LLP Formations & Partnership
LLP Formations & Partnership
An LLP formation refers to a body corporate formed under LLP Act, 2008. It is a legally autonomous entity from that of its partners. Such an entity is liable to the full extent of its assets; however, liability of the partners is restricted to their agreed contribution. And since partners’ liability is limited in the LLP, it entails elements of partnership firm structure & a corporate structure.
There is no personal accountability of the partner except in the event of fraud. Furthermore, a partner is not accountable for misconduct or negligence of the associate partner as there the concept of joint liability doesn’t work in LLP.
The notion of the Limited Liability Partnership (LLP) found its way to India in the year 2008. At least two partners are needed for LLP incorporation, But there is no upper limit in this context.
Among the partners, there should be at least two designated partners who should be individual, and one of them ought to be an Indian national. The LLP agreement regulates the rights and obligations of such partners. They are accountable for the compliance of all existing provisions of the LLP Act, 2008 & provisions cited in the said agreement.
What is an LLP and How to register an LLP in India?
A Limited Liability Partnership (LLP) is a form of business that offers the combined features of ‘Partnership’ and ‘Limited Company’ business structures. This business form was introduced in India in April 2009 with the enactment of the Limited Liability Partnership Act, 2008. In an LLP, a partner is not responsible or liable for another partner’s misconduct or negligence. Instead, all partners have limited liability, limited to their own acts of commission or omission, similar to shareholders’ liabilities in a limited company. However, unlike the shareholders in a company, LLP 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. The management of the day-to-day business is outlined in the LLP Agreement, providing partners with the freedom to regulate the affairs of the business. LLP registration is administered by the Ministry of Corporate Affairs (MCA) through the Office of the Registrar of Companies. The incorporation process is fully electronic, similar to the company registration process, i.e. applications and documents are filed electronically and the Registrar issues a digitally signed Certificate of Incorporation (COI).
Why register a Limited Liability Partnership?
LLP Registration offers many benefits with the main benefit being the limited liability of partners. The members of the firm are only liable for a small amount of debt incurred by it. This is entirely different from proprietorship and partnership where the personal assets of directors and partners are not protected if the business becomes bankrupt. Registering an LLP in India offers the following benefits-
LLP is a separate legal entity from the partners. Each partner can sue the other in case a situation arises. It has an uninterrupted existence that follows perpetual succession, i.e., the partners might leave, but the business remains. A term of dissolution has to be mutually agreed on for the firm to dissolve.
Transferring the ownership of LLP is also simple. A person can quickly be inducted in as a designated partner and the ownership switches to them.
LLPs having a capital amount less than 25 lakhs and turnover below 40 lakhs per year do not require any Statutory audit unlike a Private Limited Company, where it is mandatory . It makes registering as LLP beneficial for small businesses and startups.
A Limited Liability Partnership has partners, who own and manage the business. This is different from a private limited company, whose directors may be different from shareholders. For this reason, VCs do not invest in the LLP structure.
An LLP can own or acquire property because it is recognized as a juristic person. Partners of LLP cannot claim the property as theirs.