LLP

Can an Existing Partner of an LLP be a Partner of Another LLP?

There are various rules of LLP, and one partner can be a partner of another LLP. It is always possible to do so, but again, there are many regulations that one needs to be aware of.

A limited liability partnership (LLP) may have some or all of its partners with limited liability, depending on the jurisdiction. As a result, it shows traits of companies and associations. In an LLP, if one partner is doing wrong deeds or being careless, the other partner won’t suffer for him.

Some partners in an LLP have limited responsibility, much like the shareholders of a company. In certain places, a partner must have complete responsibility as a “general partner,” which means that the individual is ultimately liable for the company’s obligations and any litigation involving bodily injury or contract violations. 

The partners have direct management rights over the company, unlike corporation stockholders. In contrast, corporate shareholders must elect a board of directors by the requirements of various state charters. The board establishes its structure (also by the rules of the different state charters). 

It appoints corporate officials legally obligated to run the company in the business’s best interests because they are “corporate” people. An LLP’s tax obligations are also different from those of a corporation.

Who May Become an LLP Partner?

One can become an LLP Partner by the LLP Act of 2008 permits one LLP to join another LLP as a partner.

  • Single-person business
  • publicly traded
  • Public Company
  • a business established outside of India
  • Limited Liability Company
  • Company Partnerships
  • Any additional organization listed under the 2013 Companies Act
  • Who Cannot Become an LLP Partner?
  • The following individual cannot join LLP as a partner.
  • Unrelieved Insolvent Choosing the Insolvent
  • Benefits of an LLP
  • A single tax rate.

Partners are given access to the company’s tax credits and deductions on their tax filings. Each partner’s level of interest in the business determines the distribution of credits and deductions.

Due to the LLP structure, limited partners are shielded from personal liability for the negligence of other partners or workers who are not directly under their control. The individual partners are not responsible for the debts and other obligations of the partnership.

Flexibility

LLPs give the partners freedom in their ownership of the company. Partners can choose how much they will each physically and financially contribute to the firm’s operations. Depending on the level of expertise of each partner, management responsibilities may be distributed equally or unequally. Partners with a financial stake in the firm might forego voting rights but keep ownership rights depending on their proportional stake in the business.

The drawbacks of an LLP

An LLP’s commercial existence is unstable since the partnership can be dissolved by the partners’ consent, upon a partner’s death or withdrawal, or both. A limited liability partnership agreement can stop the dissolution if a partner passes away or leaves the partnership.

Formation Limitation

Unlike general partnerships, limited liability partnerships are not accepted as legitimate company entities in every jurisdiction. Some states only permit professionals, like physicians or attorneys, to form limited liability partnerships.

Control by a partner

In some business transactions, individual partners are not obligated to consult with other participants if an LLP is formed without a limited liability partnership agreement. To put it mildly, it may be troublesome when one person has the authority to make business decisions without discussing the other partners.

They are referred to as a partner in limited liability partnerships. Partners are essentially human or artificial beings who have signed their names to the articles of incorporation or joined as partners after formation.

Let’s first consider who is qualified to occupy the role of partner in an Limited Liability Partnership before talking about whether an LLP may be a partner in another LLP. Any individual or organization may join a limited liability partnership, according to the Limited Liability Partnership Act of 2008. A person may live in India or in another nation. 

The following are included under the term “body corporate”:

  1. A business established under the Companies Act of 1956 or the Companies Act of 2013—public, private, or sole proprietorship.
  2. An LLP established in India or elsewhere
  3. Business Partnerships
  4. A business established outside of India
  5. Any additional entity listed under the 2013 Companies Act

A minimum of two partners in a limited liability partnership or nominees of such body corporates must function as designated partners in cases where all partners are body corporations or if one or more partners are both people and body corporations.

Therefore, an Limited Liability Partnership must nominate at least two members to act as the designated partner on its behalf when it joins another LLP.

A limited liability partnership has the authority to sign agreements with other LLPs as members. The partners of this Member LLP agree to be bound by the terms and conditions of this Agreement. A Designated Partner Identification Number (DPIN) must be obtained from the Central Government by each designated partner of a limited liability partnership. A specified partner must be:

A limited liability partnership is responsible for all acts, matters, and things that must be done for the Limited Liability Partnership Act’s provisions to be met, including filing any documents, returns, statements, and reports of a similar nature as required by the act and as may be specified in the limited liability partnership agreement.

Subject to all fines levied against the limited liability partnership for breaking any act-related rules.

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Adding LLP as a Partner in Another LLP: Legal Section

Section 5 of the Limited Liability Partnership Act of 2008. A limited liability partnership may include any number of individuals or corporations as partners The following conditions must be met before a person can join a limited liability partnership:

(a) He has been determined to be mentally ill by a court with appropriate authority, and the determination is still in effect;

(a) He has outstanding insolvency; or

(C) He has filed a still-pending application to be declared insolvent.

According to this clause, a person or a corporation may join as a partner in an LLP. The section also lists the requirements that preclude someone from joining any LLP as a partner.

How to Add an LLP as an associate in another LLP

Form for Limited Liability Partnership Incorporation

There is a FiLLiP form on the MCA website. The creation of an Limited Liability Partnership required the completion of this form. Please give information about another LLP and list it under this form. The disclosure is required under Point No. 7. (a) The total number of LLP partners and designated partners. Choose 1 for the field “Number of bodies corporate Partners.”

  • FiLLip Form Form MCA.
  • State the Service Request Number for the RUN-LLP Number (SRN)
  • Send a form to the MCA

CONCLUSION

Any individual or business entity is permitted to join as a partner in an LLP under the Law. As an LLP falls under the definition of a “body corporate” except cooperative societies established under the Act above, this is true. For further information related to this, you can keep an eye on the blog section of Vakilsearch.

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