Limited Liability Partnership Act, 2000

Limited Liability Partnership Act, 2000
Contents :
1. Introduction
2. Objective
3. Incorporation
1. Incorporation document etc.
2. Incorporation by registration.
4. Membership
1. Members.
2. Relationship of members etc.
3. Members as agents.
4. Ex-members.
5. Designated members.
6. Registration of membership changes.
5. Taxation
1. Income tax and chargeable gains.
2. Inheritance tax.
3. Stamp duty.
4. Class 4 national insurance contributions.
6.
1. Insolvency and winding up.
OTHER LAWS
A 318 COMMERCIAL & INDUSTRIAL LAWS
2. Application of company law etc.
3. Consequential amendments.
4. General.
7. Supplementary
1. Interpretation.
2. Commencement, extent and short title.
8. SCHEDULES
Names and registered offices.
1. Part I : Names.
2. Part II :Registered offices.
Introduction
Limited Liability Partnership ( LLP) is distinct from limited partnership. In this, limited liability
is granted to all partners, not to a set of non-managing limited partners. It is similar to
shareholders of a corporation.
Provision for Limited Liability Partnership in India has kept in line the similar provision in
different countries like USA, UK, Canada, France, Japan, China etc. The Limited Liability Partnership
Bill was bought out by the Ministry of Company Affairs in 2005. In the year 2006, the
Bill was introduced in the Parliament. Limited Liability Partnership Act is yet to be enacted.
1. Limited liability partnerships
(1) There shall be a new form of legal entity to be known as a limited liability partnership.
(2) A limited liability partnership is a body corporate (with legal personality separate
from that of its members) which is formed by being incorporated under this Act; and—
(a) in the following provisions of this Act (except in the phrase “oversea limited
liability partnership”), and
(b) in any other enactment (except where provision is made to the contrary or the
context otherwise requires),
references to a limited liability partnership are to such a body corporate.
(3) A limited liability partnership has unlimited capacity.
(4) The members of a limited liability partnership have such liability to contribute to its
assets in the event of its being wound up as is provided for by virtue of this Act.
COMMERCIAL & INDUSTRIAL LAWS A 319
(5) Accordingly, except as far as otherwise provided by this Act or any other enactment, the
law relating to partnerships does not apply to a limited liability partnership.
(6) The Schedule (which makes provision about the names and registered offices of limited
liability partnerships) has effect.
Incorporation
2 Incorporation document etc
(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 either the incorporation document or
a copy authenticated in a manner approved by him, and
(c) there must have been so delivered a statement in a form approved by the registrar,
made by either a solicitor engaged in the formation of the limited liability partnership
or anyone who subscribed his name to the incorporation document, that the requirement
imposed by paragraph (a) has been complied with.
(2) The incorporation document must—
(a) be in a form approved by the registrar (or as near to such a form as circumstances
allow),
(b) state the name of the limited liability partnership,
(c) state whether the registered office of the limited liability partnership is to be situated
in England and Wales, in Wales or in Scotland,
(d) state the address of that registered office,
(e) state the name and address of each of the persons who are to be members of the
limited liability partnership on incorporation, and
(f) either specify which of those persons are to be designated members or state that every
person who from time to time is a member of the limited liability partnership is a
designated member.
(3) If a person makes a false statement under subsection (1)(c) which he—
(a) knows to be false, or
(b) does not believe to be true,
he commits an offence.
(4) A person guilty of an offence under subsection (3) is liable—
(a) on summary conviction, to imprisonment for a period not exceeding six months or a
OTHER LAWS
A 320 COMMERCIAL & INDUSTRIAL LAWS
fine not exceeding the statutory maximum, or to both, or
(b) on conviction on indictment, to imprisonment for a period not exceeding two years or
a fine, or to both.
3 Incorporation by registration
(1) When the requirements imposed by paragraphs (b) and (c) of subsection (1) of section 2
have been complied with, the registrar shall retain the incorporation document or copy delivered
to him and, unless the requirement imposed by paragraph (a) of that subsection has not
been complied with, he shall—
(a) register the incorporation document or copy, 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 paragraph (c) of subsection (1) of
section 2 as sufficient evidence that the requirement imposed by paragraph (a) of that subsection
has been complied with.
(3) The certificate shall either be signed by the registrar or be authenticated by his official seal.
(4) The certificate is conclusive evidence that the requirements of section 2 are complied with
and that the limited liability partnership is incorporated by the name specified in the incorporation
document.
Membership
4 Members
(1) On the incorporation of a limited liability partnership its members are the persons who
subscribed their names to the incorporation document (other than any who have died or been
dissolved).
(2) Any other person may become a member of a limited liability partnership by and in accordance
with an agreement with the existing members.
(3) A person may cease to be a member of a limited liability partnership (as well as by death or
dissolution) in accordance with an agreement with the other members or, in the absence of
agreement with the other members as to cessation of membership, by giving reasonable notice
to the other members.
(4) A member of a limited liability partnership shall not be regarded for any purpose as employed
by the limited liability partnership unless, if he and the other members were partners
in a partnership, he would be regarded for that purpose as employed by the partnership.
5 Relationship of members etc
(1) Except as far as otherwise provided by this Act or any other enactment, the mutual rights
COMMERCIAL & INDUSTRIAL LAWS A 321
and duties of the members of a limited liability partnership, and the mutual rights and duties
of a limited liability partnership and its members, shall be governed—
(a) by agreement between the members, or between the limited liability partnership and
its members, or
(b) in the absence of agreement as to any matter, by any provision made in relation to that
matter by regulations under section 15(c).
(2) An agreement 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 (to take effect at any time after its incorporation).
6 Members as agents
(1) Every member of a limited liability partnership is the agent of the limited liability partnership.
(2) But a limited liability partnership is not bound by anything done by a member in dealing
with a person if—
(a) the member in fact has no authority to act for the limited liability partnership by doing
that thing, and
(b) the person knows that he has no authority or does not know or believe him to be a
member of the limited liability partnership.
(3) Where a person has ceased to be a member of a limited liability partnership, the former
member is to be regarded (in relation to any person dealing with the limited liability partnership)
as still being a member of the limited liability partnership unless—
(a) the person has notice that the former member has ceased to be a member of the limited
liability partnership, or
(b) notice that the former member has ceased to be a member of the limited liability partnership
has been delivered to the registrar.
(4) Where a member of a limited liability partnership is liable to any person (other than another
member of the limited liability partnership) as a result of a wrongful act or omission of
his in the course of the business of the limited liability partnership or with its authority, the
limited liability partnership is liable to the same extent as the member.
7 Ex-members
(1) This section applies where a member of a limited liability partnership has either ceased to
be a member or—
(a) has died,
(b) has become bankrupt or had his estate sequestrated or has been wound up,
(c) has granted a trust deed for the benefit of his creditors, or
OTHER LAWS
A 322 COMMERCIAL & INDUSTRIAL LAWS
(d) has assigned the whole or any part of his share in the limited liability partnership
(absolutely or by way of charge or security).
(2) In such an event the former member or—
(a) his personal representative,
(b) his trustee in bankruptcy or permanent or interim trustee (within the meaning of the
[1985 c. 66.] Bankruptcy (Scotland) Act 1985) or liquidator,
(c) his trustee under the trust deed for the benefit of his creditors, or
(d) his assignee,
may not interfere in the management or administration of any business or affairs of
the limited liability partnership.
(3) But subsection (2) does not affect any right to receive an amount from the limited liability
partnership in that event.
8 Designated members
(1) If the incorporation document specifies who are to be designated members—
(a) they are designated members on incorporation, and
(b) any member may become a designated member by and in accordance with an agreement
with the other members,
and a member may cease to be a designated member in accordance with an agreement
with the other members.
(2) But if there would otherwise be no designated members, or only one, every member is a
designated member.
(3) If the incorporation document states that every person who from time to time is a member
of the limited liability partnership is a designated member, every member is a designated
member.
(4) A limited liability partnership may at any time deliver to the registrar—
(a) notice that specified members are to be designated members, or
(b) notice that every person who from time to time is a member of the limited liability
partnership is a designated member,
and, once it is delivered, subsection (1) (apart from paragraph (a)) and subsection (2),
or subsection (3), shall have effect as if that were stated in the incorporation document.
COMMERCIAL & INDUSTRIAL LAWS A 323
(5) A notice delivered under subsection (4)—
(a) shall be in a form approved by the registrar, and
(b) shall be signed by a designated member of the limited liability partnership or authenticated
in a manner approved by the registrar.
(6) A person ceases to be a designated member if he ceases to be a member.
9 Registration of membership changes
(1) A limited liability partnership must ensure that—
(a) where a person becomes or ceases to be a member or designated member, notice is
delivered to the registrar within fourteen days, and
(b) where there is any change in the name or address of a member, notice is delivered to
the registrar within 28 days.
(2) Where all the members from time to time of a limited liability partnership are designated
members, subsection (1)(a) does not require notice that a person has become or ceased to be a
designated member as well as a member.
(3) A notice delivered under subsection (1)—
(a) shall be in a form approved by the registrar, and
(b) shall be signed by a designated member of the limited liability partnership or authenticated
in a manner approved by the registrar,
and, if it relates to a person becoming a member or designated member, shall contain
a statement that he consents to becoming a member or designated member signed by
him or authenticated in a manner approved by the registrar.
(4) If a limited liability partnership fails to comply with subsection (1), the partnership and
every designated member commits an offence.
(5) But it is a defence for a designated member charged with an offence under subsection (4) to
prove that he took all reasonable steps for securing that subsection (1) was complied with.
(6) A person guilty of an offence under subsection (4) is liable on summary conviction to a fine
not exceeding level 5 on the standard scale.
Taxation
10 Income tax and chargeable gains
(1) In the [1988 c. 1.] Income and Corporation Taxes Act 1988, after section 118 insert—
“Limited liability partnerships
OTHER LAWS
A 324 COMMERCIAL & INDUSTRIAL LAWS
118ZA Treatment of limited liability partnerships
For the purposes of the Tax Acts, a trade, profession or business carried on by a limited liability
partnership with a view to profit shall be treated as carried on in partnership by its members
(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 partnership property.
118ZB Restriction on relief
Sections 117 and 118 have effect in relation to a member of a limited liability partnership as in
relation to a limited partner, but subject to sections 118ZC and 118ZD.
118ZC Member’s contribution to trade
(1) Subsection (3) of section 117 does not have effect in relation to a member of a limited liability
partnership.
(2) But, for the purposes of that section and section 118, such a member’s contribution to a
trade at any time (“the relevant time”) is the greater of—
(a) the amount subscribed by him, and
(b) the amount of his liability on a winding up.
(3) The amount subscribed by a member of a limited liability partnership is the amount which
he has contributed to the limited liability partnership as capital, less so much of that amount (if
any) as—
(a) he has previously, directly or indirectly, drawn out or received back,
(b) he so draws out or receives back during the period of five years beginning with the
relevant time,
(c) he is or may be entitled so to draw out or receive back at any time when he is a member
of the limited liability partnership, or
(d) he is or may be entitled to require another person to reimburse to him.
(4) The amount of the liability of a member of a limited liability partnership on a winding up is
the amount which—
(a) he is liable to contribute to the assets of the limited liability partnership in the event of
its being wound up, and
(b) he remains liable so to contribute for the period of at least five years beginning with
the relevant time (or until it is wound up, if that happens before the end of that period).
118ZD Carry forward of unrelieved losses
(1) Where amounts relating to a trade carried on by a member of a limited liability partnership
COMMERCIAL & INDUSTRIAL LAWS A 325
are, in any one or more chargeable periods, prevented from being given or allowed by section
117 or 118 as it applies otherwise than by virtue of this section (his “total unrelieved loss”),
subsection (2) applies in each subsequent chargeable period in which—
(a) he carries on the trade as a member of the limited liability partnership, and
(b) any of his total unrelieved loss remains outstanding.
(2) Sections 380, 381, 393A(1) and 403 (and sections 117 and 118 as they apply in relation to
those sections) shall have effect in the subsequent chargeable period as if—
(a) any loss sustained or incurred by the member in the trade in that chargeable period
were increased by an amount equal to so much of his total unrelieved loss as remains
outstanding in that period, or
(b) (if no loss is so sustained or incurred) a loss of that amount were so sustained or
incurred.
(3) To ascertain whether any (and, if so, how much) of a member’s total unrelieved loss remains
outstanding in the subsequent chargeable period, deduct from the amount of his total
unrelieved loss the aggregate of—
(a) any relief given under any provision of the Tax Acts (otherwise than as a result of
subsection (2)) in respect of his total unrelieved loss in that or any previous chargeable
period, and
(b) any amount given or allowed in respect of his total unrelieved loss as a result of subsection
(2) in any previous chargeable period (or which would have been so given or
allowed had a claim been made).”
(2) In section 362(2)(a) of that Act (loan to buy into partnership), after “partner”
insert “in a limited partnership registered under the [1907 c. 24.] Limited Partnerships
Act 1907”.
(3) n the [1992 c. 12.] Taxation of Chargeable Gains Act 1992, after section 59 insert—
“59A Limited liability partnerships
(1) 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 chargeable gains as held by its members as partners, and
(b) any dealings by the limited liability partnership shall be treated for those purposes as
dealings by its members in partnership (and not by the limited liability partnership as
such),
and tax in respect of chargeable gains accruing to the members of the limited liability
partnership on the disposal of any of its assets shall be assessed and charged on them
separately.
(2) Where subsection (1) ceases to apply in relation to a limited liability partnership
with the effect that tax is assessed and charged—
CIA-22
OTHER LAWS
A 326 COMMERCIAL & INDUSTRIAL LAWS
(a) on the limited liability partnership (as a company) in respect of chargeable gains
accruing on the disposal of any of its assets, and
(b) on the members in respect of chargeable gains accruing on the disposal of any of
their capital interests in the limited liability partnership,
it shall be assessed and charged on the limited liability partnership as if subsection (1)
had never applied in relation to it.
(3) Neither the commencement of the application of subsection (1) nor the cessation of its
application in relation to a limited liability partnership is to be taken as giving rise to
the disposal of any assets by it or any of its members.”
(4) After section 156 of that Act insert—
“156A Cessation of trade by limited liability partnership
(1) Where, immediately before the time of cessation of trade, a member of a limited liability
partnership holds an asset, or an interest in an asset, acquired by him for a consideration treated
as reduced under section 152 or 153, he shall be treated as if a chargeable gain equal to the
amount of the reduction accrued to him immediately before that time.
(2) Where, as a result of section 154(2), a chargeable gain on the disposal of an asset, or an
interest in an asset, by a member of a limited liability partnership has not accrued before the
time of cessation of trade, the member shall be treated as if the chargeable gain accrued immediately
before that time.
(3) In this section “the time of cessation of trade”, in relation to a limited liability partnership,
means the time when section 59A(1) ceases to apply in relation to the limited liability partnership.”
11 Inheritance tax
In the [1984 c. 51.] Inheritance Tax Act 1984, after section 267 insert—
“267A Limited liability partnerships
For the purposes of this Act and any other enactments relating to inheritance tax—
(a) property to which a limited liability partnership is entitled, or which it occupies or uses,
shall be treated as property to which its members are entitled, or which they occupy or use, as
partners,
(b) any business carried on by a limited liability partnership shall be treated as carried on in
partnership by its members,
(c) incorporation, change in membership or dissolution of a limited liability partnership shall
be treated as formation, alteration or dissolution of a partnership, and
(d) any transfer of value made by or to a limited liability partnership shall be treated as made
by or to its members in partnership (and not by or to the limited liability partnership as such).”
COMMERCIAL & INDUSTRIAL LAWS A 327
12 Stamp duty
(1) Stamp duty shall not be chargeable on an instrument by which property is conveyed or
transferred by a person to a limited liability partnership in connection with its incorporation
within the period of one year beginning with the date of incorporation if the following two
conditions are satisfied.
(2) The first condition is that at the relevant time the person—
(a) is a partner in a partnership comprised of all the persons who are or are to be members
of the limited liability partnership (and no-one else), or
(b) holds the property conveyed or transferred as nominee or bare trustee for one or more
of the partners in such a partnership.
(3) The second condition is that—
(a) the proportions of the property conveyed or transferred to which the persons mentioned
in subsection (2)(a) are entitled immediately after the conveyance or transfer
are the same as those to which they were entitled at the relevant time, or
(b) none of the differences in those proportions has arisen as part of a scheme or arrangement
of which the main purpose, or one of the main purposes, is avoidance of liability
to any duty or tax.
(4) For the purposes of subsection (2) a person holds property as bare trustee for a partner if the
partner has the exclusive right (subject only to satisfying any outstanding charge, lien or other
right of the trustee to resort to the property for payment of duty, taxes, costs or other outgoings)
to direct how the property shall be dealt with.
(5) In this section “the relevant time” means—
(a) if the person who conveyed or transferred the property to the limited liability partnership
acquired the property after its incorporation, immediately after he acquired
the property, and
(b) in any other case, immediately before its incorporation.
(6) An instrument in respect of which stamp duty is not chargeable by virtue of subsection (1)
shall not be taken to be duly stamped unless—
(a) it has, in accordance with section 12 of the [1891 c. 39.] Stamp Act 1891, been stamped
with a particular stamp denoting that it is not chargeable with any duty or that it is
duly stamped, or
(b) it is stamped with the duty to which it would be liable apart from that subsection.
13 Class 4 national insurance contributions
In section 15 of the [1992 c. 4.] Social Security Contributions and Benefits Act 1992 and section
15 of the [1992 c. 7.] Social Security Contributions and Benefits (Northern Ireland) Act 1992
(Class 4 contributions), after subsection (3) insert—
OTHER LAWS
A 328 COMMERCIAL & INDUSTRIAL LAWS
“(3A) Where income tax is (or would be) charged on a member of a limited liability partnership
in respect of profits or gains arising from the carrying on of a trade or profession by the
limited liability partnership, Class 4 contributions shall be payable by him if they would be
payable were the trade or profession carried on in partnership by the members.”
Regulations
14 Insolvency and winding up
(1) Regulations shall make provision about the insolvency and winding up of limited liability
partnerships by applying or incorporating, with such modifications as appear appropriate,
Parts I to IV, VI and VII of the [1986 c. 45.] Insolvency Act 1986.
(2) Regulations may make other provision about the insolvency and winding up of limited
liability partnerships, and provision about the insolvency and winding up of oversea limited
liability partnerships, by—
(a) applying or incorporating, with such modifications as appear appropriate, any law
relating to the insolvency or winding up of companies or other corporations which
would not otherwise have effect in relation to them, or
(b) providing for any law relating to the insolvency or winding up of companies or other
corporations which would otherwise have effect in relation to them not to apply to
them or to apply to them with such modifications as appear appropriate.
(3) In this Act “oversea limited liability partnership” means a body incorporated or otherwise
established outside Great Britain and having such connection with Great Britain, and such
other features, as regulations may prescribe.
15 Application of company law etc
Regulations may make provision about limited liability partnerships and oversea limited liability
partnerships (not being provision about insolvency or winding up) by—
(a) applying or incorporating, with such modifications as appear appropriate, any law
relating to companies or other corporations which would not otherwise have effect in
relation to them,
(b) providing for any law relating to companies or other corporations which would otherwise
have effect in relation to them not to apply to them or to apply to them with
such modifications as appear appropriate, or
(c) applying or incorporating, with such modifications as appear appropriate, any law
relating to partnerships.
16 Consequential amendments
(1) Regulations may make in any enactment such amendments or repeals as appear appropriate
in consequence of this Act or regulations made under it.
COMMERCIAL & INDUSTRIAL LAWS A 329
(2) The regulations may, in particular, make amendments and repeals affecting companies or
other corporations or partnerships.
17 General
(1) In this Act “regulations” means regulations made by the Secretary of State by statutory
instrument.
(2) Regulations under this Act may in particular—
(a) make provision for dealing with non-compliance with any of the regulations (including
the creation of criminal offences),
(b) impose fees (which shall be paid into the Consolidated Fund), and
(c) provide for the exercise of functions by persons prescribed by the regulations.
Page 1 of 3
(3) Regulations under this Act may—
(a) contain any appropriate consequential, incidental, supplementary or transitional provisions
or savings, and
(b) make different provision for different purposes.
(4) No regulations to which this subsection applies shall be made unless a draft of the statutory
instrument containing the regulations (whether or not together with other provisions) has
been laid before, and approved by a resolution of, each House of Parliament.
(5) Subsection (4) applies to—
(a) regulations under section 14(2) not consisting entirely of the application or incorporation
(with or without modifications) of provisions contained in or made under the
[1986 c. 45.] Insolvency Act 1986,
(b) regulations under section 15 not consisting entirely of the application or incorporation
(with or without modifications) of provisions contained in or made under Part I,
Chapter VIII of Part V, Part VII, Parts XI to XIII, Parts XVI to XVIII, Part XX or Parts
XXIV to XXVI of the [1985 c. 6.] Companies Act 1985,
(c) regulations under section 14 or 15 making provision about oversea limited liability
partnerships, and
(d) regulations under section 16.
(6) A statutory instrument containing regulations under this Act shall (unless a draft of it has
been approved by a resolution of each House of Parliament) be subject to annulment in pursuance
of a resolution of either House of Parliament.
OTHER LAWS
A 330 COMMERCIAL & INDUSTRIAL LAWS
Supplementary
18 Interpretation
In this Act—
• “address”, in relation to a member of a limited liability partnership, means—
(a)
if an individual, his usual residential address, and
(b)
if a corporation or Scottish firm, its registered or principal office,
• “business” includes every trade, profession and occupation,
• “designated member” shall be construed in accordance with section 8,
• “enactment” includes subordinate legislation (within the meaning of the
[1978 c. 30.] Interpretation Act 1978),
• “incorporation document” shall be construed in accordance with section 2,
• “limited liability partnership” has the meaning given by section 1(2),
• “member” shall be construed in accordance with section 4,
• “modifications” includes additions and omissions,
• “name”, in relation to a member of a limited liability partnership, means—
(a)
if an individual, his forename and surname (or, in the case of a peer or other
person usually known by a title, his title instead of or in addition to either
or both his forename and surname), and
(b)
if a corporation or Scottish firm, its corporate or firm name,
• “oversea limited liability partnership” has the meaning given by section
14(3),
• “the registrar” means—
(a)
if the registered office of the limited liability partnership is, or is to be, situated
in England and Wales or in Wales, the registrar or other officer perCOMMERCIAL
& INDUSTRIAL LAWS A 331
forming under the [1985 c. 6.] Companies Act 1985 the duty of registration
of companies in England and Wales, and
(b)
if its registered office is, or is to be, situated in Scotland, the registrar or
other officer performing under that Act the duty of registration of companies
in Scotland, and
• “regulations” has the meaning given by section 17(1).
19 Commencement, extent and short title
(1) The preceding provisions of this Act shall come into force on such day as the Secretary of
State may by order made by statutory instrument appoint; and different days may be appointed
for different purposes.
(2) The Secretary of State may by order made by statutory instrument make any transitional
provisions and savings which appear appropriate in connection with the coming into force of
any provision of this Act.
(3) For the purposes of the [1998 c. 46.] Scotland Act 1998 this Act shall be taken to be a precommencement
enactment within the meaning of that Act.
(4) Apart from sections 10 to 13 (and this section), this Act does not extend to Northern Ireland.
(5) This Act may be cited as the Limited Liability Partnerships Act 2000.