Limited Liability Partnerships (LLP)

What is a Partnership?

• Partnerships are the most common business structure for businesses that have more than one owner. Many businesses, ranging from retail stores to accounting firms, are structured as partnerships. A business partnership is a for-profit business established and run by two or more individuals. There can be any number of partners involved in the business, as long as there are at least two. A business partner is a co-owner of the business.
• Most business partnerships are general partnerships, meaning that all partners have responsibility for the business and unlimited liability for the financial obligations of the business. This means that general partners share both the benefits and the detriments of the business.
• Partners are not employees. They take money from the business as distributive shares, not as salaries.

What is Limited Liability Partnership (LLP)

What is a Limited Liability Partnership (LLP)?

• The Limited Liability Partnership Act 2008 was published in the official Gazette of India on 7 January 2009 and has been notified with effect from 31 March 2009. The first LLP was incorporated on 2 April 2009.
• A LLP is a business structure that came into being by the passing of the LLP Act, 2008 and the notification of the LLP Rules, 2009. Its features are considered to be an amalgamation of the features of both a traditional partnership firm, formed under the Indian Partnership Act, 1932 and a Company, formed under the Companies Act, 1956. However, it is closer to the concept of a partnership firm than a Company.
• A Limited Liability Partnership or LLP is an alternative corporate business form which offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal entity, liable for the full extent of its assets. The liability of the partners, however, is limited.
• The Law Defines LLP as:- “A Corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership”.     

• The main advantage of a Limited Liability Partnership over a traditional partnership firm is that in a LLP, one partner is not responsible or liable for another partner's misconduct or negligence. A LLP also provides limited liability protection for the owners from the debts of the LLP. Therefore, all partners in a LLP enjoy a form of limited liability protection for each individual's protection within the partnership, similar to that of the shareholders of a private limited company. However, unlike private limited company shareholder, the partners of a LLP have the right to manage the business directly.
• 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.
• Every Limited Liability Partnership shall use the words "Limited Liability Partnership" or its acronym "LLP" as the last words of its name.
• Every LLP shall have at least two designated partners being individuals, at least one of them being resident in India and all the partners shall be the agent of the Limited Liability .

In what kind of Business should you prefer LLP?

LLP would be most suitable for the following:

• Small and medium scale Enterprises
• Professional Firms
• Venture Businesses
• Family operated businesses
• Information Technology Firms

Is There Any Liability Protection of Founder Under LLP?

• 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.
• Separate Legal Entity-Continue its existence irrespective of Changes in partners i.e. perpetual succession.
• Every Limited Liability Partnership shall have either the words “Limited Liability Partnership“ or the acronym “LLP” as the last words of its name and even LLP can be winded up with the consent of partners.

Difference Between a Partnership, LLP and a Company.

	LLP	Partnership	Company
Applicable Law/Act	The Limited Liability  Partnership Act, 2008 LLP Rules, 2009	The Indian Partnership Act, 1932 and the rules made thereunder.	Companies Act, 2013 Companies Rules Notifications of MCA
Is Registration Mandatory?	Mandatory registration with Registrar of Companies.	Registration is optional except in the State of Maharashtra.	Mandatory registration with Registrar of Companies
Main documents	LLP Agreement	Partnership Deed	Memorandum of Association & Articles of Association
Name of Entity should contain	Name of the entity should contain ‘Limited Liability Partnership’ or ‘LLP’ as the suffix.	Any name as per choice.	Name of entity should contain ‘Limited’ in case of Public Company or ‘Private Limited’ in case of Private Company as the suffix.
Minimum and Maximum Number of Partners/ Shareholders	Minimum 2 partners No maximum limit on number of partners	Minimum 2 partners As per Indian Companies Act, 2013 a Partnership firm can have maximum 100 Partners. As per the pervious Law, the Maximum Limit was 20 Partners (10 in case of a Firm carrying on the business of banking)	Private Company Minimum- 2 shareholders Maximum-200 Public Company Minimum – 7             No maximum number of shareholders
Does it have a Separate Legal Status?	LLP is a separate legal entity under the Limited Liability Partnership Act, 2008.	Partnership is not a separate legal entity	Companies are a separate legal entity under the Companies Act, 2013
Liability of Partners/Share-holders	Limited Liability, Limited to the extent of their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner or where the number of partners fall below the minimum limit.	Unlimited Liability. Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets	Limited to the amount required to be paid up on each share or where the number of share-holders fall below the minimum
Tax Structure	Same as Partnership Firm. But Two disadvantages as compared to a firm: 1) Levy of Minimum Alternate Tax like Companies where book profit taxes is levied in case the income is tax exempt 2) Presumptive taxation benefit not available u/s 44AD.	Income of Partnership is Taxed at a Flat rate of 30%. No surcharge. Also profit-making firms but tax-exempt don’t have to pay Minimum Alternate Tax (MAT)	Income of Company is Taxed at a Flat rate of 30% or 25% Plus surcharge as applicable. Profit-making Companies but those claiming Tax Exemption (except SEZ) have to pay 15% Minimum Alternate Tax (MAT)
Requirement to conduct Statutory Meetings	Same as partnership Firm.	No provisions regarding requirement to conduct statutory meetings.	Board Meetings and General Meetings are required to be held in the prescribed procedure and for the prescribed number of times.
Maintenance of Statutory Records	Required to maintain books of accounts on a Double Entry system and on an accrual basis.	No Statutory records but may have to keep records as per the Income Tax Act.	Required to maintain books of accounts on Double Entry System and on an accrual basis. Records involve Ledgers, statutory registers, minutes etc.
Annual Filing	Annual Statement of accounts and Solvency & Annual Return is required to be filed with Registrar of Companies every year.	No return is required to be filed with Registrar of Firms.	Annual Financial Statements including Balance Sheet, Profit and Loss, Notes to Accounts etc. to be filed with the Registrar of Companies every year.
Audit of accounts	All LLP except for those having turnover less than Rs.40 Lacs or Rs.25 Lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act 2008.	Partnership firms are only required to have tax audit of their accounts as per the provisions of the Income Tax Act	Companies are required to get their accounts audited annually as per the provisions of the Companies Act, 2013.

What is a Limited Liability Company (LLC)?

• An LLC or Limited Liability Company does not exist in India. A limited liability company (LLC) is the US-specific form of a private limited company.
• In India, these limited liability companies are generally known as the limited liability partnership (LLP) firms.
• Both LLPs and LLCs limit the amount of liability or responsibility a business owner has for their company's debt. LLPs must have at least two partners, while LLCs can have as few as one. LLCs can be taxed as a corporation or partnership, while LLPs are taxed as partnerships.
• A limited liability company (LLC) is a legal entity that can have more than one owner and has the characteristics of a corporation and a partnership. Owners are also known as members, and the members aren't personally responsible for the company's liabilities or debts. And there isn't a limit to the number of members an LLC can have.

Limited Liability Partnership vs. LLCs

• The most obvious difference between an LLP and a limited liability company (LLC) is that the owners of an LLP are partners. The owners of an LLC are referred to as "members."
• Liability of owners is the biggest difference between an LLP and an LLC. Partners in an LLP are not typically liable for the debts or negligent acts of other partners, whereas liability of members of an LLC is limited to each member's contribution. It doesn't consider the liability of other members or of the LLC as a whole.
• Wrongdoing or negligence outside the scope of the owner's duties doesn't have liability protection in either type of business. Some examples would be if an owner sexually harasses an employee or client, steals from the company, or physically assaults someone.
• LLC members can decide between member management and hired management, while partners in an LLP manage the partnership themselves. All partners have the same general management responsibilities in an LLP. The flexibility of management isn't the same as with an LLC because an LLP is a partnership.