Limited Liability Partnership (LLP)

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Limited Liability Partnership (LLP)

Since Limited Liability Partnership consists of both “company” and “partnership firm”. LLP is known as hybrid between a company and a partnership firm, as it provides benefit of the company and flexibility as well of partnership firm. In present scenario, this kind of partnership became popular form of business not just in India but in other countries also. Generally, LLP are governed by Limited Liability Partnership Act, 2008 and introduced in India in 2009.

Limited Liability Partnership is a kind of business entity which:

exists on agreement basis.
provides flexibility as there is no mandatory conditions for procedures

Advantages & Characteristics

Formation : LLP can be easily formed as the process of incorporation is simple. It can be formed through a nominal amount of Rs. 500 only.
Liability : In these, each partner is liable for their individual acts. LLP does not works on joint liability. Partners cannot protect one another’s wrong or misconduct under joint liability.
Perpetual succession : Limited Liability Partnership is a separate legal entity. It will exist even after partners get changed or they became insolvent or bankrupt.
Management : In LLP, more powers are given to directors. In any activity, shareholders gets less power than board of directors.
Ownership : In LLP, transfer of shares is comparatively easier. Any partner can join or left whenever they want, this does not amount to any kind of restriction.
Tax : Taxation is the most important benefit of LLP, as LLP doesn’t have to give some taxes which includes dividend distribution tax and minimum alternative tax. And, the rate of tax is lesser in LLP than any other company.
Members : Atleast two members are necessary to form a LLP, whereas there is no such limit for maximum members in LLP.

How LLP is different from company:

Companies works under provisions of Companies Act, while LLP works under the contractual agreement that has been made by partners mutually.
LLP is more flexible in comparison of a company.
Any private or public company which is in existence, can be converted into a LLP under the provisions of Act, which are mentioned in clause 58 and Schedule III & IV of the LLP Act. Two forms are required to be filled, namely Form 2 and Form 18.

How LLP is different from partnership firm:

LLP doesn’t work on the principle of joint and several liability unlike partnership firm.
Any partnership firm which is in existence, can be converted into a LLP under the provisions of Act, which are mentioned in clause 58 and Schedule III & IV of the LLP Act. Two forms are required to be filled, namely Form 2 and Form 17.

Incorporation of Limited Liability Partnership :

Step 1 : Application must be made for getting digital signature certificate

Step 2 : To obtain Director Identification Number, apply under form DIR-3

Step 3 : For the reservation of name of LLP, application must made under e-Form 1

Step 4 : For incorporation of LLP, apply under e-Form 2

Step 5 : Execution of LLP Agreement is necessary under the provisions of Section 23 of the Act. And for this, apply under eForm 3 within 30 days of incorporation of LLP.