Introduction to LLP Act 2008:
LLP Full form is Limited Liability Partnership. The Limited Liability Partnership Act 2008 or LLP Act 2008 was enacted by the Government of India on 7th January 2009 effective from 31st March 2009.
This LLP Act 2008 was introduced with a view to providing the benefits of a company and eradicating the shortcomings and inefficiencies of a partnership.
Why LLP Act 2008 was needed?
India has been emerging as a global economic leader and therefore it can not confine itself within the ambit of partnership with unlimited liabilities.
The whole world has also taken adequate measures for the introduction of partnerships with limited liabilities.
As a result of this a need was felt to restrict the partnership firms to operate in a traditional way and the new concept of Limited Liability Partnership emerged.
It was seen in India that the service sectors played a major role in contributing to the GDP Of India. Service sectors consisting of professionals such as Chartered Accountant, Cost and Management Accountant, Company Secretaries, Lawyer was governed under the Indian Partnership Act 1932.
Therefore the partnership with limited liability was considered as an alternative business vehicle. This limited liability partnership or LLP has been designed in such a way that the partners are limited by their liabilities and their personal properties are not exposed but enjoys the flexibility of an organisation.
So, an act was indeed needed that would come out of this traditional partnership business which exposes its partners to unlimited liabilities. Simplicity in the formation and easy maintenance has made it so popular worldwide among the professionals and small and micro business owners.
What is Limited Liability Partnership/LLP Meaning
As per the Ministry of Corporate Affairs, Government of India, The Limited Liability Partnership Act 2008:
An LLP is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in a flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.
In simple terms LLP Meaning is a partnership with limited liabilities. It enjoys the benefits and advantages of a company and overcomes the limitations of a partnership.
The Limited Liability Partnership Act 2008 or LLP Act 2008 emerged as a new business opportunity for the existing partnership businesses with complete fine-tuning.
As you can see that the LLP Act 2008 has clearly stated LLP Meaning in very clear words i.e. Partnerships with limited personal liabilities. So, limited liability is the key characteristic of this LLP Act 2008.
Limited Liability Partnership is a combination of partnership and corporate. Many people also call LLP as a hybrid business system. LLP has successfully evolved in India due to its simplicity and easy to maintain.
Therefore, it can be said that an LLP is a business opportunity for professionals having the entrepreneurship ability with the purpose of operating in an innovative, flexible, effective and efficient manner.
Thus providing the advantages of limited liability and the flexibility of a partnership.
The LLP Act 2008 has 14 chapters and 4 schedules and the law having a total of 81 sections. The introduction of the Limited Liability Partnership Act 2008 has been incorporated in the Companies Act 1956 in line with the new provision.
Few important aspects of LLP Act 2008 over the Partnership Act 1932:
- A limited liability Partnership has got a separate legal entity unlike a partnership firm;
- An LLP has got a perpetual succession like a company i.e. partners may come and go but the LLP will remain for eternity;
- Registering a Limited Liability Partnership is mandatory;
- An LLP has to have a minimum of 2 nos. of Designated partners but no maximum limit;
- LLP has got its own common seal, like what a company has;
- Limited Liability Partnership is created by law and LLP agreement and is not governed by the Indian Partnership Act,1932.
Salient Features of Limited Liability Partnership Act 2008/ LLP Act 2008
The salient features of the LLP Act 2008 are given below:
- Hybrid Business Organisation: LLP is a hybrid of corporate and partnership. This means it has got the features of a company with partnership business form;
- Name Clause: Every limited liability partnership uses the words “Limited Liability Partnership” or use the acronym “LLP” as the last words of its name. Like XYZ LLP or ABC Limited Liability Partnership;
- Separate Legal Entity: The most important feature of this LLP business concept is that it has got a separate legal entity. Partners and the LLP are different from each other;
- Common Seal: Like a body corporate the LLP also has got a common seal which can be used in various business transactions;
- Perpetual Succession: Further, the LLP has perpetual succession element. It means the LLP will exist for eternal until wound up by the provision of law ;
- The capacity of Agreements: LLP does not depend on the partnership deed in any way. So it can enter into agreements in its own name under the LLP;
- Minimum Number of Partners: A limited liability must have a minimum of two partners. There are no restrictions on the maximum number of partners;
- Sue and Be Sued: Being a separate legal entity the LLP can and be sued in its own name;
- Low cost & Lesser compliance: Unlike a company, the formation cost of an LLP is very low and the legal compliances are very lesser, This has made the LLP concept a very popular one;
- Management Flexibility: It has got flexibility in its management structure that has made this concept a popular one;
- Change in Partners: Any changes in the partners of an LLP does not affect its existence and does not even relieve from its responsibilities and rights;
- Governance: An LLP is not governed by the provisions of the Indian Partnership Act, 1932. Rather it is governed by the Limited Liability Partnership Act 2008;
- Formation: An individual with a sound mind or a body corporate can form an LLP. Also a body corporate can be a partner of an LLP.
- LLPIN: Like a company has Company Identification Number (CIN), LLP is allocated Limited Liability Partnership Identification Number(LLPIN);
- Designated Partners: Designated partners are responsible for all the transactions that an LLP is required to do. So, an LLP has to have a minimum of 2 designated partners and one of them must be a resident of India;
- Conversion: The most important feature of an LLP is that it allows the existing firms, private limited companies or unlisted public limited companies to convert into an LLP.
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Advantages of LLP/What are the benefits of a limited liability partnership?
The basic idea behind the Limited Liability Partnership Act 2008 is to provide new business opportunities to the existing partnership firms. To overcome the hindrances and pave the way for smooth business functions across sectors.
As per the Limited Liability Partnership Act 2008, an LLP enjoys the following advantages/benefits:
- Benefits of a company with lesser compliance: An LLP enjoys the benefits of a company with lesser legal compliances. ;
- Low Registration Cost: It is mandatory to register an LLP with the ROC. So, it enjoys the benefits of registration what a company enjoys. The cost of registration is very low and it is quite convenient;
- Annual Return: An LLP is required to submit the Annual Return, Statement of Accounts and solvency only with the ROC by
- Limited Liabilities: The most important advantage of the LLP is that it protects the personal assets of its partners. The liabilities of the partners are restricted to their capital contribution.
- Separate Legal Entity: LLP is a separate legal entity. It is different from its partners. This means it can buy, lease assets in its own name. It can sue and be sued in its name. One partner is not liable for the misconduct of another partner;
- Capital contribution: There is no minimum capital contribution clause in the LLP Act 2008. Thus it makes LLP so affordable and convenient;
- Audit Clause: The audit clause is also very flexible for LLP. This means an LLP whose annual turnover exceeds Rs.40 Lakh or contribution exceeds Rs.25 Lakh is required to get its annual accounts audited by Chartered Accountants.
LLP Registration Process:
The LLP Registration process is not very cumbersome. Rather it has been designed in a very lucid and simplistic manner. The whole LLP registration process may take not more than 20 to 25 days.
To register an LLP in India one needs to satisfy the following criteria:
- Obtain DPIN: At first, one needs to apply for Designated Partner Identification Number or DPIN by filing eForm DIR-3. If one already has DIN or Director Identification Numer, it can be used as DPIN;
- Acquire DSC: To file all the documents electronically, one needs to have a valid Digital Signature Certificate for authentication. Therefore, a DSC needs to be obtained from the licenced Certifying Authority, who is authorised to issue a digital signature certificate under Section 24 of the Indian IT-Act 2000.
- Register DSC: Thereafter, the signatories are required to register their digital signature with the LLP application;
- Filing documents: Once the DSC has been registered, all the documents are to be filed electronically by the authorised person i.e. who is authorised to sign the documents;
As per the Limited Liability Partnership Act 2008, the following conditions are to be satisfied for LLP incorporation.
- Two or more persons must come forward or a body corporate to do a lawful business with an objective to earn profits;
- Identify at least two partners as the designated partners;
- File all the incorporation documents electronically in the prescribed format i.e. in Form-2 with the Registrar of State in which the registered office of the Limited Partnership is situated;
- A statement duly prepared and authenticated by either a Chartered Accountant or Cost Accountant, or Company Secretary or Advocate engaged in the formation of LLP, that all provisions of this Act i.r.o incorporation of LLP have been complied with, is to be filed with the incorporation documents;
- Each designated partners must hold a DPIN i.e. Designated Partner Identification Number allotted by the MCA;
- Register a unique LLP name as per the availability. Maximum 6 names can be proposed;
- Draft the LLP agreement in the LLP agreement format with the consent of all the partners;
- The said LLP agreement must contain the following important points:
- name of the limited liability partnership;
- the proposed business of the limited liability partnership;
- address of the registered office of the limited liability partnership;
- name and address of each of the partners;
- name and address of the each designated partners of the limited liability partnership;
- all other relevant information as deemed fit for the proposed limited liability partnership.
- Apply for LLP Incorporation Certificate along with the Limited Liability Partnership Identification Number or LLPIN;
LLP Vs Pvt Ltd
A limited liability partnership is very similar to a private limited company in many aspects. Let us see below how LLP Vs Pvt Ltd. goes.
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- LLP is governed by the LLP Act 2008
- LLP does not have any minimum capital contribution clause
- Registration of LLP is mandatory
- It is a separate legal entity
- Minimum 2 no. of partners and maximum no limit
- Name ends with LLP or Limited Liability Partnership
- Audit is required when turnover exceeds Rs.40 lakh or contribution exceeds Rs.25 Lakh
- LLP is subject to income tax
- Annual statement of accounts and solvency is to be filed with ROC
- Partners liabilities are limited
- Private limited co. is governed by the companies act 2013
- Pvt ltd co. also does not have minimum capital clause
- Compulsory registration required with ROC
- It is also a separate legal entity
- Minimum 2 members and maximum 50 menbers
- Name ends with private limited
- Audit is required irrespective of share capital
- Pvt. ltd co. is subjected to Dividend distribution tax
- Annual Accounts and Annual Return are to be filed with the ROC
- Members liabilities are also limited
Is LLP a company or partnership firm?
As per the LLP Act 2008, an LLP is a hybrid of company and partnership firm. It enjoys the advantages of a company and on the other hand, it operates as a partnership firm.
Every effort was put to make this LLP concept better than the traditional partnership business. It has been provided with the benefits of low cost, less compliance, simple and with great transparency.
So, it can be said that an LLP is a way better than partnership firm with the features of a company to eradicate the hindrances of a partnership firm that interrupted partnerships to operate to the best of their ability.