Limited Liability partnership

A limited liability partnership (LLP) is a

partnership in which some or all partners
(depending on the jurisdiction) have limited
liabilities. It therefore can exhibit elements of
partnerships and corporations. In an LLP, each
partner is not responsible or liable for another
partner's misconduct or negligence. This is an
important difference from the traditional
partnership under the UK Partnership Act 1890,
in which each partner has joint (but not several)
liability. In an LLP, some or all partners have a
form of limited liability similar to that of the
shareholders of a corporation. Unlike corporate
shareholders, the partners have the power to
manage the business directly.[1] In contrast,
corporate shareholders must elect a board of
directors under the laws of various state
charters.[1] The board organizes itself (also
under the laws of the various state charters)
and hires corporate officers who then have as
"corporate" individuals the legal responsibility
to manage the corporation in the corporation's
best interest. An LLP also contains a different
level of tax liability from that of a corporation.

Limited liability partnerships are distinct from

limited partnerships in some countries, which
may allow all LLP partners to have limited
liability, while a limited partnership may require
at least one unlimited partner and allow others
to assume the role of a passive and limited
liability investor. As a result, in these countries,
the LLP is more suited for businesses in which
all investors wish to take an active role in
management.

In some countries, an LLP must have at least

one person known as a "general partner", who
has unlimited liability for the company.

There is considerable difference between LLPs

as constituted in the U.S. and those introduced
in the UK under the Limited Liability
Partnerships Act 2000 and adopted elsewhere.
The UK LLP is, despite its name, specifically
legislated as a corporate body rather than as a
partnership.

LLP Disadvantages

An LLP also has various disadvantages when compared

to a private limited company as under:

Penalty for Non-Compliance

Even if an LLP does not have any activity, it is required to
file an income tax return and MCA annual return each
year. In case an LLP fails to file Form 8 or Form 11 (LLP
Annual Filing), a penalty of Rs.100 per day, per form is
applicable. There is no cap on the penalty and it could
run into lakhs if an LLP has not filed its annual return for
a few years.
In case of a proprietorship or partnership firm, there is
no requirement for filing an annual return. Hence, only
penalty under the Income Tax Act would be applicable.

Inability to Have Equity Investment

An LLP does not have the concept of equity or
shareholding like a company. Hence, angel investors,
HNIs, venture capital and private equity funds cannot
invest in an LLP as shareholders. Thus, most LLPs would
have to rely on funding from promoters and debt
funding.

Higher Income Tax Rate

The income tax rate for a company with a turnover of
upto Rs.250 crores is 25%. (Further reduced in 2019 for
new companies involved in manufacturing). However,
LLPs are taxed at a 30% rate irrespective of the turnover.