“Great wealth and limited liability are circumstances that are rarely seen together”.
The evolution in the legal structure of a classic partnership firm brought in the greatest single invention of modern times as regards the formats of conducting business is concerned.
The concept of “Limited Liability Partnership” (LLP) not only fade away the shortcomings of a partnership firm but proudly combines the benefits of both partnership firms and companies having features like separate legal entity, perpetual succession, stability in existence with zero impact of change in partners, so on and so forth.
“LLPs proved to be a unique mode of doing business appealing especially to those run by professionals of different specialisations to fulfil their business aspirations”.
People from different walks of life who had been wanting to tie-up for commercial purposes found this as a perfect way out, one which was needed for quite a long time, one which had the flexibility of a partnership, the flexibility of organizing internal management on the basis of a mutually arrived agreement amongst the partners along with the advantages of limited liability of a company including but not limited to limited liability, all at a low compliance cost.
Limited Liability Partnership – “A Business Vehicle”
A LLP is a new form of legal business entity with limited liability.
It is an alternate corporate business vehicle that not only gives the benefits of limited liability at low compliance costs but also allows its partners the flexibility of organising their internal structure as a traditional partnership.
The LLP is a separate legal entity and, while the LLP will be liable for the full extent of its assets, the liability of the partners will be limited.
LLP is a hybrid structure of partnership and company, because it combines the characteristics of a private company and a conventional partnership.
Features of Limited Liability Partnership
- A limited liability partnership is a body corporate formed and incorporated under LLP Act, 2008 which has come into force w.e.f. 01st April 2009 and is a legal entity separate from that of its partners.
- A limited liability partnership has a benefit of perpetual succession. (It means that the LLP can continue its existence even after retirement, death, insanity of one or more respective partners in the firm).
- Any change in the partners of LLP shall not affect the existence, rights and liabilities of the limited liability partnership.
- Every LLP shall have at least two partners who can be individual or body corporate or a combination of both.
Note: A HUF, Co-operative society, a sole corporate body and any other body corporate who are specifically excluded by the Central Government cannot be a partner in the LLP.
Note: If at any time the number of partners of LLP is reduced below two and, the person, who is the sole partner of the LLP carries on business for more than 6 months deliberately, shall be liable personally for the obligations of the LLP incurred during that period.
- Every LLP shall have at least two designated partners who are individual and out of which one should be an India resident. Therefore, to start a LLP business the requirement is same just like a Private Company.
- All partners will be the agents of the LLP in his or her own capacity itself and therefore; no one partner can bind the other partner by his acts.
Meaning of “Designated Partner”
A Designated Partner is a partner similar to a Managing director in case of companies. He is one of the partner of LLP who takes care of day to day operations, compliances and dealing of the LLP.
Key features of Designated Partners:
- Every LLP shall have at least two designated partners who are Individual and at least one shall be a resident in India.
- In case all the partners of LLP are bodies corporate or in which one or more partners are body corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners.
- Any partner may become or may cease to be a designated partner by and in accordance with the limited liability partnership agreement.
Advantages of Limited Liability Partnership
- It ensures perpetual succession and separate legal entity, as in the case of a company.
- The liability of all the members of LLP is limited.
- No restriction on the minimum capital required, and minimum 2 members are required to start an LLP. Also, there is no restriction on maximum number of members(like in case of a private limited company and partnership firms).
- Unlike companies, audit is not compulsory for all LLPs, audit is mandatory only if certain thresholds are crossed.
- It is as flexible as a partnership firm in addition of having limited liability feature.
- The registration process is also very simple and one can obtain registration by filing documents electronically. A designated partner has to obtain DSC to sign these documents and various other forms as required in this regard.
- Provisions relating to taxation are same as of partnership firms.
- Conversion of a limited liability partnership into private/public company is comparatively easy.
Key differences between LLP and Partnership Firm?
|A partnership is governed by the Indian Partnership Act, 1932.||A LLP is governed by the Limited Liability Partnership Act, 2008.|
|A partnership is registered with the Registrar of firms.||The registration of a limited liability partnership is done with the Ministry of Corporate Affairs(MCA).|
|A partnership is an arrangement where two or more individuals or partners come together to carry on business and share their profits and losses in the agreed ratio.||A LLP is a combination of a company and a partnership, where the partners have a limited liability towards the debts and obligations of the partnership.|
|A partnership firm is not distinct from the persons who compose it.||A LLP is a separate legal entity and therefore, can be sued or it can sue others without involving the partners.|
|Partners of a firm would have unlimited liability.||While, in LLP, the liability of partners would be limited.|
|The death or retirement of a partner would dissolve the partnership firm.||The retirement or death of a partner would not dissolve the LLP.|
|A Partnership can be formed either orally or by a deed of agreement whether registered or not.||LLP is formed by an incorporation document and an LLP agreement, thus, giving it legality.|
|A registered or unregistered partnership cannot have more than 100 partners.||LLP can have more than that number since no upper limit has been laid down by the Act.|
|A partnership cannot hold property in its own name.||A limited liability partnership can hold property in its own name.|
Procedure for Online Registration of LLP
- Acquire/ Register DSC (digital signature certificate)
- Application for DIN or DPINAll designated partners of the proposed LLP shall obtain “Designated Partner Identification Number (DPIN)”. In case you already have a DIN (Director Identification Number), use the same as a DPIN.
- Apply for the name of the LLPAs per the legislative provisions, every limited liability partnership shall have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name.
- After the Name gets approved, the incorporation document shall be filled.It contains the details like the name, proposed business, address of the Registered Office of LLP.
It shall further state the name and address of the Partners and Designated Partners of the LLP and such other information as required.
- File LLP AgreementAfter incorporation of LLP, an initial LLP agreement is to file within 30 days of incorporation of LLP. Any change in the LLP agreement is also required to be notified to the Registrar of Companies.
Documents required for LLP Registration
- Documents required from the Firm
1. Address Proof of the Registered office.
2. Digital Signature Certificate
B. Documents required from the Partners
- PAN Card
- Identity Proof / Residence Proof (Aadhar Card/ Voter ID card/Passport)
- Passport size photographs of all partners.