An Overview of Limited Liability Partnership (LLP) in India

An Overview of Limited Liability Partnership (LLP) in India
A Limited Liability Partnership (LLP) is a partnership in which some or all partners (depending
on the jurisdiction) have limited liability. It therefore exhibits elements of partnerships and
corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct
or negligence. This is an important difference from that of an unlimited partnership. In an LLP,
some partners have a form of limited liability similar to that of the shareholders of a corporation.
In some countries, an LLP must also have at least one "General Partner" with unlimited liability.
Origin
The Limited Liability Partnership was formed in the early 1990s in United States in the
consequence of the collapse of real estate and energy prices in Texas in the 1980s. This collapse
led to a large wave of bank and savings and loan failures. Because the amounts recoverable from
the banks were small, efforts were made to recover assets from the lawyers and accountants who
had advised the banks in the early 1980s. The reason was that partners in law and accounting
firms were subject to the possibility of huge claims which would bankrupt them personally, and
the first LLP laws were passed to shield innocent members of these partnerships from liability.
Apart from India Many Countries like Canada, China Germany, Greece, Japan, Kazakhstan,
Poland, Romania, and Singapore have felt the need to recognize LLPs in their country.
Limited Liability Partnership in India
Preface
In India, The Limited Liability Partnership Act, 2008 was published in the official Gazette of
India on January 9, 2009 and has been notified with effect from 31 March 2009. The first LLP
was incorporated in the first week of April 2009. Some sections relating to conversion of existing
partnership firms and private as well as public unlisted companies into LLP have been brought
into force on 31-5-2009 At present, there are about 10,000 LLPs formed and registered under the
Limited Liability Partnership Act.
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Salient features of an LLP
a. An LLP is a body corporate and legal entity separate from its partners. It has perpetual
succession.
b. Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act,
1932 are not applicable to an LLP and it is regulated by the contractual agreement between the
partners.
c. Every Limited Liability Partnership shall use the words “Limited Liability Partnership” or its
acronym “LLP” as the last words of its name.
d. It contains elements of both „a corporate structure‟ as well as „a partnership firm structure‟.
e. Every LLP shall have at least two designated partners being individuals, at least one of them
being resident in India and all the partners shall be the agent of the Limited Liability Partnership
but not of other partners.
f. LLP agreement is not mandatory but in the absence of LLP agreement, mutual rights and
liabilities of partners shall be determined as provided under Schedule I to the LLP Act.
Advantages of forming an LLP
a. LLP form is a form of business model which is organized and operates on the basis of an
agreement.
b. Liability of partners is limited to their agreed contribution in the LLP and no partner is liable
on account of the independent or un-authorized actions of other partners, thus individual partners
are protected from joint liability created by another partner‟s wrongful business decisions or
misconduct.
c. LLP has more flexibility and lesser compliance requirements as compared to a company.
d. Simple registration procedure, no requirement of minimum capital, no restrictions on

maximum limit of partners.
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e. It is easy to become a partner or leave the LLP or otherwise.
f. It is easier to transfer the ownership in accordance with the terms of the LLP Agreement.
g. As a juristic legal person, an LLP can sue in its name and be sued by others. The partners are
not liable to be sued for dues against the LLP.
h. No restriction on limit of the remuneration to be paid to the partners like companies, but the
remuneration must be authorized by the LLP agreement and it cannot exceed the limit prescribed
under the agreement.
i. The Act also provides for conversion of existing partnership firm, private limited Company
and unlisted public Company into an LLP by registering the same with the Registrar of
Companies (ROC).
j. No exposure to personal assets of the partners except in case of fraud.
Disadvantages of forming an LLP
a. Any act of the partner without the consent of other partners, can bind the LLP.
b. Under some cases, liability may extend to personal assets of the partners.
c. An LLP are not allowed to raise money from Public.
d. Because of the hybrid form of the business, it is required to comply with various rules &
regulations and legal formalities.
e. It is very difficult to wind up the business in case of exigency as there are a lot of legal
compliances under Limited Liability Partnership (Winding Up and Dissolution) Rules and it is
very lengthy and expensive procedure.
How to Form of an LLP?
Any two or more persons can form an LLP. Even a limited Company, a foreign Company, a
LLP, a foreign LLP or a non-resident can be a partner in LLP. Although, there is no specific
mention, a HUF represented by its Karta and a Minor can also be partner in LLP. An
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Incorporation document (similar to memorandum) and LLP agreement (similar to articles of
association) is required to be filed electronically. The Registrar of Companies (ROC) shall
register and control LLPs.
Steps to form an LLP:-
Accounting aspects of Limited Liability Partnership Every LLP shall maintain books of accounts
and submit a statement of accounts and solvency within a period of 30 days from the end of six
months of the financial year. It is also required to file annual return within 60 days from the end
of the financial year. Apart from that, an LLP is also required to get its accounts audited if annual
turnover exceeds Rs. 40 Lakhs or the contribution exceeds 25 Lakhs. Revised Schedule-VI to the
Companies Act, 1956 is not applicable to an LLP. It applies to all companies registered under the
Companies Act but LLP is a body corporate and not a company.
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An Overview of Limited Liability Partnership (LLP) in India

Limited Liability Partnership in India

d. It contains elements of both „a corporate structure‟ as well as „a partnership firm structure‟.

Advantages of forming an LLP

d. Simple registration procedure, no requirement of minimum capital, no restrictions on

j. No exposure to personal assets of the partners except in case of fraud.

Disadvantages of forming an LLP

c. An LLP are not allowed to raise money from Public.

How to Form of an LLP?

Steps to form an LLP:-

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