The Limited Liability Partnership Act, 2008 extends to the whole of India including the State

of Jammu & Kashmir, unlike the Indian Partnership Act, 1932 which does not extend to that
State. The organisation and operations of general partnership firms is regulated by the Indian
Partnership Act, 1932. An entity formed as a partnership firm under Indian Partnership Act,
1932 faces the major constraint of unlimited liability of the firm extending to partners'
personal assets. This act as a deterrent for general partnership firms, particularly for firms of
professionals which have not grown in size and operations. The Limited Liability Partnership
Act, 2008 has been enacted to remove this major handicap. The basic purpose of Limited
Liability Partnership Act, 2008, is to provide a new form of organisation with the twin
objective of limiting the liability of the partners and at the same time providing them absolute
flexibility in the matter of running the business and regulating their relationship inter se.

MAIN FEATURES OF LIMITED LIABILITY PARTNERSHIP

The main features of Limited Liability Partnership Act, 2008 are as follows:
1. Incorporation
LLP is a body corporate and it must be registered with the Registrar of Companies similar to
a company.
2. Partners
The LLP must have at least two members. Any legal person may be a member of LLP.
3. Structure
The partners are given full freedom under LLP to engage in any lawful business and manage
and conduct the operations of the business in a manner they deem fit. The relationship inter
se of the partners has also been left to them to decide. In the absence of agreement between
them provisions of the Act will apply. LLP agreement is confidential to the members.
4. Separate legal entity
The LLP is a separate legal entity from its partners, in the same way as a company registered
under the Companies Act, 1956 constitutes as a separate legal entity.
5. Liability
The LLP is liable to the full extent of its assets, but the liability of the partners is limited to
the extent of their agreed contribution in the LLP. The assets of individual partners are not
burdened for meeting the liability of LLP.
6. Liability for unauthorized act of other partner
A partner of LLP is not liable for any unauthorized of act or misconduct of other partner or
partners.
7. Management
The LLP is required to name two individual persons as designated partners and at least one of
them must be resident in India. If the LLP does not designate two partners as designated
partners or designate only one as
designated partners, then all the partners will be treated as designated partners. A designated
partner is required to do all acts, matters and things which are required to be done by LLP
under the Limited Liability Partnership Act.
8. Annual accounts
The LLP is required to maintain annual accounts. The accounts are to be maintained in the
same manner as is required in case of a company. The accounts are to be audited unless
exemption has been obtained from the Central Government.
9. Reporting obligations
The LLP is required to file returns, annual accounts etc. of the LLP to the Registrar of
Companies and not to the Registrar of Firms.
10. Central Government's power to investigate
Under LLP Act the Central Government has the power to investigate the affairs of LLP
through inspector appointed for this purpose. The Central Government has also the power to
extend such provisions of the Companies Act, 1956 to LLP which provided for mergers,
amalgamations, winding up with appropriate modifications.
11. Conversion of other forms of organisation
A partnership firm, private company and unlisted public company have been given the option
in the LLP Act to convert themselves into limited liability partnership.
12. Capacity
A company is bound by its Memorandum of Association. But LLP has capacity to do any
legal business.
13. Security
LLP may take loan on the security of fixed asset or there may be floating charge on the assets
of the LLP.
14. Tax
LLP is taxed in the similar way as a general partnership with members being taxed
individually on their share of the LLP's profit or loss.
Limited liability partnership provide a new corporate form of business entity with unlimited
liability on one hand, and the statute based governance structure of the limited liability
company on the other in order to enable the professional expertise and the entrepreneurial
skill. Thus it is a body corporate, with a distinct legal entity from that of its partners. It has a
perpetual succession and may have a common seal. Any change in its partners, will not affect
its existence. It can make a contract, sue or be sued, hold property or become insolvent.
DISTINCTION BETWEEN (GENERAL OR TRADITIONAL) PARTNERSHIP
FIRM, LLP AND JOINT STOCK COMPANY
The following are the points of distinction between the partnership, LLP and company:
1. Formation 71
A partnership is governed by the Indian Partnership Act, 1932. A limited liability partnership
is governed by the Limited Liability Partnership Act, 2008.
A company is governed by the Companies Act, 1956.
2. Registration
A partnership may or may not be registered.
A limited liability partnership is required to be registered. An unregistered limited liability
partnership will be considered as partnership under the Indian Partnership Act, 1932 if it
fulfills the requirement of partnership as per that Act.
A company must be registered. An unregistered company maybe either a partnership or an
illegal association, depending upon the number of members, or it may be an association of
persons.
3. Legal Status
A partnership is not a separate legal entity. The partners, collectively are called 'firm'.
A limited liability partnership is a separate legal entity from its partners. A company is also a
separate legal entity.
4. Agreement
The agreement to enter into partnership may or may not be in writing.
Limited liability partnership agreement must be in writing as Section 23(2) requires the LLP
agreement and changes therein to be filed with the Registrar of Companies in the form and
manner and accompanied by such fees as maybe prescribed. As per Rule 21 this is to be done
within 30 days of incorporation.
The persons who want to form a company prepare Memorandum of Association.
5. Number of Members
A partnership can be formed by minimum two persons. Maximum number of persons for a
partnership doing banking business is 10 and for any other business 20.
A limited liability partnership must have at least two partners and at least one of them must
be resident of India. There is no maximum limit of partners.
In case of private limited company minimum number of members is 2 and maximum number
of members is 50. In case of public limited company minimum number of members is 7 and
there is no maximum limit of members.
6. Liability
The liability of the partners of a partnership firm is unlimited Partners are jointly and
severally liable for the acts of the firms.
The liability of a partner of an LLP is limited to his contribution in the LLP. The liabilities of
the LLP shall be discharged from its own assets.
The liability of a member/shareholder of a company is limited to the face value of the shares
held by him or the amount guaranteed by him depending upon the case.
7. Business
A partnership may engage itself in any lawful business which the partners like. An LLP shall
state the name of the proposed lawful business of the LLP in the incorporation document.
A company can engage itself in any lawful business mentioned in the objects clause of the
Memorandum of Association of the company.
8. Capital
The capital contributed by the partners can be altered by the partners freely in case of
partnership firm. A partner may not contribute as capital.
The quantum of each partner of an LLP is left to be decided by them inter se. However,
capital contribution of a partner cannot be nil but may be nominal.
Share capital held by a member/shareholder may change, particularly in case of listed
companies. Capital of a company can be altered by following the procedure laid down by the
Companies Act, 1956.
9. Property
The partnership property belongs to all the partners.
The LLP property belongs to the LLP. The property of the company belongs to the company.
10. Agency
In case of partnership every partner is an agent of the firm and of every other partner of the
firm.
Partner is an agent of LLP but not of other partners.
A member is not an agent of the company.
However, a director of a company may act as an agent of the company.
11. Management
Every partners is entitled to take part in the management of the partnership firm.
Every partner may take part in the management of the LLP as per First Schedule if there is no
clause to the contrary in the LLP agreement. The LLP Act makes designated partners wholly
responsible and accountable for compliance with the provisions of the Act.
In case of company management of its affairs is entrusted to Board of Directors.
12. Transfer of shares
In case of partnership a partner cannot transfer his interest to any other person without the
consent of other partners so as to make him the partner. If a partner transfers the whole of his
interest in the partnership to any other person without the consent of other partners, the other
partners can file a suit for dissolution of the firm.
The rights of a partner to a share of the profits and losses of the LLP and to receive
distributions in accordance with the LLP agreement are transferable either wholly or in part.
The shares of a public limited company are freely transferable. The shares of a private limited
company can be transferred subject to restriction imposed on them.
13. Dissolution
A partnership may be dissolved by the death or insolvency of a partner. A firm is dissolved
by the adjudication of all the partners but one as insolvent and subject to contract between the
partners, a firm is dissolved by the death of a partner.
An LLP is not dissolved by the death or insolvency of a partner. The circumstances in which
an LLP may be wound up by the Tribunal are prescribed in Section 64.
A company is not liquidated in case of death or insolvency of a member. It has perpetual
existence.
14. Accounts and audit
The accounts of a partnership need not be got audited as per the Indian Partnership Act, 1932.
LLP is required to get its accounts audited unless exempted by the Central Government by
notification.
A company is required to get its accounts audited and placed before the members. A copy of
the accounts is required to be sent to the Registrar of Companies.
15. Nature of document
Partnership deed is a private document. LLP agreement is a public document. It is available
at registered office of the LLP and a copy of it may be obtained by submitting prescribed fee.
In case of a company Memorandum of Association and Articles of Association are public
documents.
16. Applicability of relevant Acts
Indian Partnership Act, 1932 is not applicable to the State of Jammu & Kashmir.
Limited Liability Partnership Act, 2008 and Companies Act, 1956 are applicable to the State
of Jammu & Kashmir.
17. Rules regarding Name
There is no provision in the Indian Partnership Act, 1932 regarding the last words of the
name of the firm.
Every limited liability partnership shall have either the words "limited liability partnership or
the acronym "LLP" as the last words of its name.
The Companies Act, 1956 makes it mandatory. A use the words "Limited" or "Private
Limited", as the case may be, at the end of the name of the company.
18. Arbitration
The disputes will be resolved as per the partnership deed or by the Court.
The disputes will be resolved as per the LLP agreement. In the absence of any clause
regarding the settlement of disputes in the LLP agreement they will be referred to arbitration.
Companies Act, 1956 has not made any provision for arbitration.
19. Winding up
A partnership firm is dissolved as per the agreement or by consent of the partners or by notice
by a partner, or on the happening of certain events. It can also be dissolved by the Civil Court
having jurisdiction under certain circumstances.
The winding up of a limited liability partnership may be either voluntary or by the Tribunal
and limited liability partnership so wound up may be dissolved. If the Tribunal is established
then winding up is to be done by the High Court. Section 433 of the Companies Act set out
certain grounds on which Court/Tribunal may wind up a company. Six grounds are similar to
the grounds set out in Section 64 of LLP Act.