Limited liability partnership in India

Introduction

Limited liability partnership in India are governed by limited liability partnership act 2008. The
LLP rules were published in the official Gazette on 1 April 2009 and amended in 2017 i. The first
limited liability law was enacted by state of New York in 1811ii. Most partnership are of general
kind that is general partnerships, in this type of partnership the responsibility for the business
and liability is unlimited, this means that general partner share both profit and loss of the
business and partners have a unlimited liability for all 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 this partners are not liable
or responsible for other person’s misconduct everyone have its own liabilities for their own act.
iii
It is to be noted that to form limited liability partnership the registration is mandatory in the
appropriate State office.

Features of LLP

LLP contains both 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 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.iv

Advantages of LLP

 Liability- the partners in LLP have limited liability which means partners are not liable to
pay debts of the company. No partners are responsible for other partner misconduct.
 Easy to form- forming LLP is easy process. It is not the time consuming and difficult like
process of a company.v
 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
provision 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- it is easy to join LLP and to leave it. 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 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
contribution exceeds rupees 25 lakh.

Disadvantages of LLP

 All states are not covered- due to many tax benefits many 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
partnership to facilitate the business. In a simple kind of partnership all partners are jointly
liable for their actions which is not available in LLP 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 carry business under limited liability partnership is far more advantageous
then 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.
 Limited liability partnership there is no upper limit for number of partners, in
partnership firm the upper limit for partners is 50.
 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.
i
Limited Liability Partnership (Amendment)Rules 2017(chapter 163A of the 2006 Revised Edition)
ii
New York general incorporation act 1811
iii
Editorial, “why your startup should be in LLP” The Economic times May 27, 2015
iv
The limited liability partnership act, 2008(6 of 2006)
v
http://www.mca.gov.in/MinistryV2/natureoflimitedliabilitypartnershiipllp.html