What is LLP?
A Limited Liability Partnership (LLP) is a contract or agreement made between the partners of a LLP to establish a fair relationship between them and to protect their investment for carrying on any such business. A Limited Liability Partnership (LLP) is like a body corporate, with a distinct legal entity separate from that of its partners. Any change in its partners, will not affect the existence, rights or liabilities of the limited liability partnership. Like a company, a limited liability partnership can do all the things an individual or a company can do. It can make contracts, sue or be sued, hold property in its name etc.
The Limited Liability Partnership form of business organization was introduced in India by way of Limited Liability Partnership Act, 2008 (LLP Act 2008) which came into effect by way of notification dated 31st March 2009.
Every LLP shall have at least two designated partners who are individuals and at least one of them shall be a resident in India.
Provided that in case of a LLP in which all the partners are body corporates or in which one or more partners are individuals and body corporate, at least two individuals who are partners of such LLP or nominee of such body corporate shall act as designated partners.
Now who can become a partner in a LLP?
- An individual unless otherwise disqualified,
- A company incorporated under the Companies Act 1956 or Companies Act 2013
- A LLP incorporated under LLP Act 2008
- A LLP incorporated outside India
- A company incorporated outside India
But can a HUF become a partner in LLP?
It has come to the notice of the Ministry that some Hindu Undivided Families (HUFs) / Kartas of such families are applying to become partner/ Designated partner (DP) in LLPs and as a result a question has arisen whether a ‘HUF’ or a karta of that HUF can become a partner in LLP. The matter has been examined in consultation with the Ministry of Law.
Who cannot become a partner in LLP?
- An individual, if: - he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; - he is an un-discharged insolvent; or - he has applied to be adjudicated as an insolvent and his application is pending.
- A minor
- A HUF
- A Partnership Firm
- An Association of Persons (AOP) or Body of Individuals (BOI)
- An Artificial Judicial Person
- A Corporate Sole
- A Co-operative Society registered under any law for the time being in force
- A body corporate which the Central Government may, by notification in the Official Gazette, specify in this behalf.
As per the letter issued by Ministry - General Circular No. 13/2013 dated 29-07-2013 & Circular No. 2/2016 dated 15-01-2016 after prolonged consultation with the Ministry of Law & Justice. The Ministry of Law & Justice has observed that the Hon’ble Supreme Court in the matter reported in (1998) 2 SCC p.49, Rashiklal & Company vs CIT has dealt with the issue and vide para 12 of the judgement have observed as under:
“as per Section 5 of LLP Act, 2008 only an individual or body corporate may be a partner in a Limited Liability Partnership. A HUF cannot be treated as a body corporate for the purposes of LLP Act, 2008. Therefore, a HUF or its karta cannot become partner or designated partner in LLP.”