Everything you need to know about limited liability partnership! Find Out
A Limited Liability Partnership or LLP is an alternative of corporate business form which offers the benefits of limited liability to the partners at low compliance costs. The partners are also allowed to organize their internal structure like a traditional partnership. A limited liability partnership is a legal entity liable for the full extent of its assets. The liability of the partners is limited in nature. Hence, LLP is considered a hybrid between a company and a partnership.
A Limited Liability Partnership (LLP) is a form of partnership where an individual partner who is not liable for the malpractice of another partner in the company. This type of company is most often found in medical practices, law offices, or accounting firms where liability is a big issue. This also protects innocent partners from other partners performing their services negligently.
A limited liability partnership is a newer form of business partnership where all of the owners have limited personal liability for the financial obligations towards the business.
The Limited Liability Partnership Act in 2008 was introduced in India to legally authorize the concept of Limited Liability Partnerships (LLP). A blend between a private company and a partnership LLP?s have recently become a very popular form of a business vehicle.
Process of Registration as LLP-
Step 1: Digital Signature Certificate (DSC)
Step 2: Director Identification Number (DIN)
Step 3: Reservation of Name
Step 4: Incorporation of LLP
Step 5: File Limited Liability Partnership Agreement
Features of LLP-
- LLP is a body corporate: As per Section 3 of the Limited Liability Partnership Act (LLP Act), 2008, an LLP is a body corporate that is formed and incorporated under the Act. It is a legal entity separate from its partners.
- Perpetual Succession: Unlike a partnership firm, a limited liability partnership can continue its existence even after the retirement, insanity, insolvency, or even death of one or more partners. Further, it can enter into contacts and hold property in its name.
- Separate Legal Entity: It is a separate consideration as a legal entity. Also, it is entirely liable for its assets. The liability of the partners is limited to their contribution in the LLP. Therefore, the creditors of the limited liability partnership are not the creditors of individual partners.
- Mutual Agency: Another difference between an LLP and a partnership firm is that independent or unauthorized actions of one partner do not make the other partners liable. All partners are agents of the LLP, and the actions of one partner do not bind the other Partners.
- Artificial Legal Person: An LLP is an artificial legal person. It is created by a legal process and has all the rights of an individual. It is invisible, intangible, and immortal but not fictitious since it exists.
- Common Seal: If the partners decide, the LLP can have a common seal in simple terms Common signature [Section 14(c)]. It is not mandatory for an LLP to have a Common Seal. However, even if it decides to have a seal, then it is necessary that the seal remains under the custody of a responsible official. Further, the common seal can be affixed only in the presence of at least two designated partners of the LLP.
- Number of Partners: Every Limited Liability Partnership must have at least two partners and at least two individuals as designated partners. At any time, at least one designated partner should be resident in India. There is no maximum limit on the number of maximum partners in the entity.
- Management of Business: The partners of the Limited Liability Partnership can manage their business. However, only the designated partners are responsible for legal compliances.
|Lower Registration Cost||Higher Penalty for Non-Compliance|
|Limited Legal Liability||Higher Income Tax Rate|
|Ease of Formation||Decentralization|
|Pass-Through Tax||Level of members|