Limited Liability Partnership (LLP)


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

Limited Liability Partnership (LLP) is a new corporate structure that combines the flexibility of a partnership and the advantages of limited liability of a company at a low compliance cost. In other words, it is an alternative corporate business vehicle that provides the benefits of limited liability of a company, but allows its members the flexibility of organising their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.

Owing to flexibility in its structure and operation, it would be useful for small and medium enterprises, in general, and for the enterprises in services sector, in particular. Internationally, LLPs are the preferred vehicle of business, particularly for service industry or for activities involving professionals.
LLP is governed by the provisions of the Limited Liability Partnership Act 2008, the salient features of which are as follows: -

- The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession.

- The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008 . The act provides flexibility to devise the agreement as per their choice.

- The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.

- Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law.

- The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government.

- The Central Government has powers to investigate the affairs of an LLP, if required, by appointment of competent Inspector for the purpose.

- The compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the LLP Act 2008.

- A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the LLP Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.

- The winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court.

- The LLP Act 2008 confers powers on the Central Government to apply provisions of the Companies Act, 1956 as appropriate, by notification with such changes or modifications as deemed necessary. However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses.
The Indian Partnership Act, 1932 shall not be applicable to Limited Liability Partnerships.
 
There are many different ways to form a business, and one of the more common ways is through a limited liability partnership, or LLP. This type of business structure that involves two or more people coming together to own and operate a single business. There is a wealth of benefits to be enjoyed and reasons that people choose to go the limited liability partnership route for their business. Tax benefits and limited liability are two of the biggest. While there are many great reasons to choose an LLP, there are also some significant draw backs to choosing this structure.

Advantages of a LLP

1. As Many Owners As Needed
One of the greatest things of a limited liability partnership is that there is no limit on the amount of owners that can be involved with the business. This is great because it evenly spreads out the amount of liability that each partner can have if something where to go wrong with the business.
2. Much Less Liability
Just as the name suggests, limited liability partnerships limit your liability. Since there are multiple owners involved in the business all of the risks of the business are spread out and made much smaller than if a single person was responsible for the business on their own. This generally refers to legal issues, like if the company was sued for any reason.
3. Tax Benefits
Another one of the great benefits of operating underneath an LLP is how you file taxes. The partnership itself doesn’t have to file taxes as a business, which provides great breaks for the company. However, each individual partner must file a variety of different tax forms regarding the business.
4. Great Flexibility
Flexibility is a defining characteristic of limited liability partnerships. Each partner in the business has the ability to decide how much they want to contribute and how much of a partner they truly want to be in the business. They are also not obligated to participate in business meetings or consultations with anyone that they do not feel the need to.

Disadvantages of a LLP

1. Not All States Are On Board
Due to the tax benefits and tricky workings of an LLP, some states do no allow them to form or operate in their region. Another big problem is that many states do not recognize LLP’s as a legal business.
2. Additional Taxes
Just like some states do not recognize, the majority of the rest pose large tax limits on limited liability partnerships. These taxes can come in as additional taxes when registering as well as issues with personal tax filing.
3. Less Business Credibility
Another huge problem with limited liability partnerships is the fact that other business and many consumers or clients do not see them as a credible business. Corporations gain much more respect and are generally more successful than LLPs.

Important Facts About Limited Liability Partnerships
 
- The person who is responsible for handling taxes can be held personally responsible for any unpaid taxes from the business.
- Each partner has a “duty of care” position in the business. If something where to happen in their area, they are held personally and legally responsible.
- In order to set up an LLP each partner must set up a limited liability partnership agreement and register it in their state.
- In Canada only lawyers and accountants are permitted to operate underneath a limited liability partnership.
- The first LLP in Japan was permitted in 2006.
- The United States is the only country to allow each state to determine their own laws on the forming of LLPs.
 
 


Thursday, 07th Apr 2016, 12:06:52 PM

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