LIMITED LIABILITY PARTNERSHIP

Limited Liability Partnership (LLP)

Concept of Limited Liability Partnership (LLP)

Ø  Limited Liability Partnership (LLP) is a combination of both Partnership and Corporation. 

Ø  LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.

Ø  The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.

Ø  The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

Ø  Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

Ø  Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.

Ø  Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.

Structures of a Limited Liability Partnership 

Ø  LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.

Ø  The LLP structure is available in other countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.

Advantages of Limited Liability Partnership Form

Ø  LLP form is a form of business model which is organized and operates on the basis of an agreement.

Ø  Forming an LLP is an easy process. It is not complicated and time consuming like the process of a company.

Ø  LLP form provides flexibility without imposing detailed legal and procedural requirements.

Ø  The partners of the LLP is having limited liability which means partners are not liable to pay the debts of the company from their personal assets.

Ø  LLP form enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner.

Ø  LLP is not affected by death, retirement or insolvency of the partner. The LLP will get winded up only as per provisions of the act of 2008.

Ø  LLP is exempted from various taxes such as dividend distribution tax and minimum alternative tax. The rate of tax on LLP is less than as compared to the company.

Ø  In the case of LLP, there is no mandatory audit required. The audit is required only in those cases where the turnover of the company exceeds Rs 40 lakhs and where the contribution exceeds Rs 25 lakhs.

Ø  There is no restriction upon joining and leaving the LLP. It is easy to admit as a partner and to leave the firm or to easily transfer the ownership on others.

Difference between LLP & Traditional Partnership Firm

Ø  Under “Traditional Partnership Firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.

Ø  Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.

Difference between LLP & Company

Ø  A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 2013) whereas for an LLP it would be by a contractual agreement between partners.

Ø  The management-ownership divide inherent in a company is not there in a limited liability partnership.

Ø  LLP will have more flexibility as compared to a company.

Ø  LLP will have lesser compliance requirements as compared to a company.

Limited Liability Partnership Act

LLP is governed by the provisions of the Limited Liability Partnership Act 2008, the salient features of which are as follows: -

Ø  The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession.

Ø  The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008. The act provides flexibility to devise the agreement as per their choice.

Ø  The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.

Ø  Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law.

Ø  The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government.

Ø  The Central Government has powers to investigate the affairs of an LLP, if required, by appointment of competent Inspector for the purpose.

Ø  The compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the LLP Act 2008.

Ø  A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the LLP Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.

Ø  The winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court.

Ø  The LLP Act 2008 confers powers on the Central Government to apply provisions of the Companies Act, 2013 as appropriate, by notification with such changes or modifications as deemed necessary. However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses.

Ø  The Indian Partnership Act, 1932 shall not be applicable to Limited Liability Partnerships.

CONCLUSION

 Limited Liability Partnerships are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.

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Sources: Ministry of Corporate Affairs