14 August 2010
Dear Experts, One of my friend is going to start a call center business with his another friend. He wants me to prepare and give a partnership deed. In such a case can i advice him to execute limited liability partnership. What is the advantage of executing such a limited liability partnership rather than an ordinary partnership agreement. Since this involves an strategic decision i want to advice my friend which will be a safer one for him and also his friend. Everyone's reply is highly appreciated. Thanks for everyone. With regards, Rajesh.
Points Traditional Partnership Firm Limited Liability Partnership Private Limited Company
Number of Members Minimum 2 maximum 10 (for banking) or 20 (for others) Minimum 2 and no limit on maximum numbers Minimum 2 and Maximum 50
Liability Unlimited. Personal estate of partner is also liable to make good the debt of firm Partner’s liability is limited to the extent of its capital contribution. Liability of member is limited to the extent of share capital held and unpaid
Legality Status Does not have separate identity from their partners. Has separate status in eyes of law different from its partners. Has separate identity different from its members
Registration Not compulsory. Firm can voluntarily get itself registered with registrar of Firms Compulsory with Registrar of Companies Compulsory registration with Registrar of Companies
Name No specific provision in this regard. Should contain word Limited Liability Partnership or LLP after its name Should contain word Private Limited after its name.
Documents for formation Partnership deed is required which can be oral or written Incorporation Document and partnership agreement is compulsory Memorandum of Associations and Article of Association is compulsory
Annual returns and statements Not required to file any documents about accounts Required to file annual return and statement with ROC Required to file annual return and statement with ROC
Audit No specific provision in Partnership Act 1932 Compulsory if contribution exceeds Rs 25 lakhs or turn over exceeds Rs 40 lakhs Compulsory irrespective of turnover
14 August 2010
A LLP is quite similar to a normal partnership, except that the partners r personally not liable for negligent acts of other partners. In general partnership, each partner is liable for the debts and obligatiotns of the business as well as the malpractice of any other partner.
Income taxes in an LLP are passed through the business and reflected on the partners’ individual tax returns. Because of the limited liability of each partner and pass-through tax status, LLPs are a very popular business structure.
The LLP framework could be used for many enterprises, like service industry of any kind, Enterprises in new knowledge and technology based fields where the corporate form is not suited, professionals such as CAs, CWAs,CSs and Advocates,etc.
Under partnership firm, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.
Under LLP structure, liability of the partner is limited to his agreed contribution. Further,no partner is liable on account of the independent or un-authorized acts of other partners,thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.
LLP will have lesser compliance requirements as compared to a company.
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.
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