A new trend has emerged after introduction of Limited Liability Partnership concept. More and more entrepreneurs have started opting for Limited Liability Partnership instead of normal Partnership Firm.
The Parliament passed the Limited Liability Partnership Bill on 12th December, 2008 and the President of India has assented the Bill on 7th January, 2009 and called as the Limited Liability Partnership Act, 2008, and many of its sections got enforced from 31st March 2009.
A need was felt for a new corporate form that would provide an alternative to the traditional partnership. Traditional Partnership has unlimited personal liability, it is not so in case of Limited Liability Partnership.
The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle. It provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The LLP form enables entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements. Owing to flexibility in its structure and operation,the LLP is a suitable vehicle for small enterprises and for investment by venture capital.
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from the traditional partnership , in which each partner has joint and several liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Unlike corporate shareholders, the partners have the right to manage the business directly.
A LLP is a new form of legal business entity with limited liability. It is an alternative corporate business vehicle that not only gives the benefits of limited liability at low compliance cost but allows its partners the flexibility of organising their internal structure as a traditional partnership. The LLP is a separate legal entity and, while the LLP itself will be liable for the full extent of its assets, the liability of the partners will be limited.
LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
|S No||Basis||LLP||Partnership Firm|
|1||Regulating Act||The Limited Liability Partnership Act,
|The Indian Partnership Act, 1932.|
|2||Body corporate||It is a body corporate.||It is not a body corporate.|
|3||Separate legal entity||It is a legal entity separate from its members.||It is a group of persons with no separate legal entity.|
|4||Creation||It is created by a legal process called registration under the LLP Act, 2008.||It is created by an agreement between the partners.|
|5||Registration||Registration is mandatory. LLP can sue and be sued in its own name.||Registration is voluntary. Only the registered partnership firm can sue the third parties.|
|6||Perpetual succession||The death, insanity, retirement or insolvency of the partner(s) does not affect its existence of LLP. Members may join or leave but its existence continues forever.||The death, insanity retirement or insolvency of the partner(s) may affect its existence. It has no perpetual succession.|
|7||Name||Name of the LLP to contain the word Limited liability partners (LLP) as suffix.||No guidelines. The partners can have any name as per their choice.|
|8||Liability||Liability of each partner limited to the extent to agreed contribution except in case of willful fraud.||Liability of each partner is unlimited. It can be extended upto the personal assets of the partners.|
|9||Mutual agency||Each partner can bind the LLP by his own acts but not the other partners.||Each partner can bind the firm as well as other partners by his own acts.|
|10||Designated partners||At least two designated partners and at least one of them shall be resident in India.||There is no provision for such partners under the Indian partnership Act, 1932.|
|11||Common seal||It may have its common seal as its official signatures.||There is no such concept in partnership.|
|12||Legal compliances||Only designated partners are responsible for all the compliances and penalties under this Act.||All partners are responsible for all the compliances and penalties under the Act.|
|13||Annual filing of documents||LLP is required to file:
i) Annual statement of accounts
ii) Statement of solvency
iii) Annual return with the registration of LLP every year.
|Partnership firm is not required to file any annual document with the registrar of firms.|
|14||Foreign partnership||Foreign nationals can become a partner in a LLP.||Foreign nationals cannot become a partner in a partnership firm.|
|15||Minor as partner||Minor cannot be admitted to the benefits of LLP.||Minor can be admitted to the benefits of the partnership with the prior consent of the existing partners.|
|1||Regulating Act||The LLP Act, 2008.||The Companies Act, 2013.|
|2||Members/Partners||The persons who contribute to LLP are known as partners of the LLP.||The persons who invest the money in the shares are known as members of the company.|
|3||Internal governance structure||The internal governance structure of a LLP is governed by agreement between the partners.||The internal governance structure of a company is regulated by statute (i.e., Companies Act, 2013).|
|4||Name||Name of the LLP to contain the word “Limited Liability partnership” or “LLP” as suffix.||Name of the public company to contain the word “limited” and Private company to contain the word “Private limited” as suffix.|
|5||Number of members/ partners||
Minimum – 2 members
Minimum – 2 members
Maximum – 200 members
Minimum – 7 members
Maximum – No such limit on the members.
Members can be organizations, trusts, another business form or individuals.
|6||Liability of members/ partners||Liability of a partners is limited to the extent of agreed contribution except in case of willful fraud.||Liability of a member is limited to the amount unpaid on the shares held by them.|
|7||Management||The business is managed by the partners including the designated partners authorized in the agreement.||The affairs of the company are managed by board of directors elected by the shareholders.|
|8||Minimum number of
|Minimum 2 designated partners.||Private Co. – 2 directors
Public Co. – 3 directors
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