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LIMITED LIABILITY PARTNERSHIPS

Limited Liability Partnerships (LLPs) are commercial vehicles which combine the features of partnership and company form of business .The concept of Limited Liability Partnership (LLP) has been introduced in India by way of Limited Liability Partnership Act, 2008 (notified on 31st March 2008).

A Limited Liability Partnership combines the advantages of both the Company and Partnership into a single form of organization. In an LLP one partner is not responsible or liable for another partner’s misconduct or negligence. 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 separate legal entity, liable to the full extent of its assets; the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

Advantages and Disadvantages of LLP

Advantages

Separate legal entity
Easy to establish
Flexibility without imposing detailed legal and procedural requirements
Perpetual existence irrespective of changes in partners
Internationally renowned form of business in comparison to Company
No requirement of minimum capital contribution
No restrictions as to maximum number of partners
LLP & its partners are distinct from each other
Partners are not liable for Act of other partners.
Personal assets of the partners are not exposed except in case of fraud.
Easy to dissolve or wind-up
Professionals like CS / CA / CWA / Lawyers can form Multi-disciplinary Professional LLP
No requirement to maintain statutory records except Books of Accounts
Less Cost of formation (Compared to a company)

Disadvantages

LLP cannot raise funds from Public
Under some cases, liability may extend to personal assets of partners.
No separation of Management from owners

Partners / Designated Partners of LLP

An LLP should have minimum 2 partners. Every LLP should have minimum 2 designated partners who are individuals and at least one of them should be resident in India.

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

Designated Partner shall be liable to all penalties imposed on the LLP for any contravention of provisions of LLP Act.

Designated Partner Identification Number (DPIN)

A person or nominee of a body corporate, intending to be appointed as/ who is appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.

IMPORTANT NOTE: Director Identification Number (DIN) allotted under the Companies Act and DPIN are not same. DIN holder has to make a separate application for DPIN with his/her DIN. On submission of documents for verification, the DPIN status will be confirmed.

Management of LLP

Day to day operations of Limited Liability Partnership will be managed by Designated Partners, who are responsible for ensuring the compliances of all applicable laws.

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 to LLP

Unlike in the case of a company, there is no requirement for minimum capital contribution for a LLP. However, the registration cost for LLP is determined on the basis of amount of contribution.

FDI in LLP

The Government of India has not notified the policy for Foreign Direct Investment in LLP.

Reservation of Name by a LLP registered outside India

A foreign LLP or a foreign company can reserve its existing name by which it is registered in the country of its incorporation by making an application to Ministry of Corporate Affairs. The reservation will be valid initially for three years and is renewable thereafter.

Branch office of Foreign LLP

A LLP registered outside India can establish an office in India and has to comply with the provisions of LLP Act 2008.

LLP Name – Guidelines

The guidelines for the availability of LLP names are prescribed by the LLP Act.

The name of the limited liability partnership shall not be one prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950

Prohibited Words: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950.
Words Based on Approval : Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval.
Names reserved for Foreign LLP/Companies : In case Foreign LLP/Companies have reserved their name such names shall not be available for registration.