Previous Year Question

A Limited Liability Partnership—LLP is a business organisation that combines the operational flexibility of a partnership with features such as limited liability and a separate legal identity ordinarily associated with a company.

LLPs in India are governed by the Limited Liability Partnership Act, 2008.

Option (a) is not a feature

Under Section 6 of the LLP Act, every LLP must have at least two partners. However, the Act does not prescribe a statutory maximum number of partners.

Therefore:

Minimum Partners = 2

But:

Maximum Partners = No statutory upper limit

If the number of partners falls below two and the business continues for more than six months, the sole remaining partner may become personally liable for specified obligations incurred during that period.

Consequently, the claim that the number of partners must remain below 20 is not a feature of an LLP.

Option (b) is a feature

In a company, ownership and management may be clearly separated:

• Shareholders own the company.

• The Board of Directors manages its affairs.

In an LLP, the partners themselves may participate in management. Partnership and management are not required to be separated.

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

Option (c) is a feature

Under Section 23 of the LLP Act, the mutual rights and duties of the partners and the LLP are primarily governed by the LLP Agreement.

The Agreement may prescribe:

• Profit-sharing ratios

• Capital contributions

• Roles and authority of partners

• Decision-making procedures

• Admission of new partners

• Retirement of partners

• Dispute-resolution arrangements

• Management responsibilities

Where the Agreement does not cover a matter, the default provisions in the First Schedule to the LLP Act may apply.

Therefore, internal governance can be determined by mutual agreement.

Option (d) is a feature

Section 3 of the LLP Act provides that an LLP:

• Is a Body Corporate;

• Has a Legal Entity separate from its partners; and

• Has Perpetual Succession.

Its existence is not terminated merely by the death, retirement, insolvency or replacement of a partner.

An LLP can in its own name:

• Own property;

• Enter into contracts;

• Sue another person; and

• Be sued.

Limited liability

A partner’s liability is generally limited to the agreed contribution. A partner is not personally liable merely because another partner commits an independent wrongful act.

However, liability may become unlimited in cases involving fraud.