3/3/2015

WhatisaLimitedLiabilityPartnership(LLP)?

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WhatisaLimitedLiabilityPartnership(LLP)?

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WhatisaLimitedLiabilityPartnership(LLP)?

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AnewtrendthathasbeenobservedoflateisthatmoreandmoreentreprenuershavestartedoptingforLimitedLiabilityPartnerships.ButWhatisaLimitedLiability
Partnership?
BeforeansweringthisquestionwellexplainyoureasonsbehindtheemergenceofLLPs.Tillafewyearsbackthereusedtobeonly2formsofOrganisations
1. LimitedLiabilityOrganisationsi.e.Companies
2. UnlimitedLiabilityPartnershipsi.e.Partnership/Proprietorship
Boththeseformsoforganisationshavetheirownplusandminuses.ThereislimitedliabilityoftheOwnersinaCompanyascomparedtoPartnerships/Proprietorship
whichareeasytoformandoperatebutSmallBusinesses&ProfessionalsusuallytendtooptforPartnershipsastheyareeasytoformandoperate.
However, as Businesses grew there was a need for a form of organisation which was a hybrid between the 2 forms of organisations. Moreover, the rapid growth of
ServiceSectorcreatedanenvironmentandademandforanewformofOrganisation.Thus,theconceptofLimitedLiabilityPartnershipwasevolvedwhichincorporates
thebenefitsofbothCompaniesaswellasPartnerships.

MeaningofLimitedLiabilityPartnership(LLP)
TheLawdefinesLLPas:
A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner,
providingbenefitsoflimitedliabilitywhileallowingitsmemberstheflexibilityfororganizingtheirinternalstructureasapartnership

FeaturesofLLP
1. TheLLPhasSeparateLegalEntityi.e.theLLPandthepartnersaredistinctfromeachother.
2. Minimumof2partnersarerequiredtoformaLLP.However,thereisnolimitonthemaximumnumberofpartners.
3. NorequirementofMinimumCapitalContribution.
4. TheLLPActdoesnotrestrictthebenefitofLLPstructuretocertainclassesofProfessionalsonlyandwouldbeavailableforusebyanyenterprise.

BenefitsofformingaLLP
1. TheLiabilityofeachpartnerislimitedtohisshareaswrittenintheAgreementfiledatthetimeofcreationofLLPascomparedtoPartnershipFirmswhichhave
unlimitedliability.
2. IthasaLowCostofFormationandisEasytoForm.
3. ThePartnersarenotliablefortheactsofeachotherandcanbeheldliableonlyfortheirownactsascomparedtoPartnershipswhereintheycanbeheldliablefor
theactsoftheirpartnersaswell.
4. LessRestrictionsandComplianceareenforcedonaLLPbytheGovtascomparedtotherestrictionsenforcedonaCompany.
5. AsaJuristicLegalPerson,aLLPcansueinitsnameandbesuedbyothers.ThepartnersarenotliabletobesuedforduesagainsttheLLP.

DisadvantagesofFormingaLLP
TheonlydisadvantageofformingaLLPisthatitcannotcomeoutwithitsIPOandRAISEMONEY from the Public whichaCompany formoforganisation can
easilydo.

DifferencebetweenLLP&TraditionalPartnershipFirm
ThebasicdifferencebetweenLLPandPartnershipiswithregardtotheLiabilityofthePartners.
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WhatisaLimitedLiabilityPartnership(LLP)?

InaPartnershipFirm,everypartnerisliable,jointlywithalltheotherpartnersandalsoseverallyforallactsofthefirmdonewhileheisaPartner.
However, under the LLP structure, liability of the partner is limited only to his agreed contribution. Further, no partner is liable on account of the independent or
unauthorizedactsofotherpartners,thusallowingindividualpartnerstobeshieldedfromjointliabilitycreatedbyanotherpartnerswrongfulactsormisconduct.

DifferencebetweenLLP&Company
ThemajordifferencebetweenLLPsandCompanysisthattherearelessRegulatoryandotherComplianceRegulationsapplicableonaLLPwhichmakesitEasyand
CostEffectivetoManage.

TaxationofLLPsinIndia

InIndia,theGovthasnotifiedthatLLPswouldbetaxedinthesameformasPartnershipsi.e.TaxwouldbeleviedontheLLPandthepartnerswouldbeexemptfrom
Tax.
RecommendedRead:ComputationofIncomeTaxonLimitedLiabilityPartnerships
Moreover, as LLPs would be taxed in the same form as Partnership Firms, no tax would be levied on the conversion of Partnership Firms into Limited Liability
Partnership.
TheIncomeTaxReturnshallbesignedandverifiedbythedesignatedpartnerandwhereforanyunavoidablereasonthedesignatedpartnerisnotabletosignthereturnof
incomeorwherethereisnodesignatedpartner,byanyotherpartner.
FormanLLC TaxForm IncomeTax ActTax

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