
his death or by dissolution of the limited liability partnership firm.
(3) Where a person has ceased to be a partner of a limited liability
partnership, the former partner is to be regarded (in relation to any
person dealing with the limited liability partnership) as still being a
partner of the limited liability partnership unless-
(a) the person has notice that the former partner has ceased to be
a partner of the limited liability partnership, or
(b) notice that the former partner has ceased to be a partner of the
limited liability partnership has been delivered to the Registrar.
(4) A partner's disassociation from the limited liability partnership does not by
itself discharge the partner from any obligation to the limited liability
partnership or to the other partners which he incurred while being a partner.
(5) Where a partner of a limited liability partnership ceases to be a partner,
unless otherwise provided in the limited liability partnership agreement, the
former partner or a person entitled to his share in consequence of the death
or insolvency of the former partner, shall be entitled to receive from the
limited liability partnership an amount —
(a) equal to the former partner’s capital contribution to the limited
liability partnership and his right to share in the accumulated
profits of the limited liability partnership after the deduction of
losses of the limited liability partnership; and
(b) determined as at the date the former partner ceased to be a
partner.
(6) For the avoidance of doubt, a former partner or a person entitled to his
share in consequence of the death or insolvency of the former partner
shall not interfere in the management of the limited liability
partnership.
17. Registration of changes in partners.
(1) A limited liability partnership must ensure that-
(a) where a person becomes or ceases to be a partner, notice is
delivered to the Registrar within 30 days, and
(b) where there is any change in the name or address of a partner,
notice is delivered to the Registrar within 30 days.
(2) A notice delivered under sub-section (1)-
(a) shall be in a form as may be prescribed, and
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18. (b) shall be signed by the manager of the limited liability
partnership and authenticated in a manner as may be
prescribed, and,
(c) if it relates to admission of partner, shall contain a statement
by the incoming partner that he consents to becoming a
partner, signed by him and authenticated in a manner as may
be prescribed.
(3) If a limited liability partnership fails to comply with sub-section (1),
the manager shall be punishable under the Act.
(4) Any person who ceases to be a partner of a limited liability partnership
may himself lodge with the Registrar the statement referred to in sub-
section (2) if he has reasonable cause to believe that the limited
liability partnership will not lodge the statement with the Registrar.
Chapter V
Extent and Limitation of Liability
18. Partner as agent.
Every partner of a limited liability partnership is the agent of the limited
liability partnership, but not of other partners.
19. Extent of liability of the limited liability partnership.
(1) A limited liability partnership 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 limited liability
partnership 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 limited liability partnership.
(2) The limited liability partnership is liable if a partner of a limited liability
partnership 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 limited
liability partnership or with its authority.
(3) An obligation of the limited liability partnership whether arising in
contract or otherwise, is solely the obligation of the limited liability
partnership.
(4) The liabilities of the limited liability partnership shall be met out of the
property of the limited liability partnership.
20 Extent of liability of a partner.
(1) A partner is not personally liable, directly or indirectly for an obligation
referred to in sub-section (3) of section 19 solely by reason of being a
partner of the limited liability partnership.
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19. (2) Sub-section (3) of section 19 and sub-section (1) of this section shall
not affect the personal liability of a partner for his own wrongful act or
omission, but a partner shall not be personally liable for the wrongful
act or omission of any other partner of the limited liability partnership.
21. Unlimited liability in case of fraud.
(1) In the event of an act carried 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, or for any fraudulent
purpose, the liability of the parties shall be unlimited for all or any of
the debts or other liabilities of the limited liability partnership.
(2) 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 under the Act.
22. Liability for personal acts.
A partner shall have unlimited liability for his or her personal acts which are
not done for and on behalf of the limited liability partnership, and were
committed in his or her personal capacity.
Chapter VI
Duties and Standards of Conduct
23. Duties of Partners.
A partner shall discharge his duties to the limited liability partnership and the
other partners under this Act or under the partnership agreement and
exercise any right consistent with the obligation of good faith.
24. Gene ral Standards of Partner's Conduct.
(1) The fiduciary duties that a partner has to the limited liability
partnership and the other partners are the duties of loyalty and due
care as specified under sub-section (2) and (3).
(2) A partner's duty of loyalty to the limited liability partnership shall
include:
(a) to account to the limited liability partnership and hold as
trustee for it any property, profit, or benefit derived by the
partner in the conduct and winding up of the limited liability
partnership's activities or derived from a use by the partner
of limited liability partnership property, including the
appropriation of a limited liability partnership opportunity;
(b) to refrain from competing with the limited liability partnership
in the conduct or winding up of the limited liability
partnership's activities; and
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20. (c) refrain from dealing with the limited liability partnership in the
conduct or winding up of the limited liability partnership's
activities as or on behalf of a party having an interest adverse
to the limited liability partnership.
(3) A partner’s duty of due care to the limited liability partnership and
the other partners in the conduct and winding up of the limited
liability partnership's activities is to refrain from engaging in grossly
negligent or reckless conduct and from contravening any of the
provisions of this Act and any other law for the time being in force.
Chapter VII
Contributions
25. Form of Contribution.
A contribution of a partner may consist of tangible or intangible property or
other benefit to the limited liability partnership, including money, services
performed, promissory notes, other agreements to contribute cash or
property, and contracts for services performed or to be performed.
26. Liability for Contribution.
(1) A partner's obligation to contribute money or other property or other
benefit or to perform services for a limited liability partnership shall be
as per the partnership agreement.
(2) A creditor of a limited liability partnership, which extends credit or
otherwise acts in reliance on an obligation described in that agreement,
without notice of any compromise under t h i s sub-section, may enforce
the original obligation against such partner.
Chapter VIII
Financial Disclosures
27. Maintenance of records.
(1) The limited liability partnership shall maintain proper books of accounts
relating to its affair for each year of its existence on accrual basis and
according to the double entry system of accounting, and shall maintain the
same at its registered office for a period as may be prescribed.
(2) If default is made in complying with sub-section (1), the manager shall be
punishable under the Act.
28. Annual declaration of solvency.
(1) Every limited liability partnership shall lodge with the Registrar a
declaration by its manager that in his opinion, the limited liability
partnership either —
(a) appears as at that date to be able to pay its debts as they
become due in the normal course of business; or
(b) does not appear as at that date to be able to pay its debts as
they become due in the normal course of business.
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21. (2) The declaration referred to in sub-section (1) shall be lodged not later
than 15 months after the registration of the limited liability partnership
and subsequently once in every financial year at intervals of not more
than 15 months.
(3) Notwithstanding sub-section (2), the Registrar may, on application by
a limited liability partnership and if he thinks fit, grant an extension of
time for the lodging of the declaration referred to in sub-section (1).
(4) If a limited liability partnership fails to lodge the declaration referred to
in sub-section (1) within the time or extended time referred to in sub-
sections (2) and (3), the manager shall be punishable under the Act.
(5) A manager who makes a declaration referred to in sub-section (1) (a)
without having reasonable grounds for his opinion, shall be punishable
under the Act; and
(6) Any person who, in connection with a declaration made under this
section, makes a statement or furnishes information (whether directly
or indirectly) to a manager that is false or misleading in a material
particular, when he knows or ought reasonably to have known that the
statement or information is false or misleading in a material particular,
shall be punishable under the Act .
(7) If an offence under this section is committed with an intent to defraud
creditors of the limited liability partnership or for a fraudulent purpose,
the offender shall be punishable under the Act .
29. Power of Registrar to obtain further information.
(1) In order to obtain such information as the Registrar may consider
necessary for the purposes of carrying out the provisions of this Act,
the Registrar may —
(a) require any present or former partner or manager of a limited
liability partnership to answer any question in writing which the
Registrar may consider necessary to ask for the purposes
specified in this sub-section; or
(b) summon that person to appear before him or an inspector or
any other public officer whom the Registrar may designate to
answer any such question orally.
(2) The Registrar may further require the person referred to in sub-section
(1) to make such further declaration or supply such further particulars
as the Registrar may require.
(3) Any person who, without lawful excuse, fails to comply with any
summons or requisition of the Registrar under this section shall be
punishable under the Act.
30. Penalty for providing false information to the Registrar.
Any person who makes any statement or furnishes any information to the
Registrar under the provisions of this Act which is false in any material
21
22. particular or by reason of the omission of any material particular and which
he either knows or has reason to believe is false, shall be punishable under
the Act.
31. Composition of offences.
(1) The Central Government may, compound any offence under this Act
which is prescribed as a compoundable offence by collecting from a
person reasonably suspected of having committed the offence a sum
which may extend to the amount of the maximum fine that is
prescribed for the offence, or a sum prescribed under the Act,
whichever is lower.
(2) The Central Government may make regulations to prescribe the
offences which may be compounded.
32. Destruction of old records.
The Registrar may destroy any document lodged, filed or registered with the
Registrar and which has been microfilmed or converted to electronic form if in
his opinion it is no longer necessary or desirable to retain the document.
33. Enforcement of duty to make returns.
(1) If any person is in default in complying with —
(a) any provision of this Act or of any other law which requires the
lodging or filing in any manner with the Registrar of any return,
account or other document or the giving of notice to him of any
matter; or
(b) any request of the Registrar to amend or complete and resubmit
any document or to submit a fresh document, and fails to make
good the default within 14 days after the service on the person of
a notice requiring it to be done, Tribunal may, on application by
the Registrar, make an order directing that person or (if that
person is a corporation) any officer of the body corporate to
make good the default within such time as is specified in the
order.
(2) Any such order may provide that all the costs of and incidental to the
application shall be borne by that person or by any officer of the body
corporate who is responsible for the default if that person is a body
corporate.
(3) Nothing in this section shall limit the operation of any other provision
of this Act or any written law imposing penalties (in respect of any
default referred to in this section) on that person or an officer of a
body corporate if that person is a body corporate.
34. Keeping of limited liability partnership records.
(1) A limited liability partnership shall take reasonable precautions to maintain
the records it is required to maintain under sub-section (1) of section 27
in such a manner so as to
(a) prevent loss or destruction thereof;
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23. (b) prevent falsification of entries;
(c) facilitate detection and correction of inaccuracies.
(2) If a default is made in complying with sub-section (1), the manager shall be
punishable under the Act.
Chapter IX
Taxation
35. Income Tax and Capital Gains.
(1) For the purposes of taxation, any activity carried on by a limited
liability partnership with a view to profit shall be treated as carried
on in partnership by its partners (and not by the limited liability
partnership as such) and, accordingly, the property of the limited
liability partnership shall be treated for those purposes as property of
the partners.
(2) Where a limited liability partnership carries on a trade or business with
a view to profit-
(a) assets held by the limited liability partnership shall be
treated for the purposes of tax in respect of capital gains
as held by its partners; and
(b) any dealings by the limited liability partnership shall be
treated for those purposes as dealings by its partners in
partnership (and not by the limited liability partnership as
such), in respect of capital gains accruing to the partners
of the limited liability partnership on the disposal of any of
its assets shall be assessed and charged on them
separately.
Chapter X
Assignment and Transfer of Partnership Rights
36. Partner's transferable interest.
A partner's economic rights in the limited liability partnership are freely
transferable in accordance with section 37. Non-economic rights of a partner
are not transferable unless specified by the limited liability partnership
agreement.
37. Transfer of partner's transferable interest.
A transfer in whole or in part of a partner's transferable interest is permissible
and does not by itself cause the partner's disassociation or a dissolution and
winding up of the limited liability partnership's activities and does not entitle
the assignee to participate in the management or conduct of the limited
liability partnership's activities, nor access information concerning the
limited liability partnership's transactions.
Chapter XI
Investigation
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24. 38. Investigation of the affairs of a limited liability partnership.
(1) The Central Government may appoint one or more inspectors to
investigate the affairs of an LLP and to report on them in such manner
as it may direct.
(2) The appointment shall be made if, Tribunal, either suo moto, or on an
application received from not less than one fifth partners of LLP, by
order, declares that the affairs of LLP ought to be investigated;
(3) The appointment may be made:-
(a) on the basis of the report of the Registrar to the effect that the
affairs of LLP ought to be investigated;
(b) on the application (alongwith supporting evidence and security
amount as may be prescribed) of not less than one fifth of
total number of partners of LLP;
(c) if LLP, by a resolution passed, declares that the affairs of the
LLP ought to be investigated; and
(d) if in the opinion of the Central Government/Tribunal, there are
circumstances suggesting
(i) that the business of the limited liability
partnership is being conducted with an intent
to defraud its creditors, partners or any other
persons, or otherwise for a fraudulent or
unlawful purpose, or in a manner oppressive or
unfairly prejudicial to some or any of its
partners, or that the limited liability
partnership was formed for any fraudulent or
unlawful purpose;
(ii) that the partners of LLP have been guilty of
fraud, misfeasance or other misconduct
towards the limited liability partnership or
towards any of its partners; or
(iii) that the partners of the limited liability
partnership have not been given all the
information with respect to its affairs which
they might reasonably expect, including
information relating to the remuneration
payable to a manager of the limited liability
partnership.
39. Application by partners to be supported by evidence and power to
call for security.
An application by partners of the limited liability partnership shall be
supported by such evidence as the Tribunal may require for the purpose
of showing that the applicants have good reason for requiring the
investigation; and the Central Government may, before appointing an
24
25. inspector, require the applicants to give security, for such amount as may
be prescribed, for payment of the costs of the investigation.
40. Firm, body corporate or association not to be appointed as
inspector.
No firm, body corporate or other association shall be appointed as an
inspector.
41. Power of inspectors to carry investigation into affairs of related
entities, etc.
(1) If an inspector appointed by the Central Government to investigate
the affairs of the limited liability partnership thinks it necessary for
the purposes of his investigation to investigate also the affairs of
an entity which has been associated in the past or is presently
associated with the limited liability partnership or any present or
former partner or manager of the limited liability partnership, the
inspector shall have the power to do so and shall report on the
affairs of the other entity or partner or manager, so far as he
thinks that the results of his investigation thereof are relevant to
the investigation of the affairs of the limited liability partnership.
(2) In the case of any entity or partner or manager referred to in sub-
section (1), the inspector shall not exercise his power of
investigating into, and reporting on, its or his affairs without first
having obtained the prior approval of the Central Government
thereto:
Provided that before according approval under this sub-section,
the Central Government shall give the entity or partner or
manager a reasonable opportunity to show cause why such
approval should not be accorded.
42. Production of documents and evidence.
(1) It shall be the duty of the manager and partners of the limited
liability partnership, -
(a) to preserve and to produce to an inspector or any person
authorised by him in this behalf with the previous approval
of the Central Government, all books and papers of, or
relating to, the limited liability partnership or, as the case
may be, or of relating to the other entity, which are in their
custody or power; and
(b) otherwise to give to the inspector all assistance in
connection with the investigation which they are reasonably
able to give.
(2) The inspector may, with the previous approval of the Central
Government, require any entity other than an entity referred to in
sub-section (1) to furnish such information to, or produce such
books and papers before, him or any person authorised by him in
this behalf with the previous approval of that Government as he
may consider necessary if the furnishing of such information or the
25
26. production of such books and papers is relevant or necessary for
the purposes of his investigation.
(3) The inspector may keep in his custody any books and papers
produced under sub-section (1) or sub-section (2) for six months
and thereafter shall return the same to the limited liability
partnership, other entity or individual by whom or on whose behalf
the books and papers are produced:
Provided that the inspector may call for the books and papers if
they are needed again:
Provided further that if certified copies of the books and papers
produced under sub-section (2) are furnished to the inspector, he
shall return those books and papers to the entity or person
concerned.
(4) An inspector may examine on oath
(a) any of the persons referred to in sub-section (1) ; and
(b) with the previous approval of the Central Government, any
other person, in relation to the affairs of the LLP, as the
case may be ; and may administer an oath accordingly and
for that purpose may require any of those persons to
appear before him personally.
(5) If any person fails without reasonable cause or refuses
(a) to produce to an inspector or any person authorised by him
in this behalf with the previous approval of the Central
Government any book or p aper which it is his duty under
sub-section (1) or sub-section (2) to produce ; or
(b) to furnish any information which it is his duty under sub-
section (2) to furnish ; or
(c) to appear before the inspector personally when required to
do so under sub-section (4) or to answer any question
which is put to him by the inspector in pursuance of that
sub-section ; or
(d) to sign the notes of any examination,
he shall be punishable under the Act.
(6) Notes of any examination under sub-section (4) shall be taken
down in writing and shall be read over to or by, and signed by, the
person examined, and may thereafter be used in evidence against
him.
43. Seizure of documents by inspector.
(1) Where in the course of investigation, the inspector has reasonable
gro und to believe that the books and papers of, or relating to,
limited liability partnership or other entity or partner or manager
of such limited liability partnership may be destroyed, mutilated,
altered, falsified or secreted, the inspector may make an
application to the Magistrate of First Class or, as the case may be,
26
27. the Metropolitan Magistrate, having jurisdiction for an order for the
seizure of such books and papers.
(2) After considering the application and hearing the inspector, if
necessary, the Magistrate may by order authorise the inspector
(a) to enter, with such assistance, as may be required, the place
or places where such books and papers are kept ;
(b) to search that place or those places in the manner specified in
the order ; and
(c) to s eize books and papers he considers necessary for the
purposes of his investigation.
(3) The inspector shall keep in his custody the books and papers
seized under this section for such period not later than the
conclusion of the investigation as he considers necessary and
thereafter shall return the same to the concerned entity or person
from whose custody or power they were seized and inform the
Magistrate of such return:
Provided that the inspector may, before returning such books and
papers as aforesaid, place identification marks on them or any part
thereof.
(4) Save as otherwise provided in this section, every search or seizure
made under this section shall be carried out in accordance with the
provisions of the Code of Criminal Procedure, 1898, relating to
searches or seizures made under that Code.
44. Inspectors' report.
(1) The inspectors may, and if so directed by the Central Government
shall, make interim reports to that Government, and on the
conclusion of the investigation, shall make a final report to the
Central Government. Any such report shall be written or printed,
as the Central Government may direct.
(2) The Central Government
(a) shall forward a copy of any report (other than an interim
report) made by the inspectors to the limited liability partnership
at its registered office, and also to any other entity or person dealt
with or related to the report;
(b) may, if it thinks fit, furnish a copy thereof, on request and on
payment of the prescribed fee, to any person or entity related to
or affected by the report;
(c) may also cause the report to be published.
45. Prosecution.
If, from the report it appears to the Central Government that any person
in relation to the limited liability partnership or in relation to any other
entity whose affairs have been investigated, been guilty of any offence for
which he is liable, the Central Government may, after taking such legal
advice as it thinks fit, prosecute such person(s) for the offence; and it
shall be the duty of all partners, manager and other employees and
27
28. agents of the limited liability partnership or other entity, as the case may
be, to give the Central Government all assistance in connection with the
prosecution which they are reasonably able to give.
46. Application for winding up of limited liability partnership or other
entity.
If any such limited liability partnership or other entity is liable to be
wound up under this Act or any other legislation for the time being in
force, and it appears to the Central Government from any such report as
aforesaid that it is expedient to do so by reason of any such
circumstances as are referred to in sub-clause (i) or (ii) of clause (d) of
sub-section (3) of section 38, the Central Government may, unless the
limited liability partnership or entity is already being wound up by the
Tribunal cause to be presented to the Tribunal by any person authorised
by the Central Government in this behalf, a petition for the winding up of
the limited liability partnership or entity on the ground that it is just and
equitable that it should be wound up.
47. Proceedings for recovery of damages or property.
(1) If from any such report as aforesaid, it appears to the Central
Government that proceedings ought, in the public interest, to be
brought by the limited liability partnership or any entity whose
affairs have been investigated,
(a) for the recovery of damages in respect of any fraud,
misfeasance or other misconduct in connection with the promotion
or formation, or the management of the affairs, of such limited
liability partnership or such other entity; or
(b) for the recovery of any property of such limited liability or such
other entity, which has been misapplied or wrongfully retained;
the Central Government may itself bring proceedings for that
purpose in the name of such limited liability partnership or such
other entity.
(2) The Central Government shall indemnify such limited liability
partnership or such other entity against any costs or expenses
incurred by it in, or in connection with, any proceedings brought
by virtue of sub-section (1).
48. Expenses of investigation.
(1) The expenses of and incidental to an investigation by an inspector
appointed by the Central Government under this Act shall be
defrayed in the first instance by the Central Government; but the
following persons shall, to the extent mentioned below, be liable to
reimburse the Central Government in respect of such expenses:
(a) any person who is convicted on a prosecution, or who is
ordered to pay damages or restore any property in
proceedings brought by virtue of section 47, may, in the
same proceedings, be ordered to pay the said expenses to
such extent as may be specified by the Tribunal convicting
28
29. such person, or ordering him to pay such damages or
restore such property, as the case may be;
(b) any entity in whose name proceedings are brought as
aforesaid shall be liable, to the extent of the amount or
value of any sums or property recovered by it as a result of
the proceedings ; and
(c) unless, as a result of the investigation, a prosecution is
instituted in pursuance of section 45,
(i) any entity, a partner or manager or any other
person dealt with by the report of the inspector shall
be liable to reimburse the Central Government in
respect of the whole of the expenses, unless and
except in so far as, the Central Government
otherwise directs; and
(ii) the applicants for the investigation, where the
inspector was appointed in pursuance of the
provisions of sub-section (2) of section 38, shall be
liable to such extent, if any, as the Central
Government may direct.
(2) Any amount for which a limited liability partnership or other entity
is liable by virtue of clause (b) of sub-section (1) shall be a first
charge on the sums or property mentioned in that clause.
(3) The amount of expenses in respect of which any limited liability
partnership, entity, a partner or manager or any other person is
liable under sub-clause (i) of clause (c) of sub-section (1) to
reimburse the Central Government shall be recoverable as an
arrear of land revenue.
(4) For the purposes of this section, any costs or expenses incurred by
the Central Government or in connection with proceedings brought
by virtue of section 47 (including expenses incurred by virtue of
sub-section (2) thereof) shall be treated as expenses of the
investigation giving rise to the proceedings.
49. Inspectors' report to be evidence.
A copy of any report of any inspector or inspectors appointed under this
Act, authenticated in such manner, if any, as may be prescribed, shall be
admissible in any legal proceeding as evidence of the opinion of the
inspector or inspectors in relation to any matter contained in the report.
Chapter XII
Conversion to Limited Liability Partnership
50. Conversion from firm to limited liability partnership.
The provisions of the Second Schedule shall apply to the conversion from
firm to a limited liability partnership.
51. Conversion from private company to limited liability partnership.
The provisions of the Third Schedule shall apply to the conversion from
private company and unlisted public company to a limited liability
partnership.
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30. 52. Conversion from unlisted public company to limited liability
partnership.
The provisions of the Fourth Schedule shall apply to the conversion from
unlisted public company to a limited liability partnership.
Chapter XIII
Foreign Limited Liability Partnership
53. Foreign Limited Liability Partnership.
Regulations shall make provision regarding a foreign limited liability
partnership.
Chapter XIV
Amalgamation, Merger and Demerger of Limited Liability Partnerships
54. Amalgamation, Merger and Demerger of Limited Liability
Partnerships.
Regulations shall make provision about the amalgamation, merger and
demerger of limited liability partnerships.
Chapter XV
Winding Up and Dissolution
55. Winding Up and Dissolution.
(1) The winding up of a limited liability partnership may be either
voluntary or by the Tribunal.
(2) Regulations shall make provision about the winding up and dissolution
of limited liability partnerships.
(2) Regulations may make other provisions about the winding up and
dissolution of limited liability partnerships, and provision about the
winding up and dissolution of foreign limited liability partnerships.
Chapter XVI
Miscellaneous
56. Business Transactions of Partner with Partnership.
A partner may lend money to and transact other business with the limited
liability partnership and has the same rights and obligations with respect to
the loan or other transactions as a person who is not a partner.
57. Application of Company Law etc.
The Central Government may direct that any of the provisions of the
Companies Act, 1956 or any other enactment as may be prescribed: -
(a) shall apply to any limited liability partnership; or
(b) shall apply to any limited liability partnership with such
exception, modification and adaptation as may be prescribed.
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31. 58. Electronic filing service.
(1) The Registrar may require any document to be lodged under this Act
to be filed electronically with the Registrar using the service provided
by the Registrar whereby documents under this Act may be filed with
or submitted to the Registrar electronically.
(2) Where any document is required to be filed with or submitted to the
Registrar electronically by any person using the service referred to in
sub-section (1), the Registrar may allow the document to be filed or
submitted by a prescribed person on behalf of the first-mentioned
person, subject to such conditions as may be imposed from time to
time by the Registrar on the prescribed person.
(3) Where the Registrar provides a service whereby documents required
under this Act may be filed electronically with the Registrar, the
Registrar and its officers or employees shall not be liable for any loss
or damage suffered by any person by reason of any error or omission
of whatever nature or however caused appearing in any document
obtained by any person under the service, if the error or omission —
(a) is made in good faith and in the ordinary course of the discharge of
the duties of such officers or employees; or
(b) has occurred or arisen as a result of any defect or breakdown in
the service or in any of the equipment used for the service.
(4) A copy of or an extract from any document electronically filed with or
submitted to the Registrar using the service referred to in sub-section
(1) which is supplied or issued by the Registrar and certified through
digital signature to be a true copy of or extract from such document
shall, in any proceedings, be admissible in evidence as of equal validity
with the original document.
(5) Any information supplied by the Registrar that is certified by the
Registrar through digital signature to be a true extract from any
document filed or lodged with or submitted to the Registrar using the
service referred to in sub-section (1) shall, in any proceedings, be
admissible in evidence and be presumed, unless evidence to the
contrary is adduced, to be a true extract from such document.
(6) Sub-sections (4) and (5) shall have effect notwithstanding the
provisions of any other written law.
59. Penalty.
Penalty for the violation of various provisions of this Act shall be as specified
in the Fifth Schedule.
60. Application of other laws not barred.
The provisions of this Act shall be in addition to, and not in derogation of, the
provisions of any other law for the time being in force.
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32. 61. Power to make Regulations.
(1) The Central Government may, by notification, make regulations consistent
with this Act in order to carry out the purposes of the Act.
(2) Every regulation made under this Act shall be laid, as soon as may be
after it is made, before each House of Parliament, while it is in session, for
a total period of thirty days which may be comprised in one session or in
two or more successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid,
both Houses agree in making any modification in the regulation, or both
Houses agree that the regulation should not be made, the regulation shall
thereafter have effect only in such modified form or be of no effect, as the
case may be; so, however that any such modification shall be without
prejudice to the validity of anything previously done under that
regulation.
62. Power to remove difficulties.
(1) If any difficulty arises in giving effect to the provisions of this Act,
the Central Government may, by order published in the Official
Gazette, make such provisions, not inconsistent with the provisions of
this Act as may appear to it to be necessary for removing the difficulty.
(2) Every order made under this section shall be laid, as soon as may be after
it is made, before each House of Parliament.
63. Power of Registrar to strike defunct limited liability partnership off
register.
(1) Where the R egistrar has reasonable cause to believe that a limited liability
partnership is not carrying on business or in operation, he shall write a letter
to the limited liability partnership inquiring whether the limited liability
partnership is carrying on business or in operation.
(2) If the Registrar does not within one month of sending the letter receive any
answer thereto, he shall, within fourteen days after the expiry of the month,
send to the limited liability partnership by post a registered letter referring to
the first letter, and stating that no answer thereto has been received and
that, if an answer is not received to the second letter within one month from
the date thereof, a notice will be published in the Official Gazette with a view
to striking the name of the limited liability partnership off the register.
(3) If the Registrar either receives an answer from the limited liability partnership
to the effect that it is not carrying on business or in operation, or does not
within one month after sending the second letter receive any answer, he may
publish in the Official Gazette, and send to the limited liability partnership by
registered post, a notice that, at the expiration of three months from the date
of that notice, the name of the limited liability partnership mentioned therein
will, unless cause is shown to the contrary, be struck off the register and the
limited liability partnership will be dissolved.
(4) If, in any case where a limited liability partnership is being wound-up, the
Registrar has reasonable cause to believe either that no liquidator is acting, or
that the affairs of the limited liability partnership have been completely
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33. wound-up, and any returns required to be made by the liquidator have not
been made for a period of six consecutive months, the Registrar shall publish
in the Official Gazette and send to the limited liability partnership or the
liquidator, if any, a like notice as is provided in sub-section (3).
(5) At the expiry of the time mentioned in the notice referred to in sub-section
(3) or (4), the Registrar may, unless cause to the contrary is previously
shown by the limited liability partnership, strike its name off the register, and
shall publish notice thereof in the Official Gazette; and on the publication in
the Official Gazette of this notice, the limited liability partnership shall stand
dissolved.
(6) If a limited liability partnership, or any partner, manager or creditor thereof,
feels aggrieved by the limited liability partnership having been struck off the
register, the Tribunal, on an application made by the limited liability
partnership, partner, manager or creditor before the expiry of twenty years
from the publication in the Official Gazette of the notice aforesaid, may, if
satisfied that the limited liability partnership was, at the time of the striking
off, carrying on business or in operation or otherwise that it is just that the
limited liability partnership be restored to the register, order the name of the
limited liability partnership to be restored to the register; and the Tribunal
may, by the order, give such directions and make such provisions as seem
just for placing the limited liability partnership and all other persons in the
same position as nearly as may be as if the name of the limited liability
partnership had not been struck off.
(7) Upon a certified copy of the order under sub-section (6) being delivered to
the Registrar for registration, the limited liability partnership shall be deemed
to have continued in existence as if its name had not been struck off.
64. Offences by limited liability partnerships.
Where an offence under this Act committed by a limited liability partnership is
proved —
(a) to have been committed with the consent or connivance of a
partner(s) or manager of the limited liability partnership; or
(b) to be attributable to any neglect on the part of the partner(s) or
manager of that limited liability partnership, the partner(s) or manager
of the limited liability partnership (as the case may be) as well as that
limited liability partnership shall be guilty of the offence and shall be
liable to be proceeded against and punished accordingly.
65. Jurisdiction of the Tribunal.
Notwithstanding any provision to the contrary in any Act for the time being in
force, the Tribunal shall have jurisdiction to try any offence under this Act and
shall have power to impose the penalty or punishment in respect of the
offence.
66. General penalties.
Any person guilty of an offence under this Act for which no penalty is
expressly provided shall be liable to a fine which may extend to a sum as may
be prescribed under the Act.
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34. FIRST SCHEDULE – DEFAULT PROVISIONS FOR LIMITED LIABILITY
PARTNERSHIPS
1. The mutual rights and duties of the partners and the mutual rights and duties
of the limited liability partnership and the partners shall be determined,
subject to the terms of any limited liability partnership agreement, by the
provisions in this Schedule.
2. All the partners of a limited liability partnership are entitled to share equally
in the capital, profits and losses of the limited liability partnership.
3. The limited liability partnership must indemnify each partner in respect of
payments made and personal liabilities incurred by him —
(a) in the ordinary and proper conduct of the business of the limited liability
partnership; or
(b) in or about anything necessarily done for the preservation of the business
or property of the limited liability partnership.
4. Every partner may take part in the management of the limited liability
partnership.
5. No partner shall be entitled to remuneration for acting in the business or
management of the limited liability partnership.
6. No person may be introduced as a partner without the consent of all existing
partners.
7. Any matter or issue relating to the limited liability partnership shall be
decided by resolution passed by a majority in number of the partners, and for
this purpose, each partner shall have one vote. However, no change may be
made in the nature of business of the limited liability partnership without the
consent of all the members.
8. Each partner shall render true accounts and full information of all things
affecting the limited liability partnership to any partner or his legal
representatives.
9. If a partner, without the consent of the limited liability partnership, carries on
any business of the same nature as and competing with the limited liability
partnership, he must account for and pay over to the limited liability
partnership all profits made by him in that business.
10. Every partner must account to the limited liability partnership for any benefit
derived by him without the consent of the limited liability partnership from
any transaction concerning the limited liability partnership, or from any use
by him of the property, name or any business connection of the limited
liability partnership.
11. No majority of the partners can expel any partner unless a power to do so has
been conferred by express agreement between the partners.
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35. SECOND SCHEDULE - CONVERSION FROM FIRM TO LIMITED LIABILITY
PARTNERSHIP
1. Interpretation.
(1) A firm may convert to a limited liability partnership by complying with
the requirements as to the conversion set out in this Schedule.
(2) Upon such conversion, the partners of the firm shall be bound by the
provisions of this schedule that are applicable to them.
(3) The Central Government may, by order published in the Gazette,
amend, add to or vary the provisions of this Schedule.
(4) In this paragraph, “convert”, in relation to a firm converting to a
limited liability partnership, means a transfer of the property, assets,
interests, rights, privileges, liabilities, obligations and the undertaking
of the firm to the limited liability partnership in accordance with the
provisions of this Schedule.
2. Eligibility for conversion.
A firm may apply to convert to a limited liability partnership in accordance
with this Schedule if and only if the partners of the limited liability partnership
to which the firm is to be converted, comprises all the partners of the firm
and no one else.
3. Statements to be lodged.
A firm may apply to convert to a limited liability partnership by lodging with
the Registrar —
(a) a statement by all of its partners in such medium and form as the
Registrar may prescribe containing the following particulars:
(i) the name and registration number (if applicable) of the firm; and
(ii) the date on which the firm was registered under the Partnership Act,
1932 or any written law (if applicable); and
(b) incorporation document and statement referred to in section 8.
4. Registration of conversion.
On receiving the documents referred to in paragraph 3, the Registrar shall
subject to the provisions of this Act, register the documents and issue a
certificate of registration in such form as the Registrar may determine stating
that the limited liability partnership is, on and from the date specified in the
certificate, registered under this Act.
5. Registrar may refuse to register.
(1) Nothing in this Schedule shall be construed to require the Registrar to
register any limited liability partnership if he is not satisfied with the
particulars or other information furnished under the provisions of this
Act.
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