LIMITED LIABILITY PARTNERSHIP-LLP-AN INTRODUCTION-VRK100-05102009

Limited Liability Partnership - LLP

An Introduction  to the New Concept

AUTHOR: Rama Krishna Vadlamudi

MUMBAI

October 5th, 2009

INTRODUCTION:

The Limited Liability Partnership Act, 2008 was passed by Parliament in 2008 and it was notified by the Government of India in its Gazette on January 9, 2009. With this, a new type of corporate entity, namely, limited liability partnership (LLP) has come into existence in India (effective April 1, 2009); in addition to the existing ones: proprietorships, partnerships, and private limited and public limited companies.

As the name suggests, the liability of partners in an LLP is limited to the extent of their agreed share in the LLP. In contrast, in a partnership firm, the partners’ liability is unlimited. An LLP is a hybrid structure combining the features of a ‘company’ and a ‘partnership firm.’ Like a company, it shall have perpetual succession. Like a partnership firm, an LLP is easy to create and simple to operate. In a partnership firm, the total number of partners is limited to 20; whereas, no maximum number of partners is specified in an LLP. For an LLP, tax rules are yet to be outlined. An LLP can be registered under MCA-21 e-governance programme of the Ministry of Corporate Affairs.

Salient Features of the LLP Act, 2008:

1. A Limited Liability Partnership is a body corporate formed under the LLP Act

2. It is a legal entity separate from its partners

3. It has got a perpetual succession (similar to a company under the Companies Act)

4. It shall have a minimum number of two partners; whereas no maximum is specified

5. An LLP is a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed share in the LLP

6. No partner will become liable on account of the independent or unauthorized actions of other partners or their misconduct except in case of a deliberate fraud. This provision protects innocent partners from the joint liability caused by another partner’s wrongful business decisions or misconduct.

7. It is to be registered with the Registrar of Companies (ROC) and file accounts with ROC

8. It is obligated to maintain books of accounts and they are to be audited compulsorily

9. The Act enables foreign LLPs to set up their offices in India subject to certain rules

10. An LLP is to add words ‘Limited Liability Partnership’ or ‘LLP’ as the last part of its name

11. No partner of an LLP is entitled to receive any remuneration in the business or management of an LLP

12. The provisions of the Indian Partnership Act, 1932 are not applicable to an LLP

13. Partnership firms, private companies & unlisted public companies may convert into LLPs

SUITABILITY:

An LLP is suitable for professionals, like, lawyers, accountants, company secretaries, auditors, etc. They can set up LLPs and have the benefits of limited liability and a flexible body corporate.  Moreover, an LLP is available for manufacturing sector, small enterprises and other sectors of the economy. This new concept will catch up very soon in India.

First LLP in INDIA: The first LLP in India is a New Delhi-based legal consultants’ firm ‘Handoo and Handoo LLP’, set up in April 2009, under the LLP Act.

LLPs outside India: Audit firms, like, Pricewaterhouse Coopers, Deloitte and Touche, KPMG, etc., and accounting firm Grant Thornton are registered as LLPs in the UK and the US.

Reference: Bare Act of the LLP Act, 2008                             Picture courtesy: Google