Limited liability partnership Vs.

Partnership
Keeping in mind the growth and expansion of the Indian economy a need was felt for the

introduction of a new corporate vehicle which could provide for the benefits of a partnership as

well as ensure restricted personal liability. Thus the parliament enacted the Limited Liability

Partnership Act in 2008

Limited Liability Partnership

In a limited liability partnership one partner is not responsible for the misconduct or negligence

of the acts caused by the other. A limited liability partnership although exhibits all the features of

a partnership in the normal course but under its special provision, the concept of limited liability

partnership gives the latter an upper hand over the former

LEGAL ENTITY

In India LLP is a body corporate formed and incorporated under the LLP Act, which is a distinct

legal entity separate from that of its partners1. The act provides exhaustive features such as

competency of parties to form and draft a partnership agreement, extent of liability, penalties etc.

SECTION 3(1) of the Limited Liability Partnership Act,2008

1
Section 3(1) LLP Act,2008
A limited liability partnership is a body corporate formed and incorporated under this act and is a

legal entity separate from its partners

For the purposes of taxation LLP’s will be treated as a firm as defined in the Indian Partnership

Act, 19322

Section 3(c) of the Finance (No. 2) Act,2009

(for clause (23), the following clause shall be substituted with effect from the 1st day of April,

2010, namely :—

‘(23) (i) “firm” shall have the meaning assigned to it in the Indian Partnership Act, 1932 (9

of 1932), and shall include a limited liability partnership as defined in the Limited Liability

Partnership Act, 2008 (6 of 2009);

REGISTRATION

It is compulsory for a limited liability partnership to get registered as per the provisions of the

Limited Liability Partnership Act, 2008 and it is a body corporate and incorporated under this

act3

FINANCIAL DISCLOSURES

2
Section 3(c) FINANCE (NO. 2) ACT, 2009
3
Section 3(1) LLP Act,2008
It is also compulsory for a Limited Liability Partnership to file within the prescribed time the

statement of accounts pursuant to sub section (2) and sub-section (3) of section 34 of The

Limited Liability Partnership Act, 2008

Section 34(2)

Every limited liability partnership shall, within a period of six months from the end of each

financial year, prepare a statement5 of account and solvency for the said financial year as at the

last day of the said financial year in such form as may be prescribed and such statement shall be

signed by the designated partners of the limited liability partnership

Section 34(3)

Every Limited liability partnership shall file within the prescribed time, the statement of accounts

and solvency prepared pursuant to sub section (2) of section 34 with the registrar every year in

such form and manner and accompanied by such fees as may be prescribed

EXTENT OF LIABILITY OF THE LIMITED LIABILITY PARTNERSHIP

The whole concept behind enacting the Limited Liability Partnership Act, was that the limited

liability partnership shall not be held liable for the unauthorized act done by any other partner in

the limited liability partnership

Sections 27(1), of the limited liability act, 2008 covers the following point.

S.27 (1)

A limited liability partnership is not bound by anything done by a partner in dealing with a

person if-
a) The partner in fact has no authority to act for the limited liability partnership in doing a

particular act

b) The person knows that he has no authority or does not know or believe him to be a partner of

the limited liability partnership

EXTENT OF LIABILITY OF A PARTNER OF THE LIMITED LIABLITY

PARTNERSHIP

Section 28(1), Section 28(2) covers this point

S.28 (1)

A partner is not personally liable, directly or indirectly for an obligation referred to in sub-

section (3) of section 27 solely by reason of being a partner of the limited liability partnership.

S.27 (3)

An obligation of the limited liability partnership whether arising in contract or otherwise, shall

be solely the obligation of the limited liability partnership

S.28 (2)

The provision of sub-section (3) of section 27 and sub section(1) of this section shall not affect

the personal liability of a partner for his own wrongful act or omission but a partner shall not

be personally liable for the wrongful act or omission of any other partner of the limited

liability partnership
Partnership

Partnerships in India are governed by the Indian Partnership Act, 1932.

A “partnership” according to section 4 of the Indian Partnership Act-

“Partnership” is the relation between persons who have agreed to share the profits of a

business carried on by all or any of them acting for all.”

LEGAL ENTITY

A partnership firm under the Indian Partnership Act, 1932 is not a distinct legal entity apart from

the partners constituting it and equally in law the firm as such has no separate rights of its own in

the partnership assets and when one talks of the firm's property or firm's assets all that is meant is

property in which all partners have a joint or common interest. 4Even registration of a partnership

firm does not mean that it becomes a distinct legal entity5

For tax law, income-tax as well as sales tax, partnership firm is a legal entity.6

REGISTRATION

Registration of partnership is not compulsory7 in India as the law is silent on the fact and the

Indian partnership Act, 1932 provides for a section which deals with the effects of non-

registration.

4
Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd. and Ors., AIR 1948 PC 100;
5
V. Subhramaniam vs Rajesh Raghuvandra Rao,2009 SC
6
CIT v. A W Figgies - AIR 1953 SC 455
7
V.Subramaniam vs Rajesh Raghuvandra Rao,2009 SC
Section 69

EFFECT OF NON-REGISTRATION.

(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in

any Court by or on a behalf of any persons suing as a partner in a firm against the firm or any

person alleged to be or to have been a partner in the firm unless the firm is registered and the

person suing is or has been shown in the Register of Firms as a partner in the firm : Provided that

the requirement of registration of firm under this sub-section shall not apply to the suits or

proceedings instituted by the heirs or legal representatives of the deceased partner of a firm for

accounts of the firm or to realise the property of the firm.

(2) No suit to enforce a right arising from a contract shall be instituted in any court by or on

behalf of a firm against any third party unless the firm is registered and the persons suing are or

have been shown in the Register of Firms as partners in the firm.

FINANCIAL DISCLOSURES

Financial disclosures are not required to be done by partnership firms as the law is silent

EXTENT OF LIABILITY
The extent of liability of the firm as well as other partners is pointed out in the following sections

LIABILITY OF A PARTNER FOR ACTS OF THE FIRM.

Section 25

Every partner is liable jointly with all the other partners and also severally, for all acts of the

firm done while he is a partner

LIABILITY OF THE FIRM FOR WRONGFUL ACTS OF A PARTNER.

Section 26

Where, by the wrongful act or omission of a partner acting in the ordinary course of the business

of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any

penalty is incurred, the firm is liable therefor to the same extent as the partner.

Section 27

LIABILITY OF FIRM FOR MISAPPLICATION BY PARTNERS.

Where –

(a) a partner acting within his apparent authority receives money or property from a third party

and misapplies it, or

(b) a firm in the course of its business receives money or property from a third party, and the

money or property is misapplied by any of the partners while it is in the custody of the firm, the

firm is liable to make good the loss.

Thus under the Indian Partnership Act, the concept of liability is strict and absolute and it will

cover all the partners of the firm as well as the firm itself.
Broad distinction between Partnership Firm and Limited Liability Partnership-

S.No. Nature Partnership Firm Limited Liability

Partnership
1 Legal entity A partnership Firm is A limited liability

not a legal entity. partnership is a legal

entity.
2 Liability Every partner is jointly The limited liability

and severally liable and partnership is not liable

the firm is also liable for the acts done by the

for the wrongful acts or partners outside the

omissions of any scope of their authority

partner. and the partners are

also not responsible for

the wrongful acts of

any other partner.

Similarly any

obligation of the

Limited Liability

partnership is the sole

obligation of the

Limited Liability

Partnership and not of

its partners personally.

3 Taxation For the purposes of For the purposes of
 taxation a partnership taxation the LLP’S will

shall be treated as a be treated as a “firm”

separate legal entity as defined in the

Partnership Act,1932
4. Registration Registration of a Registration and

partnership firm is not incorporation of a LLP

compulsory as the law is compulsory as per

is silent on it the LLP Act itself

5. Financial Disclosures The law being silent on Mandatory to file

partnership firms, it is disclosures by Limited

not mandatory to file Liability Partnership as

disclosures per the LLP Act itself

Conclusion

Hence as per the above comparisons it is best to say that a limited liability partnership not

only renders protection to the partners but also retains all the benefits of a partnership.

Although the traditional partnership holds one advantage that it is not compulsory for a

partnership to get registered before any statutory authority while on the other hand a

Limited Liability Partnership has to get registered under the Limited Liability Act, 2008,

the process of which may be cumbersome. Still in my opinion the balance is tilted in the

favour of the latter.