A limited liability partnership (LLP) in india is similar to a general partnership, except the partners are not personally liable for negligent acts conducted by other partners or employees not under their supervision. This is different from a general partnership, in which each partner is liable for the debts and obligations 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.
States that have enacted LLP legislation to date include Arizona, California, Connecticut, Delaware, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, New York, North Carolina, Ohio, South Carolina, Texas, Utah, Virginia, and the District of Columbia. Now in India.
APPLICABILITY OF THE LLP Act
Whether the LLP Act is applicable to any specific services like professional services regulated by Statutes?
No. Any two or more persons associating for carrying on a lawful business with a view to profit may set up an LLP.
In the light of various inputs received by this Ministry for applicability of the LLP form to small entities and venture capital funded enterprises, it is proposed that the framework should not be restricted to professional services alone as was earlier recommended by Naresh Chandra Committee. Accordingly, the LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only.
Likely users/beneficiaries of the LLP Law?
India has witnessed considerable growth in services sector and the quality of our professionals is acknowledged internationally. It is necessary that entrepreneurship knowledge and risk capital combine to provide a further impetus to our impressive economic growth. Equally the services sector promises an economic opportunity similar to that provided by information technology over the past few years. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would offer a menu of solutions to international clients. In view of all this, the LLP framework could be used for many enterprises, such as:-
Persons providing services of any kind
Enterprises in new knowledge and technology based fields where the corporate form is not suited.
For professionals such as Chartered Accountants (CAs), Cost and Works Accountants (CWAs), Company Secretaries (CSs) and Advocates, etc.
Venture capital funds where risk capital combines with knowledge and expertise.
Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services.
Small Sector Enterprises (including Micro, Small and Medium Enterprises)
Producer Companies in Handloom, Handicrafts sector.
Difference between LLP & “traditional partnership firm”
Under “traditional 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.
Difference between LLP & a Company
A basic difference between an LLP and a joint stock company lies in that the internal
governance structure of a company is regulated by statute (i.e. Companies Act, 1956)
whereas for an LLP it would be by a contractual agreement between partners.
The management-ownership divide inherent in a company is not there in a limited
liability partnership.
LLP will have more flexibility as compared to a company.
LLP will have lesser compliance requirements as compared to a company.
Conclusion of LLP India
LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another artner’s wrongful business decisions or misconduct.
Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
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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