Limited Liability Partnership

Limited Liability Partnership is a type of body corporate under the Companies Act, 2013 with features of a separate legal entity from the partners. The LLP has a perpetual succession and any change among the partners shall not affect the rights and liabilities of the LLP.

Though the name partnership, there is no applicability of the Indian Partnership Act, 1932 to an LLP. An LLP can have partners either or both individuals or companies.

There are certain disqualifications for partners as provided by the act. There shall be at least two designated partners and one of them a resident of India. The partner must give prior consent for acting in such form and manner.

Limited Liability Partnership Features

The features of LLP are as follows:

• Separate Legal Entity

Unlike Partnership firms, LLP has its own assets and liabilities in the name of the firm. The contracts are entered in the name of the firm as well.

• Profit Sharing

The business profit shares are similar to the partnership firm. The ratio of profit is decided by the partners.

• Partners can be an Individual or Body of Corporate

The designated partners can be an individual or body corporate either of them. An individual should be of sound mind and solvent where there is no pending application in the court.

• No Minimum Capital Requirement applicable to Limited Liability Partnership

An LLP can be incorporated with less contribution as the capital of the firm.

• Mutual Agency

All the designated partners act as an agent and unlike partnership firms, the action of one partner does not bind another one.

• Limited Liability

As per the provisions of the Act, a partner is not an agent of other partners and liability is limited to an agreed contribution to the LLP.

• E-Filing of Documents

The process of compliance is facilitated by the Ministry of Corporate Affairs (MCA) website.

• Conversion into LLP

A company can be converted into an LLP as per the provisions of the Act.

Limited Liability Partnership Advantages and Disadvantages

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The following are the advantages and disadvantages of LLP:

1. Advantages of LLP:

• Distinct Legal Entity

  An LLP is separate from its partners and this makes it more like a company. An LLP can be sued and sued by another person. It can enter into contracts with other businesses in its own name.

• Limited Liability of Designated Partners

  The partners have liability limited to their contributions made. They are liable to pay only up to the amount of contribution made by them. They are not personally liable for any losses made by the business.

• Fewer Cost of Compliance

  The cost of compliance with the Limited Liability Partnership Act, 2008 in comparison with a public or private company is relatively lesser. The number of compliances is minimum. The two statements are filled annually namely annual return and Statement of Accounts.

• No requirement for the contribution of Minimum Capital

  As per the provisions of the act, there is no need for minimum capital for incorporating an LLP.

• Taxation

  LLP has a lower tax rate in comparison with a limited company. It is also not permitted to pay a dividend distribution tax like a limited company.

• No Audit Requirement

  There is no mandatory audit that is provided for an LLP. However, a business having an annual turnover as Limited Liability Partnership Act, 2008 notes that the limits are exceeded as prescribed under the law must get its accounts audited by a professional chartered accountant in practice.

2. Disadvantages of LLP:

• Penal Provisions in case of Non-Compliance

  The compliance to be followed by an LLP are minimum. When these have not adhered to timely, then an LLP can have a penalty like non-filing of annual returns with the Ministry of Corporate Affairs (MCA).

• Dissolution and Winding of an LLP

  When the requirement of a minimum of two partners is not complied with for six months and in case of unable to pay the debts of an LLP, then it will be dissolved.

• Difficulty in case of Transfer of Ownership

  The owners are not transferable without taking consent of all partners of the LLP.

• Facing Problems in Raising Capital

  There are no equity shareholders like angel investors that cannot invest in the LLP. The partners are the shareholders of an LLP.

• Admission of a New Partner

  The new partner can be admitted with the consent of existing partners and must change the contributions for the admission of a new partner.

Limited Liability Partnership Vs Partnership Firm

The major difference between an LLP and Partnership firm are as follows:

• The governing law for LLP is the LLP Act, 2008 and for Partnership firms are the Indian Partnership Act, 1932.
• The registration of an LLP is mandatory under the act whereas the registration of a Partnership firm is voluntary and not mandatory.
• The LLP registration form must be submitted with the Registrar of Companies through MCA whereas the registration form is submitted with the Registrar of Firms
• An LLP is incorporated by law whereas a Partnership firm is formed with a contract.
• The LLP agreement is the constitution of forming a Limited Liability Partnership in India whereas a Partnership deed forms the constitution of the firm.
• Filing of annual returns with a statement of accounts is required to be filed every year in the forms with the ROC whereas there is no such annual filing requirement for a Partnership firm.
• An LLP is eligible for entering the contract in its own name whereas a partnership firm is not eligible to enter into a contract in its own name.
• The designated partners of an LLP have a limited liability that does not exceed the amount of capital contribution made by them whereas, in a partnership firm, the partners have unlimited liability.
• The name must include the words ‘LLP’ at the end whereas there is no need to mention any compulsory word in its name.
• In the case of LLP, there is no maximum limit for partners whereas there is a maximum limit of 100 partners in a partnership firm.

Limited Liability Partnership Vs Limited Partnership

An LLP and Limited Partnerships (LPs) are different businesses carried by two or more individuals having different business needs.

The key points of differences are:

• LLPs have designated partners whereas Limited Partnerships (LPs) use the term general partners who are responsible for day-to-day management operations.
• In LLP there is a limited liability which is limited to the capital contributed by the partner; on the other hand, LPs have an unlimited liability means the general partners are personally liable for business debts.
• In the case of LLP, the decision-making power is with the designated partner; on the other hand, In Limited Partnerships, the general partners do not have decision-making power.
• The Limited Liability Partnership has income tax rules as per the law, whereas in limited partnerships, paying income tax is as per individual partners paying taxes according to their share of profit per year. Under an income tax, LP is treated as a general partnership.