Limited liability partnership in India

Introduction

Limited liability partnership in India is governed by limited liability partnership act 2008. The
first limited liability law was enacted by the State of New York in 1811. Mostly partnerships are
of general kind that is, general partnerships. In this type of partnership, the responsibility for
the business and liability is unlimited which means that general partner share both profit and
loss of the business and partners have an unlimited liability for all the financial obligation of the
company or business.

Some partnership allows limited liability for the business financial obligations, one such kind is
limited liability partnership or LLP. This is the new type of partnership where all the owners
have limited liability on financial obligation of the business. This can be said as a mixture of
general partnership and Private limited companies. Limited liability partnership is a
combination of corporation and partnership it has feature of both. In these partners are not
responsible for another partner’s misconduct everyone is accounted for their own act. It is
noteworthy that to form limited liability partnership, the registration of the same is mandatory
in the appropriate State office.

Features of LLP
LLP consists the features of partnership firm and company following are the key features of LLP.

 Separate legal entity: Limited liability partnership is a separate legal entity and is liable
for its own property or assets. The company has the power to sue you to and to be sued
but partners are not liable for dues incurred in suit.
 Requirement of capital: Raising capital for a company is a lot easier as LLP is a regulated
company.
 Members in company: Unlike simple partnership firm where some partners cannot
exceed 20 e limited liability partnership has not such restriction and there is no upper
limit for a number of members though minimum members should be 2.
Advantages of LLP

 Liability- the partners in LLP have limited liability which means partners are not liable to
pay debts of the company. A partner is not responsible for other partner’s misconduct.
 Easy to form- forming LLP is an easy process. Unlike the registration of the company this
process is swift and easygoing.
 Perpetual succession- limited liability partnership to not get affected by any partner’s
death, retirement or insolvency. The limited liability partnership can only stop as per the
provisions given in the act of 2008.
 Company management- The power of shareholders are lower than the board of
director’s major decisions and activities took place by the directors of company.
 Easy transfer of ownership- the formalities of the arrival and the departure of the
partners from the firm is an easier process in a LLP. There is no restriction in joining and
leaving the limited liability partnership, it is easy to transfer the ownership on others.
 Taxation- limited liability partnership is exempted from Taxes like minimum alternative
tax. The rate of tax on LLP is less as compared to a company.
 No compulsion on audit- in LLP there is no mandatory audit required it is required only
in the case of when the company turnover exceeds rupees 40 lakh and where the
contribution exceeds rupees 25 lakh.

Disadvantages of LLP

 All the states are not covered- due to tax benefits certain states restrict the formation of
LLP. This is a disadvantage as many entrepreneurs cannot form limited liability
partnership in many states.
 Partners don't consult- in case of agreement and decisions partners in limited liability
partnership do not consult each other.
 Transfer of interest- transfer of interest can be transferred but there are various
formalities required to follow the provision of the act.
  Lack of recognition- limited liability partnership was introduced in India in 2009 only it is
not known and recognized by all so it leads to hindrance in smooth functioning of the
form.

LLP and private limited company

Limited liability partnership can be said as taking the good points of both, the company and the
partnerships to facilitate the business. In a simple kind of partnership all partners are jointly
liable for their actions which is not available in LLP. In limited liability partnership the partners
are liable only for their own acts. There is no upper limit for the members in limited liability
partnership.

A private limited company is a voluntary association of at least two people and not more than
200 members. Unlike LLP private limited company also have limited liability. Unlike in LLP
shares are easily transferable in private limited companies the share by members are not freely
transferable and if allowed should be between existing members.

Advantage of limited liability partnership over private limited company-

The simplicity in carrying on business under limited liability partnership is far more
advantageous than LLC. The compliance cost and taxation is less in the case of LLP.

Comparison between LLP and partnership

 Limited liability partnership is a separate legal entity, but partnership firm does not have
separate identity for its partners.
 In limited liability partnership, the liability of partners is limited to the extent of their
own contribution. Further partners are not affected or held liable for actions of other
partners. In partnership firm the liability of partners is not limited and can extend to
personal assets as well.
 In a Limited liability partnership, there is no upper limit for number of partners,
whereas, in a partnership firm the upper limit for partners is fifty.
 Registration of LLP is mandatory while registration of partnership firm is not mandatory.
LLP around the world

Limited liability partnerships exist in many countries with slight differences from the US model.
In most countries LLP is entity which intended for professionals who have an active role in
managing partnership and is tax flow.

There is openly a list of approved professions for limited liability partnerships such as
accountant, consultant, architect and lawyers. The liability may differ from country to country
but in most countries LLP protect partner from the liability of misconduct of other partner.

Conclusion

Most limited liability partnerships are created and managed by the professionals who have a lot
of experience and clients. This kind of partnership is flexible. It is easy to admit a partner and to
leave LLP. Although LLP and LLC are similar but LLP is more preferable over others.