Overview:
Limited Liability Partnership (LLP) is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in a flexible, innovative and efficient manner. It provides the benefits of limited liability of a company, but allows the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm. In an LLP, all partners have limited liability for each individual's protection within the partnership, similar to that of the shareholders of a limited company. However, unlike the company shareholders, the partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP's employees or other agents.
LLP – A Separate Legal entity
LLP is a body corporate formed and registered as per provisions of the Limited Liability Partnership Act, 2008. LLP is separate legal entity from that of its partners having perpetual succession. Any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP. It can continue its existence irrespective of changes in partners. Also, LLP is capable of entering into contract and holding property in its own name.
Key Features
1. Body Corporate
2. Separate Legal Entity
3. Perpetual Succession
4. Limited Liability of Partners
5. Profit Motive
Advantages and Disadvantages of LLP
| Advantages | Disadvantages |
| Separate legal entity | LLP cannot raise funds from Public |
| Perpetual existence irrespective of changes in partners | Under some cases, liability may extend to personal assets of partners |
| No restrictions as to maximum number of partners | Any act of the partner without the other may bind the LLP |
| No requirement of minimum capital contribution | No separation of Management from owners |
| LLP and its partners are distinct from each other i.e. liability of Partners are limited | Can not be formed for charitable purpose |
| Partners are not liable for Act of other partners | |
| Personal assets of the partners are not exposed except in case of fraud | |
| No requirement to maintain statutory records except Books of Accounts | |
| Easy to establish | |
| Internationally renowned form of business in comparison to Company | |
Major Advantages As Compared To Company
1. No Limit on number of partners
2. No need of converting into Public Company to have members more than 50
3. Less Government Intervention
4. Minimal Cost of Formation
5. Less Compliance Level
6. No requirement of holding any meeting
7. No requirement of maintenance of large statutory records
8. No need to pay large fees for increasing the contribution, as required in case of capital
Name
Every LLP shall have the word “limted liability partnership” or the “LLP” as the last word of his name.
Partners / Designated Partners of LLP
A LLP must have at least 2 partners; there is no limit for maximum number of partners. Partners of LLP can be consisted of:
1. Individuals
2. Body Corporate
3. Companies incorporated in and outside India
4. LLP incorporated in and outside India
Only individuals can become Designated Partners of LLP. A LLP must have at least 2 Designated Partners and at least 1 individual Designated Partner shall be a resident in India. Where bodies corporate are partners, then Individual nominees of such bodies corporate shall act as ‘Designated Partners’.
Ideally, the incorporation document of LLP should specify who are to be designated partners; else all the partners mentioned in incorporation document were deemed to be designated partners. Every Designated Partner should give his prior consent to act as a Designated Partner to LLP. LLP should file with the registrar the particulars of every designated partner within 30 days of his appointment. Also every Designated Partner shall obtain a Designated Partner Identification Number (DPIN) after making an application to Central Government. Designated Partner of LLP shall be responsible for the doing of all acts and things that are required to be carried out by the LLP and is responsible for the compliance of the provisions and filing of document / returns/ statements of LLP Act and as may be specified in the LLP agreement. Every Designated Partner shall be liable for penalties imposed on the LLP for any contravention of the provisions of this Act.
Management of LLP
Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describe the matters relating to mutual rights and duties of partners of the LLP and of the limited liability partnership and its partners.
Capital Contribution in LLP
There is no requirement for minimum capital contribution by each partner in LLP. The contribution of each partner shall be accounted for and disclosed in the Accounts of the LLP along with nature of contribution and amount.
Maintenance of books of account, and audit
LLP Act has not specified any books of account to be maintained by LLP. But books of account shall contain details of:
1. All sums of money received and expended
2. Income and Expenditure
3. Assets and Liabilities
4. Statement of cost of goods purchased, inventories, WIP, finished goods and cost of goods sold etc.
Books of Accounts are maintained on cash basis or on accrual basis under double entry system of accounting. Books of account shall be preserved for 8 years from the date on which they are made. Every LLP shall file the “Statement of Accounts and Solvency” in Form 8 with the Registrar, within a period of 30 days from the end of 6 months of the financial year to which they relate. “Statement of Accounts and Solvency” shall be signed on behalf of the LLP by Designated Partners. Accounts of LLP are subject to audit, if the turnover exceed Rs. 40 Lakhs or if contribution exceed Rs. 25 Lakhs. Appointment and remuneration of auditor shall be done by Designated Partners. Only Chartered Accountant are eligible for appointed as auditor.
Annual Compliance
Every LLP shall file an Annual Return with Registrar within 60 days from the closure of the financial year.
Any comments and suggestions will always be appreciable.
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CA Paresh Bhagwat
+91-9320144199
paresh.bhagwat@rediff.com
capareshbhagwat.blogspot.com
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