LIMITED LIABILITY PARTNERSHIP
A limited liability partnership (LLP) is a partnership in which partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner’s misconduct or negligence.
The Limited Liability Partnership Act 2008 was published in the official Gazette of India on 9 January 2009 and has been in effect since 31 March 2009. However, only limited sections of the Act have been ratified. Rules of the Act were published in the official Gazette on 1 April 2009 and amended in 2017. The first LLP was incorporated on 2 April 2009.
In India as in many other jurisdictions, an LLP is different from a Limited Partnership. An LLP operates like a limited partnership, but in an LLP, each member is protected from personal liability, except to the extent of their capital contribution in the LLP.
- In India, for all purposes of taxation (GST or any other stipulated tax payment), an LLP is treated like any other Partnership firm.
- Liability is limited to each partners agreed upon contribution to the LLP.
- No partner is liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
- An LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners cannot exceed 20.
- The LLP Act has a mandatory requirement that one of the partners in the LLP must be an Indian.
- Provisions have been made for corporate actions like mergers and acquisitions.
- While enabling provisions in respect of winding up and dissolutions of LLPs have been made, detailed provisions in this regard would be provided by way of rules under the Act.
- The Act also provides rules for Limited Partnerships.
- Separate legal entity: Like a company, LLP also has a separate legal entity. So the partners and the LLP in are distinct from each other. This is like a company where partners are different from the company.
- No requirement of minimum capital: In the case of companies there should be a minimum amount of capital that should be brought by the members or owners who want to form it. But to start an LLP there is no requirement of minimum capital.
- Minimum number of members: To start a limited liability partnership at least two members are required initially. However, there is no limit on the maximum number of partners.
- No requirement of compulsory audit: All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. A limited liability partnership is required to get the audit done only if:
- The contributions of the LLP exceeds, 25 lakhs or
- The annual turnover of the LLP exceeds, 40 lakhs.
- It is more flexible to organize the internal structure of LLP. Comparatively, it is complex to organize the internal structure of a company.
- There is no maximum limit for the number of partners in LLP. In the private limited company, shareholders are limited to the extent of 200 shareholders.
- Raising and utilization of funds depends on the partners will. Funds can be bought and utilized only as per the norms listed under the Companies Act, 2013.
- LLP is exempt from Dividend Distribution Tax (DDT). In contrast, a company has to pay DDT on dividend distribution.
- Professionals like accountant, Cost (CMA), Advocates, engineers, and doctors may prefer to register as LLPs.
- No requirement of compulsory audit: All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement.
- Any act of the partner without the other partner may bind the LLP.
- LLP cannot raise money from the public.
- Angel investors and venture capital firms generally prefer not to invest in LLPs. Private Limited companies are preferred over LLPs.
- Obtain digital signature for the partners.
- Apply for the DIN (Director Identification Number) which is necessary to become a partner in the LLP.
- Apply for the name approval for the LLP registration.
- India Registrar of Companies issues the Certificate of Incorporation which is the proof for the registration.
- File for a Permanent Account Number (PAN) from NSDL.
- File LLP agreements and open a current bank account.
- Company details can be checked on the Ministry of Corporate Affairs, Companies Master Data Website.