Limited Liability Partnership-Benefits

zankhana Trivedi , Last updated: 28 June 2009
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Ø Comparison of LLP with Partnership and Company

Though LLP is a combination of both Partnership and Company, it differs from them in certain aspects as discussed below:

Sr. No	Conditions	LLP	Company	Partnership
1.	Registration	To be registered with Registrar of LLP under LLP Act 2008	To be registered with Registrar of Companies under Companies Act 1956.	Registration is optional
2	Name	Name should contain 'Limited Liability Partnership' or 'LLP' as last words	Name should contain 'Limited' / 'Private Limited' as last words	Any name as per choice
3.	Legal entity	LLP is a separate legal entity registered under LLP Act	Company is a separate legal entity registered under Companies Act, 1956	Not a separate legal entity
4.	Formation Cost	The cost of Formation is lesser that of formation of Company.	The cost of Formation is higher than that of formation of LLP	The Cost of Formation is negligible.
5.	Formation by Foreign Nationals	Foreign Nationals alone can not form a LLP.	Foreign Nationals alone can form a Company	Foreign Nationals can not form Partnership Firm in India.
6.	Minimum Number of Members	Minimum 2 partners	Minimum 2 in case of Private Company 7 in case of Public Company.	2
7.	Management Team	Minimum 2 Designated partners	Minimum 2 / 3 Directors	No requirements
8.	Administration.	Designated Partners are responsible for day to day operations and statutory compliances	Directors are responsible for day to day operations and statutory compliances	Partners are responsible for day to day operations and statutory compliances

S. No	Conditions	LLP	Company	Partnership
9.	Remuneration to Managerial Personnel	Remuneration to partners will be determined on LLP Agreement	Remuneration to Directors of Public Companies are governed by Companies Act	The firm can pay remuneration to its partners
10.	Liability of Partners/ Members	Limited to the extent of contribution towards LLP	Limited to the amount of share capital agreed to be contributed on each share	Partners have unlimited liability
11.	Capital Contribution	Determined by partners as per the LLP agreement.	Limited to the unpaid amount of share capital agreed to be contributed	Unlimited may extend to their personal assets
12.	Tax Liability	Notification from IT Department awaited	Income of Company is Taxed at a Flat rate of 30% Plus surcharge as applicable.	Income of Partnership is Taxed at a Flat rate of 30% Plus surcharge as applicable.
13.	Transfer of ownership Rights	Ownership transfer is governed by the LLP Agreement.	Ownership is easily transferable by transfer of shares	Not transferable.
14.	Statutory Meetings	There is no requirement to hold any meeting	Board Meetings and General Meetings are required to be conducted as per Companies Act	There is no provision in regard to holding of any meeting
15.	Maintenance of Statutory Records / Minutes Book	Required to maintain books of accounts.	Required to maintain books of accounts, statutory registers, minutes etc.	Required to maintain books of accounts as Tax laws
16.	Annual Filing	Annual Statement of accounts and Solvency & Annual Return needs to be filed every year.	Annual Accounts and Annual Return needs to be filed with the Registrar of Companies	No return except Tax returns
17.	Agreements / Contracts with Partners/Director	Partners are free to enter into any contract with LLP	There are restrictions for contracts in which directors are interested.	Partners are free to enter into any contract partnership

S. No	Conditions	LLP	Company	Partnership
18.	Reputation	LLP enjoys higher reputation compared to Partnership as it is registered and regulated by LLP Act	Due to Stringent Compliances & disclosures under various laws, Companies enjoys high degree of creditworthiness	Creditworthiness of firm depends upon goodwill and creditworthiness of its partners
19.	Dissolution	Voluntary or by order of National Company Law Tribunal.	Voluntary or by order of National Company Law Tribunal.	By agreement, mutual consent, insolvency, certain contingencies, and by court order
20	Audit	Not mandatory for LLPs having turnover less than Rs.40 Lacs or having contribution less than Rs.25 Lacs in any financial year. Mandatory otherwise.	Mandatory	Not mandatory. Required as per Income Tax Act
21	Accounting Standards	Applicability yet not decided.	Applicable	Not Applicable
22	Liability	Limited	Limited	Unlimited
23	Registration with concerned Departments	Mandatorily required to be registered with RoC.	Mandatorily required to be registered with RoC.	Not mandatory. Advisable
24	Perpetual Succession	Perpetual.	Perpetual.	Depends upon Partnership Deed.
25	Common Seal	Optional.	Mandatorily required.	Not required
26	Obligation for acts of others	Partners are not liable for the acts of other Partners.	Directors are not liable for the acts of other Directors.	Every partner is liable for the acts of other partners and that of the firm.
27	Corporate Restructuring (Merger/Amalgamation)	Available	Available	Not available

FEATURES

1) Legal entity separate from its partners liable to the full extent of its assets.

2) Rights and duties of partners of an LLP governed by an agreement between partners. In the absence of any such agreement, shall be governed by the provisions of proposed LLP Act.

3) A limited liability partnership shall have perpetual succession;

4) Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership.

5) No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct.

6) At least two partners and At least two individuals as Designated Partners, of whom at least one shall be resident in India.

7) Obligation to maintain annual accounts- A statement of accounts and solvency shall be filed by every LLP with the Registrar every year.

8) The compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the LLP Act 2008.

9) A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be;

10) The winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court.

11) Indian Partnership Act, 1932 - not applicable to LLPs.

(D) Merits-Demerits of LLP.

LLP-merits:

1) Partner in LLP is not liable for the wrongful acts of other partners.

2) LLP will have a perpetual succession. Admission or Cessation of a Partner shall not affect its status.

3) A Firm, Private Company or a Public Company can be converted in LLP.

4) Partner may transact with LLP.

5) Professionals like CA, CS etc. can form LLP.

6) No limitation on maximum number of Partners in LLP.

7) Even a body corporate can be a Partner.

8) Audit not mandatory for certain LLPs.

9) Rights of Partners can be transferred, either wholly or in part.

10) Lesser Compliances.

11) Provision for merger/Amalgamation (Corporate Restructuring).

12) LLP can hold and/or acquire properties.

13) LLP can sue and be sued in its own name.

14) Stamp Duty exemption can be availed in case of conversion from Firm, Company to LLP.

LLP-demerits:

1) Business with profit motive for LLP (Nothing like Section 25 Company).

2) Unlimited liability of partners and LLP in case of Fraud.

3) Mandatory filing with ROC.

4) LLP can not maintain financial secrecy.

5) Taxation issue yet not notified.

6) FDI issue yet not notified.

7) Accounting Standard yet not notified.

CHECK POINTS FOR COMPLIANCE

1. Liability of partners can go up to the extent of Capital contributed by him.

2. There are few legal/procedural requirements in LLP in comparison of The Companies Act.

3. Board meetings are not required in case of LLPs.

4. Under LLP, the profit distribution is flexible, i.e. A partner can be given any %age of profit irrespective of the capital contributed by him.

5. LLP CAN NOT be formed for a charitable purpose.

6. Any body corporate or Foreign company can be a partner in LLP.

7. An LLP/Foreign LLP can also be a partner in LLP.

8. A partnership firm CAN NOT be a partner in LLP.

9. In LLP, individual partners are not mandatory. Any two companies or two LLPs can also form an LLP.

10. At least 2 designated partners require DPIN (Designated Partner Identification Number). Its not mandatory for all partners to obtain DPIN, like in case of a company where it is mandatory for all directors to obtain DPIN.

11. DPIN is required for the designated partner even if he is having a DIN also.

12. Minimum 2 persons are required to form an LLP, but there is no restriction on the maximum number of persons.

13. In case, an individual and a company are the partners in LLP, then it shall be required for the company to nominate a designated partner other then the individual.

14. One designated partner is required to be Resident of India, and the conditions given in LLP Act for residential status have to be checked on the DATE OF APPOINTMENT only. Later on if these conditions are not fulfilled, even then that person can remain as designated partner.

15. Vacancy of any designated partner has to be filled within 30 days. If this vacancy is not filled in 30 days, then all the partners of LLP shall be treated as designated partners.

16. Incorporation document – Declaration in Incorporation document has to be given by an advocate/CA/CS/ICWA AND ONE SUBSCRIBER ALSO.

17. LLP has to be incorporated by the Registrar within 14 days, provided the documents are complete. Period can not be extended.

18. In case of a LLP, if any application of change in registered office is filed with the department, shall take effect from the DATE OF FILING OF FORM only. Means, it can not be changed with retrospective effect.

19. It has to be noticed that all invoices, documents etc of LLP has to bear the name of LLP, Address, and REGISTRATION NUMBER of LLP.

20. Unlike in partnership firms, the partner in LLP shall be treated as agent of LLP only, and not of other partners.

21. Accounts of LLP can be made either on CASH BASIS OR MERCANTILE BASIS. Hybrid system is not allowed.

22. Statement of Account and Solvency has to be filed within 6 months from the end of the financial year, whereas Annual return has to be filed within 60 days only.

23. Audit of LLP is mandatory by virtue of the LLP Act itself.

24. Loan by the partner is allowed in LLP.

25. partner of LLP can do business with the LLP itself and can earn profits from LLP.

26. ALL OFFENCES UNDER LLP ACT SHALL BE TREATED AS CRIMINAL OFFENCES UNDER INDIAN PENAL CODE.

KEY INCORPORATION REQUIREMENT

ï‚·Partners

ï‚·Contribution

ï‚·Designated Partners

ï‚·Designated Partners Identification Number

ï‚·Digital Signature Certificate

ï‚·LLP Name

ï‚·LLP Agreement