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Limited Liability Partnership: The emerging concept & its notable features

CA Arun Kumar 
on 28 November 2015

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Limited Liability Partnership (LLP):

This is a form of the organization that brings the benefits of the flexibility of the Partnership and the Limited Liability of the Company based on the mutually arrived agreement.

LLP is an incorporated partnership formed and registered under the Limited Liability Partnership Act, 2008 with Limited Liability & Perpetual Succession.

It is worthy to be noted that the provisions of the Indian Partnership Act 1932 are not applicable to the LLP.

Distinctive features between LLP and the Partnership

Feature

LLP

Partnership

Governed By

Limited Liability Partnership Act, 2008

Indian Partnership Act, 1932

Separate Legal Personality

LLP has a Separate Legal Personality. It can sue and be sued in its own name.

It is not different from the persons who compose it

Registration

Registration is mandatory

Registration is Optional

Principal Document

LLP Agreement

Partnership Deed

Liability

Limited Liability only to the extent agreed by the Partners

The Liability of the Partners is Unlimited.

Maximum Number of Partners

There is no upper limit specified for the number of Partners.

Maximum of 10 Partners in case of Banking and 20 in case of other businesses

Designated Partner

Every LLP should have at least 2 Designated Partners and one should be Resident in India

There is no such Designated Partner but there can be one or more Managing Partners

DIN

The Designated Partner should obtain DIN (Directors Identification Number). Earlier it is called DPIN (Designed Partners Identification Number) which was integrated with DIN w.e.f July 2011.

There is no need of DIN for the Managing Partner.

Perpetual Succession

The death or Insolvency of any or all of the Partners doesn’t  dissolve LLP

The death or Insolvency of any or all of the Partners will dissolve the Partnership Firm

Business Transaction with Partners

A Partner of LLP in his personal capacity can do business with LLP

A Partner of a Partnership Firm cannot conduct the Business transaction with the firm in his personal capacity unless provided in the Deed.

Salient Features of LLP:

1. LLP is a body corporate and a legal entity separate from its Partners. Any 2 or more persons associated for carrying a lawful business with a view to share profit may by subscribing their name to the Incorporation Document and filing the same with the Registrar can form a LLP

2. LLP has Perpetual Succession.

3. LLP Agreement: LLP Agreement is a basic document in LLP like MOA and AOA in case of a company. The Mutual Rights and duties of the Partners and the rights with respect to the firm are determined in the LLP Agreement. In the absence of agreement as to any matter, the mutual rights and partners shall be determined by the Provisions of the LLP Act 2008.

4. Partners: There should be minimum 2 partners. There is no upper limit, to the number of partners.

5. Partners Responsibility: No partner is personally liable either directly or indirectly for the acts of the LLP or the other partners of the LLP.

6. Designated Partner:  Any person can become partners in the LLP by virtue of LLPA. Every LLP shall at least 2 partners as designated partner and at least one of them shall be Resident in India. Every designated partner shall obtain a DIN. The Designated Partner is responsible for complying with the provisions of the Act otherwise he would be liable to all Penalties imposed on the LLP for the Contravention of Provisions of the Act.

7. Maintenance of Books & Account: Every LLP shall keep the Books of Accounts which are sufficient to show and explain its transactions. Books of Accounts shall particulars of all sums of money received and expended, records relating to Income & Expenditure, Assets & Liabilities, Statements of Cost of goods purchased, Inventories, Work In Progress and Cost of Goods sold. The Books of Accounts shall be preserved for 8 years from the date on which they are prepared. Every LLP shall file the Statement of Account and the Statement of Solvency within 30 days from the end of the 6 months of the previous year to which such statements relates.

8. Audit of LLP:  A LLP whose Turnover exceeds 40 Lakh rupees or whose Contribution exceeds 25 lakh rupees is required to get its accounts audited only by a Chartered Accountant in Practice.

9. Filing of Annual Return: Every LLP is required to file annual return along with a Certificate from a Practicing Company Secretary to the effect that he has verified and found correct, all the particulars from Books and records of the LLP. In case of LLP with Turnover up to 5 Crore or Contribution up to 50 lakhs the annual return should be accompanied by a Certificate from Designated Partner other than the Signatory of the Annual Return.

To Conclude, Even though LLP is the new concept , it is the most suitable form of the Organization for the Professionals like CA’s, CS’s and CMA’s wherein a diverse professional expertise can be brought under a single roof and each person can work in his own domain without the fear of the Liability on the part of the others. This can even stand at its own against the tough competition of the Foreign Consultancy firms in India.

I would like to end up with a nice quote “Perfection is not attainable, but if we chase perfection we can catch excellence”- Vince Lombardi 

Thanks for reading,
Any suggestions/corrections/value additions are welcome.
Mail me at grandhiarunkumar@gmail.com


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