What is LLP?
Limited Liability Partnership (LLP) is a simple form of business organization which provides an alternative to traditional partnership, with unlimited personal liability on the one hand, and the statute-based complex governance structure of the limited liability company on the other. It not only provides the benefit of limited liability but also allows its members the flexibility of organizing their internal structure as a partnership based on mutually arrived agreements. Owing to flexibility in its structure and operation, the LLP would be best suited to service providers, professionals engaged in scientific and technical disciplines, small enterprises and for investment by venture capital.
Limited Liability Partnership (LLP) was introduced in India by way of the Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business entity that is simple to maintain while providing limited liability to the owners. Since, its introduction in 2010, LLPs have been well received with over 1 lakhs registrations so far until September, 2014.
The main advantage of a Limited Liability Partnership over a traditional partnership firm is that in a LLP, one partner is not responsible or liable for another partner's misconduct or negligence. A LLP also provides limited liability protection for the owners from the debts of the LLP. Therefore, all partners in a LLP enjoy a form of limited liability protection for each individual's protection within the partnership, similar to that of the shareholders of a private limited company. However, unlike private limited company shareholder, the partners of a LLP have the right to manage the business directly.
LLP is one of the easiest form of business to incorporate and manage in India. With an easy incorporation process and simple compliance formalities, LLP is preferred by Professionals, Micro and Small businesses that are family owned or closely-held. Since, LLPs are not capable of issuing equity shares, LLP should be used for any business that has plans for raising equity funds during its lifecycle.
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Salient Features of a LLP
It is 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 incorporate LLP by filing an incorporation document with the Registrar.
- A 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. There is no upper limit on number of partners in a LLP.
- It has perpetual succession.
- The mutual rights and duties of partners of LLP inter se and those of the LLP and its partners are governed by an agreement between partners or between the LLP and the partners subject to the provisions of the Limited Liability Partnership Act, 2008.
- While LLP is liable to the extent of its assets, the liabilities of the partners shall be limited to their agreed contribution in the LLP which may be of tangible o intangible nature or both.
- It shall be the liability of a LLP to maintain annual accounts and get them audited. A statement of accounts and solvency has to be filed by every LLP with the Registrar every year.
- A Firm, private company or an unlisted public company would be allowed to be converted into LLP.
- Provisions have been made in the Act for corporate actions like mergers, amalgamations etc
- Enabling provisions in respect of winding up and dissolution of LLP have been made in the Act and Rules made under the Act.
- A LLP can sue and be sued in its own name.
