Introduction

A limited liability partnership (LLP) is a partnership in which some or all partners

(depending on the jurisdiction) have limited liabilities. It therefore exhibits
elements of partnerships and corporations. In an LLP, one partner is not
responsible or liable for another partner's misconduct or negligence. This is an
important difference from the traditional unlimited partnership under the
Partnership Act 1890, in which each partner has joint and several liabilities. In an
LLP, some partners have a form of limited liability similar to that of the
shareholders of a corporation. In some countries, an LLP must also have at least
one "general partner" with unlimited liability. Unlike corporate shareholders, the
partners have the right to manage the business directly. In contrast, corporate
shareholders have to elect a board of directors under the laws of various state
charters. The board organizes itself (also under the laws of the various state
charters) and hires corporate officers who then have as "corporate" individuals the
legal responsibility to manage the corporation in the corporation's best interest. An
LLP also contains a different level of tax liability from that of a corporation.

Limited liability partnerships are distinct from limited partnerships in some

countries, which may allow all LLP partners to have limited liability, while a
limited partnership may require at least one unlimited partner and allow others to
assume the role of a passive and limited liability investor. As a result, in these
countries, the LLP is more suited for businesses in which all investors wish to take
an active role in management.

1
There is considerable confusion between LLPs as constituted in the U.S. and that
introduced in the UK in 2001 and adopted elsewhere.

International Presence

China
In China, the LLP is known as a Special general partnership. The organizational
form is restricted to knowledge-based professions and technical service industries.
The structure shields co-partners from liabilities due to the willful misconduct or
gross negligence of one partner or a group of partners.

United Kingdom
In the United Kingdom LLPs are governed by the Limited Liability Partnerships
Act 2000 (in Great Britain) and the Limited Liability Partnerships Act (Northern
Ireland) 2002 in Northern Ireland. A UK limited liability partnership is a corporate
body - that is to say, it has a continuing legal existence independent of its
members, as compared to a Partnership which may (in England and Wales, does
not) have a legal existence dependent upon its membership.
A UK LLP's members have a collective ("Joint") responsibility, to the extent that
they may agree in an "LLP agreement", but no individual ("several") responsibility
for each other's actions. As with a limited company or a corporation, members in
an LLP cannot, in the absence of fraud or wrongful trading, lose more than they
invest.

In relation to tax, however, a UK LLP is similar to a partnership, namely, it is tax-

transparent, and that is to say it pays no UK corporation tax or capital gains tax.
Instead, LLP income and/or gains are distributed gross to partners as self-
2
employed persons, rather than as PAYE employees. It is a unique entity in its
synthesis of collective and individual rights and responsibilities and its flexibility
— there is in fact no requirement for the LLP agreement even to be in writing
because simple partnership-based regulations apply by way of default provisions.

It has to date been closely replicated by Japan — see above — and by the financial
centres of Dubai and Qatar. It is perhaps closest in nature to a limited liability
company in the United States of America although it may be distinguished from
that entity by the fact that the LLC, while having a legal existence independent of
its members is not technically a corporate body because its legal existence is time
limited and therefore not "continuing."

The LLP structure is commonly used by accountants, as a company may not act as
auditor to another company. LLPs are also becoming more common among firms
in the legal profession such as solicitors and patent attorneys that by law are
prohibited from incorporating as companies.

United States
In the United States, each individual state has its own law governing their
formation. Limited liability partnerships emerged in the early 1990s: while only
two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time
LLPs were added to the Uniform Partnership Act in 1996.

The limited liability partnership was formed in the aftermath of the collapse of real
estate and energy prices in Texas in the 1980s. This collapse led to a large wave of
bank and savings and loan failures. Because the amounts recoverable from the
banks were small, efforts were made to recover assets from the lawyers and
3
accountants that had advised the banks in the early 1980s. The reason was that
partners in law and accounting firms were subject to the possibility of huge claims
which would bankrupt them personally, and the first LLP laws were passed to
shield innocent members of these partnerships from liability.

Although found in many business fields, the LLP is an especially popular form of
organization among professionals, particularly lawyers, accountants, and
architects. In some U.S. states, namely California, New York, Oregon, and
Nevada, LLPs can only be formed for such professional uses. Formation of an LLP
typically requires filing certificates with the county and state offices. Although
specific rules vary from state to state, all states have passed variations of the
Revised Uniform Partnership Act.

The liability of the partners varies from state to state. Section 306(c) of the Revised
Uniform Partnership Act (1997)(RUPA) (a standard statute adopted by a majority
of the states) grants LLPs a form of limited liability similar to that of a corporation:

An obligation of a partnership incurred while the partnership is a limited liability

partnership, whether arising in contract, tort, or otherwise, is solely the obligation
of the partnership. A partner is not personally liable, directly or indirectly, by way
of contribution or otherwise, for such an obligation solely by reason of being or so
acting as a partner.

However, a sizable minority of states only extend such protection against

negligence claims, meaning that partners in an LLP can be personally liable for
contract and intentional tort claims brought against the LLP. While Tennessee and
West Virginia have otherwise adopted RUPA, their respective adoptions of Section
4
306 depart from the uniform language, and only a partial liability shield is
provided.

As in a partnership or limited liability company (LLC), the profits of an LLP are

allocated among the partners for tax purposes, avoiding the problem of "double
taxation" often found in corporations.

Some US states have combined the LP and LLP forms to create limited liability
limited partnerships.
Limited Liability Partnership in India

In an increasingly litigious market environment, the prospect of being a

member of a partnership firm with unlimited personal liability is, to say the least,
risky and unattractive. In India, some bodies of professionals have been prohibited
from practicing under an incorporated form. E.g. Development of legal profession
in India has been restricted in India on account of the number of impediments in the
current regulatory system which hinders Indian law firms from competing
effectively against foreign firms.1 This would hamper the growth of Indian Law
Firms in comparison to the Foreign Law Firms once the Legal Sector is opened.

The ‘general partnership’ or partnership simpliciter has traditionally been the

entity of choice to provide services by professionals such as lawyers, accountants,
doctors, architects, and company secretaries.2 The unlimited liability of general

1
A Consultation Paper on Legal Services under GATS (Prepared by Trade and Policy Division, Department of
Commerce, Government of India)
2
Naresh Chandra Committee Report

5
partnerships under the Indian Partnership Act 1932 has become a cause for concern
in the light of increase in the incidence of litigation for professional negligence, the
size of the claims and the risk to a partner's personal assets when a claim exceeds
the sum of the assets of the partnership.3

The idea that LLPs should be introduced in India was mooted in the Report of
the Naresh Chandra Committee on Regulation of Private Companies and
Partnership and the May 2005 Report of the Expert Committee on Company Law
(J. J. Irani Committee). In response, on November 2, 2005, the Ministry of Company
Affairs in the Government of India circulated a concept paper on LLP’s with a view
to stimulating public debate over ideas which will be incorporated in the proposed
Limited Liability Partnership Bill (the "Bill"). The proposed Bill is drafted on the
lines of the United Kingdom's Limited Liability Partnerships Act 2000.4

Advantage of Limited Liability Partnership

1. The main advantage of LLP is that limited partners do not take on personal
liability for the obligations of the entire partnership, but only to the extent of the
money contributed to the firm by such partners. Whereas, under Sec. 25 of the Indian
Partnership Act, a partner is jointly and severally liable.

2. Further, a partner’s liability is not limited when the misconduct is attributable to

him or to an employee under the supervision or control of that partner. An LLP only

3
Infra Note 20
4
Aparna Viswanathan, India considers introduction of Limited Liability Partnerships, I.C.C.L.R. 2006, 17(5), 141

6
protects a partner, other than a general partner from the liability arising from the
misconduct or personal acts of other partners.

3. The members of an LLP would have the option to have a general partner or more
with unlimited liability, but it would not shield the partners from legal liability
arising out of their own personal acts which are not done for and on behalf of the
LLP, that is, any act done beyond the acts and powers of the partners as laid down
in the incorporation document.

4. The main benefit in an LLP is that it is taxed as a partnership,5 but has the benefits
of being a corporate, or more significantly, a juristic entity with limited liability.

5. An LLP has the special characteristic of being a separate legal personality6 distinct
from its partners.

6. Sec. 11 of the Companies Act bars the formation of a partnership consisting of

more than 20 persons. But in a Limited Liability Partnership, a minimum of two
partners is required.7

5
For tax law, income-tax as well as sales tax, partnership firm is a legal entity - State of Punjab v. Jullender Vegetables
Syndicate - 1966 (17) STC 326 (SC), CIT v. A W Figgies - AIR 1953 SC 455, CIT v. G Parthasarthy Naidu (1999)
236 ITR 350
6
Though a partnership firm is not a juristic person, Civil Procedure Code enables the partners of a partnership firm to
sue or to be sued in the name of the firm. - Ashok Transport Agency v. Awadhesh Kumar 1998(5) SCALE 730 (SC).
[A partnership firm can sue only if it is registered].
7
V. Pattabhi Ram & Mithun D'Souza, Demystifying Limited Liability Partnership, The Business Line, (May 15, 2006)

7
Disadvantages of Limited Liability Partnership

1. Though good in parts, the implementation of this concept may give rise to
certain tricky issues. How would one prove that a particular partner is responsible
for an act of felony? This would give rise to disputes amongst the partners
themselves. In a situation wherein there are two or more joint auditors who have
signed a problem balance sheet, to whom would one pin the responsibility? Even if
we say that a partner would only be liable for his acts, how can one distinguish which
partner has done which act ? The main problem will arise is to where should one
draw the line ? These are big issues which need to be resolved before implementing
or allowing firms to form LLP’s.8

2. Even if the allocation of work amongst the auditors is as clear as crystal,

disputes would be inevitable. Since the LLPs are proposed to disclose financial
information a la a private limited company, a separate format of financial statements
would need to be devised. Provisions relating to authorised capital, stocks, and so
on, would be irrelevant in a professional firm. With the new-age insurance
companies offering a slew of innovative insurance products, it may not take a long
time before a comprehensive policy is devised that protects all risks for a partnership.
A partner being held responsible to the extent of his contribution in the case of a
felony is bad enough for him. 9

3. But the situation is not that bad after all. If the Partnership Act is amended to
permit unlimited partners, clauses in the partnership deed fit together limited

8
Mohan R. Lavi, Little Utility of Limited Liability, The Business Line, (21st August, 2005)
9
Ibid

8
liabilities of the partners, there is an insurance policy that covers all business risks
associated with a partnership and corporate governance practices are introduced for
partnerships above a pre-defined size, would then there be a requirement for a
separate law relating to LLPs? Your guess is as good as mine.

Analysis of Limited Liability P artnership

A Limited Liability Partnership is a body corporate with limited liability in the

sense that its members are not personally liable for its debts beyond their financial
interests in the LLP itself, but with unlimited capacity.10 It is incorporated by
registration with an incorporation document fulfilling the role of the memorandum
of association11 and subject to many of the accounting and disclosure requirements
and other controls applicable12 to companies.

An LLP is different from a company in a number of ways:13

(a) it does not have shares or shareholders;
(b) it has members/partners (members for LLPs in the UK and partners in the US
and India) but not directors, and there is no separation of ownership and
management;

10
Limited Liability Partnership Act, 2000 ss 1(3) and (4).
11
Ibid S. 2
12
Geoffrey Morse, Partnership for the 21st Century, Limited Liability Partnerships and Partnership Law Reform in
the United Kingdom, 2002 Sing. J. Legal Stud. 455
13
Kitty Lam, Limited Liability Partnership and Liability Capping Legislation for the Practice of Law in Selected
Places, Research and Library Services Division Legislative Council Secretariat.

9
(c) It does not have a memorandum14 and articles which are public documents
governing the key facts of the company and the mutual relationship between the
members/partners and the company; and
(d) The agreement governing the mutual rights and duties between the
members/partners, and between the members/partners and the LLP is a purely
private document.

Under the auspices of the Insolvency statutes, LLPs, like limited liability
companies, are allowed to:
• propose a voluntary arrangement;
• apply to the court for an administration order;
• go into receivership;
• resolve to go into voluntary liquidation, to appoint a liquidator and to allow a
liquidator to receive an interest in a transferee company or LLP on a voluntary
liquidation; and
• resolve to be wound up by the court.15

Externally therefore the LLP is a company but internally it may be run as the
members wish--there is no formal legal requirement in the legislation for any written
agreement. It was originally assumed that the professional firms for whom the form
was initially intended would draft their own; at a late stage it was realised that this
might not be the case with smaller enterprises and so there are a number of, rather
hastily thought through, default terms in the regulations based on some of those in
the Partnership Act16 – the only obvious direct application of partnership law to

14
Sec. 14, The Companies Act, 1956 ( Act No. 1 of 1956)
15
Fergus Payne , Insolvency of Limited Liability Partnerships, Insolv. Int. 2005, 18(7)

10
LLPs, apart from direct taxation where an LLP is also to be treated as a partnership
(another relic of its origins--as is the fact that changing from a partnership to an LLP
is tax neutral whereas changing from a company to an LLP is not).

The LLP is therefore a hybrid creature but based substantially on the corporate
model. English partnership law does not currently confer legal personality on a
partnership Thus, once it was decided to create the LLP as a separate legal person
the corporate model was the obvious solution. There is one limit to the application
of the corporate model, however, in that, given the absurdity of a one person
partnership of any form, it is not possible to have a single member LLP. Since it
appears that otherwise there is no legal reason why a single member LLP should not
exist, the resulting paradox in itself reprises the basic conflict in using company law
to regulate what is called a partnership.

16
Limited Liability Partnership Regulations, 2001

11
 Difference between Partnership and LLP
LLP
Minimum partners – 2 Maximum
1
partners – unlimited
2 Alegalentity
3 Registration is compulsory
4 May have its own commonseal
Name has to be approved by the
5 Any name of its choice
registrar and must have LLP as suffix
6 Agreement available for inspection
7 Can hold property in its own name
8 Foreign nationals can be partners
Liability is limited. Partner is liable only Liability is unlimited. Partner is
to the extent of agreed contribution and
9
not for any independent/ unauthorized
act of other partners
Relationship of Partner and LLP and
10 partner inter-se depends upon terms of
LLP agreement
Provisions of Indian Partnership Act,
11
1932 not applicable
Is a legal entity which can be sued as
12
well as it can sue the third party
Partnership
Minimum partners – 2 Maximum
partners – 20
No talegalentity
Registration is optional
No concept of common seal
Deed not available for inspection
Cannot hold property in its own
name
Foreign nationals cannot be
partners
jointly and severally liable for all
the acts of the firm and its other
partners
Partner can act as an agent of the
firm as well as agent of the other
partners
Provisions of Indian Partnership
Act, 1932 applicable
Legal proceedings can be taken
against a partnership firm
12

Operational structure has more
flexibility Eg. change in terms of
partnership, change in profit sharing
14
ratio, remunerating the partners,
introduction and withdrawal of capital,
dissolution of LLP etc.
15 Minor cannot become partner
Statutory compliance easy
16
Approval by Partners only
Accounts can be maintained either on
17
cash or mercantile system
irrespective whether it is registered
or not. Only registered partnership
firm can take legal recourse or
defend legal proceedings.
Operational structure has less
flexibility
Minor can be admitted to the
benefits of partnership
Statutory compliance complex
Approval by BODʼs/ Shareholders
Accounts have to maintained on
mercantile system

Cases involving Limited Liability Partnerships

Because this concept has not been implemented or allowed in India, there are no
Case Laws as such. So, we will refer to some U.S Case Laws where LLP is already
a full fledged practice.

1. Megadyne Information Systems v. Rosner, Owens & Nunziato,17

The plaintiff sued a law firm LLP and its partners for malpractice and breach of
fiduciary duty. The court granted the defendants summary judgment on the

17
No. B213137, 2002 WL 31112563 (Cal. App. Sept. 21, 2002).

13
malpractice claim but determined there were fact issues regarding a breach of
fiduciary duty claim. The breach of fiduciary duty claim was premised on alleged
misrepresentations by the firm to the plaintiff that the plaintiff had a viable claim
against the Orange County Transportation Authority (OCTA) when the firm knew
that limitations had run on the claim and the firm’s continued representation and
receipt of fees for worthless legal representation. The court also determined that
there were fact issues relating to the personal liability of the partners. The court cited
the California LLP provisions for the proposition that partners in an LLP do not have
vicarious liability for the torts of another partner, and the court stated that the
plaintiff could only hold a partner liable who was “involved in the handling of the
matter.” All three partners claimed that one of them was the “sole attorney” who
handled the matter and that the other two had no involvement. However, the court
found there were fact issues as to the involvement of the other two. The fact issues
were raised by the admittedly-involved attorney’s testimony that “there might have
been discussions” with the other two partners that the plaintiff had a viable
malpractice claim against the lawyers that had previously represented the plaintiff
on their claim against OCTA. The court said these discussions could support an
inference that the partners knew the plaintiff’s claim against OCTA was time-barred
and that they participated in the decision not to tell the plaintiff while the firm
continued its representation. In addition, the name of one of the partners who claimed
he was not involved appeared on the caption page of the claim filed with OCTA,
suggesting his involvement in the case.

2. Schaufler v. Mengel, Metzger, Barr & Company, LLP,18

18
745 N.Y.S.2d 291

14
Apparently confusing LLP with limited partnership in stating that defendants had
submitted insufficient evidence to establish that managing partner of accounting firm
had no liability as a matter of law on buy-out agreement negotiated with plaintiff
partner because the limited partnership act imposes joint and several personal
liability on a general partner and on a limited partner who participates in the control
of the business).

3. Williams v. Natural Life Health Foods Ltd 19

The extent to which an individual member or employee of the LLP will be liable in
tort for his or her own misstatements is in some doubt. The case is related to a limited
company and the House of Lords held that the director of the company would only
be liable in negligence if:
(a) he or she assumed personal responsibility for the advice; and
(b) the claimant relied on this assumption of responsibility, and
(c) the claimant’s reliance on this assumption of responsibility was reasonable.
Thus, individuals in an LLP will not incur liability in tort except in exceptional cases.

LLP PARTNERS & THEIR RELATIONSHIP

Chapter 4 of the LLP Act, covers Section 22 to Section 25.
Section 22 prescribes who would be considered as a partner of an LLP. Section 23
provides that the mutual rights and duties amongst the partners' inter-se and between
partners and LLP shall be governed by the LLP agreement and in the absence of
such agreement, shall be governed by the relevant provisions of the LLP Act. Section
24 prescribes the circumstances when a person may cease to be a partner of an LLP

19
[1998] 1 WLR 830; [1998] 2 All ER 57.

15
and governs the rights and duties of the person who is ceased to be a partner as well
as of the LLP. Section 25 emphasizes on the requirement of public information
regarding the fact of cessation of a partner from LLP and provides the mode in which
such information has to be disseminated to the Registrar or third parties. The Section
also prescribes penalties for default made in relation to its provisions.20
Section 22 states, Eligibility to be partners.- On the incorporation of a limited
liability partnership, the persons who subscribed their names to the incorporation
document shall be its partners and any other person may become a partner of the
limited liability partnership by and in accordance with the limited liability
partnership agreement.
Section 23 of LLP Act seeks to provide that the persons who subscribe their names
to the incorporation document shall be partners of LLP and any other person may
also become partner of the LLP in accordance with its agreement.

This section provides that there are two ways in which a person can become a partner
in an LLP - one is by subscribing his name to the incorporation document and other
is by following the procedures/norms prescribed in the partnership agreement for
this purpose.

The first partners of an LLP are those who signed the incorporation document.
Section 41 of the Companies Act, 1956 also contains a similar provision with respect
to the members of a company. It provides that the subscribers of the memorandum
of association shall be deemed to have agreed to become members of the company,
and on its registration shall be entered as members in the register of members. In this
regard, it was held in Official Liquidator v. Suleman Bhai (AIR 1955 MB 166), that

20
https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=675

16
the subscriber of the memorandum is to be treated as having become the member by
the very fact of subscription. Neither application form, nor allotment of shares is
necessary. Even an absence of entry in the register of members cannot deprive him
of his status. He acquires, as soon as the company is registered, the full status of a
member with all the rights and liabilities.

After incorporation, any person may become a partner of an LLP by agreement with
the existing partners. The agreement may prescribe any mode for taking a person as
a partner in the LLP. It could be an admission of partner with the consent of three
fourths of the partners or a partner having 10 years of (specified) professional
experience and consent of majority of partners or any other criteria specified in the
agreement. In the absence of partnership agreement or in the absence of a clause to
this effect in the agreement, a new partner can be admitted to an LLP with the
consent of all the existing partners as per the default provisions under Schedule I of
the LLP Act, 2008.

Thus, a person can become a partner in an LLP in either of the above two modes.
Thus a person who may be holding beneficial interest of a partner or a nominee of a
deceased partner would not be considered as partner in LLP despite having interest
therein. In context of the Companies Act, 1956, in Balkrishan Gupt v. Swadeshi
Polytex Ltd. (1985) 58 Comp. cas 563 SC, it was held that a pawnee of shares or a
receiver appointed under Section 182A of the Land Revenue Act, or the person in
whose favour, the order for attachment of shares has been passed by the court does
not acquire any rights of a member.

17
Relationship of Partners (Section 23)

Section 23 of the LLP Act seeks to provide that the mutual rights and duties of the
partners of the LLP inter se and that of the LLP and its partners shall be governed
by the LLP agreement and in absence of any such agreement, such mutual rights and
duties shall be determined as set out in the First Schedule of the Act. It also seeks to
empower the Central Government to prescribe, by rules, the form, manner and fees
for filing the LLP agreement and informing changes therein. This clause further
seeks to provide that any agreement, made before the incorporation of LLP, between
the partners who subscribe their names to the incorporation document may impose
obligation on LLP, if ratified by all the partners after its incorporation.

Section 23 of the LLP Act provides that the relationship of partners with LLP and as
also between themselves is governed by the partnership agreement and in the
absence thereof, is covered by the default provisions in this regard given under
Schedule I of the Act.

Section 23(1)

As regards the management of the internal affairs of the LLP there is a parallel with
the system that operates for partnerships. As in case of partnership, 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 are governed by the limited
liability partnership agreement.

18
Partners are not obliged to enter into a formal agreement among themselves and
there is no obligation to publish any agreement which is entered into. As in the case
of partnerships, however, there will, in general, be clear advantages in having a
formal written agreement between partners to regulate the affairs of the undertaking
and to avoid disputes between them. The formal procedures needed to establish an
LLP, including the need for an application to the registrar of companies, are likely
to encourage the partners to set up a formal arrangement before the LLP commences
business.

As per Rule 21 of the LLP Rules, every limited liability partnership shall file
information with regard to the limited liability partnership agreement in Form 4 with
the registrar within 30 days from the date of agreement.

1. Here, notable point is that under the LLP rules, the partnership agreement to
be submitted to the Registrar is supposed to be in a given format (i.e. Form No. 4)
rather than in the usual form of a legal agreement.

In case, an LLP decides to make an LLP agreement; it would require determining

parameters under above heads and Form 4 filled in with the above details is to be
filed with the Registrar within 30 days of the agreement. It may be noted that though
the law has provided a time limit to submit partnership agreement to the Registrar,
however, forming and filing a partnership agreement as such is not a mandatory
requirement.

19
Section 23(2)

This sub-section provides that limited liability partnership agreement and any
changes, made therein shall be filed with the Registrar in such form, manner and
accompanied by such fees as may be prescribed.
Section 24 of LLP Act, 2008 seeks to provide for the circumstances and
disqualifications under which or pursuant to which a person may cease to be a
partner of an LLP. It also seeks to provide for a partner's obligation to the LLP or to
the other partners or to other persons incurred during the period when he was a
partner of the LLP. It also seeks to provide that a former partner or a person entitled
to his share in case of death or insolvency of former partner shall not have any right
to interfere in the management of the LLP.

Section 24 of LLP Act, 2008 deals with the issue of cessation of a partner from an
LLP and provides for the circumstances causing cessation, and rights and duties of
LLP and partners in such circumstances.

Modes of Cessation [Section 24(1)]

This sub-section provides for the modes in which a partner can formally cause
cessation of his partnership from an LLP -

1. If the partnership agreement provides for the mode of cessation of partner from
LLP, a person may cease to be a partner of a limited liability partnership in
accordance with such agreement - LLP Act does not categorically envisages the
situation of resignation or expulsion of a partner (as is provided in the Indian
Partnership Act) - usually cessation of partnership interest happens with reference
20
to the resignation of partner, however, it depends upon the partnership agreement if
there is any situation/procedure prescribed for expulsion of a partner, and if so is
there, cessation of partnership interest may be a result of expulsion of a partner also.

2. If there is no partnership agreement or the agreement does not provide for the
mode/circumstances for cessation of a partner from LLP, a partner may opt to move
out of partnership by giving a notice in writing to the other partners of his intention
to resign as partner. The notice should be given at least 30 days before the date on
which the partner wants to opt out of the partnership.

As per Rule 15 read with Section 13 of the Act, a document (as also a notice) can be
served on a LLP or a partner through electronic transmission or through courier (for
detailed discussion on mode of serving of document, refer commentary of Section
13 of the Act).

The above provision is similar to the provisions contained in Section 11 of the

Singapore LLP Act.

Circumstances Necessitating Cessation [Section 24(2)]

This sub-section provides for the circumstances, which necessitates cessation of a

partner from the LLP. It provides that a person shall cease to be a partner of a limited
liability partnership in any of the three circumstances discussed below-

(a) On the death of partner or dissolution of the limited liability partnership - This
provision mentions two different circumstances necessitating cessation of
partnership interest. One is death of a partner - as a natural consequence of which,
21
such partner would stop having any partnership interest in LLP, and the other is -
dissolution of LLP.

The corresponding provision in the Singapore LLP Act (i.e. Section 11(2)) provides
that a partner of a limited liability partnership shall cease to be a partner upon the
death or dissolution of the partner.

The provision provides that a partner of a limited liability partnership shall cease to
be a partner upon his death (the expression dissolution is used in context of LLP and
not in context of partner). Thus for cessation of partnership interest, the Indian LLP
provision talks about death of partner only, it does not consider a situation of
dissolution of a corporate body being a partner of LLP. The moot question is that
whether the expression 'death of partner' can be construed as 'dissolution of a
partner'.

Dissolution of LLP is a situation whose natural consequence is cessation of interest

of all the partners therein.

(b) If partner is declared to be of unsound mind by a competent court - As per the

Indian provisions, if a partner is declared to be of unsound mind, he ceases to be a
partner of the firm. In many countries like Singapore, a person does not cease to be
a partner in such situation.

(c) If partners have applied to be adjudged as an insolvent or declared as an insolvent

- An un-discharged insolvent and the one who has applied for adjudication as an
insolvent cease to have partnership interest in an LLP. The purpose of these
provisions is firstly to set some standards of corporate manager ship, a degree of
22
competency and responsibility and to save the co-partners and the community at
large from the consequences of mismanagement. Thus the prohibition on insolvents
from being a partner of an LLP is not intended to punish him, but to protect the
community. In this context, Section 12 of the Partner's Responsibility [Section
24(3)]

This sub-section broadly infers that unless the third parties dealing with an LLP have
a notice of the fact that a particular partner is no more a part of the LLP, such partner
shall continue to be responsible for the acts of the firm vis-à-vis these third parties.
Further, the third parties would be deemed to have notice of the fact of cessation of
a partner from LLP, if -

(a) such third party 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.

As per Section 25 read with Rule 22, where a person ceases to be a partner or where
there is any change in the name or address of a partner, the limited liability
partnership shall file with the Registrar, a notice in Form 5. However, if the partner
ceasing relationship with LLP has reasonable cause to believe that the LLP may not
file the notice with the Registrar, he may himself file with the notice of his cessation
of partnership interest with the Registrar and in case of any such notice filed by a
partner, the Registrar shall obtain a confirmation to this effect from the limited
liability partnership. Where no confirmation is given by the limited liability

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partnership within fifteen days, the Registrar shall register the notice made by a
person ceasing to be a partner.

Discharge of Obligation [Section 24(4)]

The cessation of a partner 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 or to any other person which he incurred while being a partner. This
provision is similar to that of the resignation of director from company where a
director is liable for the acts done by the company before the date of his resignation.

Rights of a Former Partners [Section 24(5)&(6)]

These provisions deal with the rights of a former partner/person entitled to the share
of former partner in consequence of his death or insolvency.

As per the provisions a former partner/person entitled to the share of former partner
in consequence of his death or insolvency shall be entitled to receive from the limited
liability partnership—

(a) an amount equal to the capital contribution of the former partner actually made
to the limited liability partnership; and

(b) his right to share in the accumulated profits of the limited liability partnership,
after the deduction of accumulated losses of the limited liability partnership,
determined as at the date the former partner ceased to be a partner.

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Thus the rights of a former partner or a person entitled to his share in consequence
of the death or insolvency are limited to the beneficial interest in the LLP, and do
not extend to the right to interfere in the management of the limited liability
partnership.
Registration of Changes in Partners (Section 25)

Section 25 of LLP Act, 2008 seeks to provide for the requirement and the procedure
for filing notice about changes in the names and addresses of partners of the LLP to
the Registrar. The notice shall be in such form as may be prescribed. The clause also
seeks to provide that every partner shall inform the LLP of any change in his name
or address within fifteen days of such change, failing which he shall be punishable
with fine which shall not be less than two thousand rupees but which may extend to
twenty-five thousand rupees. This clause further seeks to provide that when a person
becomes or ceases to be a partner, the LLP shall file a notice with the Registrar
within thirty days from the date such person becomes or ceases to be a partner,
failing which the LLP shall be punishable with fine which shall not be less than two
thousand rupees but which may extend to twenty-five thousand rupees.

Intimation by Partner to LLP

On any change in the name or address of a partner, it is responsibility of such partner

to intimate LLP about such change within 15 days thereof. This intimation is to be
given by partners to LLP in Form No. 6. If any partner contravenes these provisions,
such partner shall be punishable with fine which shall not be less than two thousand
rupees but which may extend to twenty-five thousand rupees.

Notifying to Registrar
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Section 25 of LLP Act, 2008 provides for the requirement of notifying the Registrar
about the changes in the partners of an LLP.

Once LLP is informed of this change, it is obligation of the LLP to inform the
Registrar in turn about such changes within a period of 30 days. Further, whenever
a partner is admitted to LLP or ceased to be a partner of LLP, it has same obligation
of intimating the Registrar about these facts within 30 days thereof. This intimation
is to be given to the Registrar in Form No. 5 signed by a designated partner. The
form shall be accompanied by a certificate from a company secretary in
practice/Chartered Accountant in practice/Cost Accountant in practice that he has
verified the particulars including from the books and records of the limited liability
partnership and found them to be true and correct. Further, in case of intimation in
relation to admission of a partner, the form shall also include a statement signed by
the incoming partner that he consents to become a partner. This Form is to be
accompanied by the fee prescribed in Annexure B to the Rules.

If the limited liability partnership contravenes the above provisions in relation to

intimation of change in the status/address/name of its partners, the limited liability
partnership and every designated partner of the limited liability partnership shall be
punishable with fine which shall not be less than two thousand rupees but which may
extend to twenty-five thousand rupees.

Filing by Self

In case a person who ceases to become a partner finds that the LLP has not filed
notice of his cessation of interest in partnership with the Registrar in contravention
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of the provisions of Section 25(2), he can himself file Form No. 5 to the Registrar
intimating about his cessation of interest in LLP. After receiving such notice, from
a partner, the Registrar is required to seek confirmation from LLP to this effect and
if LLP fails to confirm this within 15 days, the registrar would register such change
in his records.

Penalty for Non-compliance

Specific penalties have been prescribed for contravention of different provisions

under Section 25 of the Act. Where under sub-section (1) of Section 25 a partner
fails to comply with the intimation requirement of changes in his name or address to
LLP within 15 days of the change thereof, he may be subjected to a minimum fine
of Rs. 2000/- which may be extended to Rs. 25,000/-. Where an LLP contravenes
provisions of sub-section (2) of Section 25 in relation to intimation of changes in
partners to the Registrar, the LLP and also all its designated partners may also be
subjected to a minimum fine of Rs. 2000/- which may be extended to Rs. 25,000/-.21

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https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=689

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 BIBLIOGRAPHY

 Sanjiv agarwal and rohini agarwal, Limited liability Partnership Law and
practice.
 Krishnamurthy D.S.R, Law relating to limited liability partnership.
Bare Act
 The Limited Liability Partnership Act, 2008.

Other References:
 https://www.taxmanagementindia.com
 http://www.mca.gov.in/
 https://legal-dictionary.thefreedictionary.com/

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