A Limited Liability Partnership (LLP) is a form of business organisation where the liability held by each of the partners is limited by law.
It provides the benefits of limited liability of a company, but allows its members the flexibility of organising their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.
It is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in a flexible, innovative and efficient manner.
LLPs are increasingly becoming the preferred vehicle of business for small and medium enterprises, particularly in the service industry & organisations involving professionals.
Limited Liability Partnerships in India
In India, the Parliament enacted the Limited Liability Partnership Act in 2008 which received the assent of the President on 7th January, 2009.
LLPs combine the advantages of ease of running a partnership, with the separate legal entity status and limited liability aspect of a company. Since LLPs contain elements of both 'a corporate structure' as well as 'a partnership firm structure' they are a hybrid between a company and a partnership.
The main feature of a LLP is that it is a separate legal entity, liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. But no partner is liable on account of the independent or un-authorised actions of other partners, thus individual partners are shielded from joint liability; while mutual rights and duties of the partners within a LLP are governed by an agreement between the partners.
Thus LLPs enable professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner.
The most important requirement for formation of an LLP is that a minimum of two partners are required; there is no limit to the maximum number of partners. Additionally, a corporate body may be a partner of an LLP.
The mutual rights and duties of the LLP and its partners are governed by the agreement between the partners or between the LLP and the partners, known as 'LLP agreement'. In the absence of an agreement as to any matter, the mutual rights and liabilities shall be as provided under Schedule I of the LLP Act.
Audit, Filing & Other Requirements:
An LLP is under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A "Statement of Accounts and Solvency" in prescribed form shall be filed by every LLP with the Registrar every year. Every LLP is required to file annual return in Form 11 with Registrar of Companies within 60 days of closer of the financial year. The annual return is available for public inspection on payment of prescribed fees to the Registrar. Central Government has the authority to appoint inspectors to investigate the affairs of an LLP.
Procedure for Forming a LLP
A Limited Liability Partnership may be incorporated online.
Register on www.llp.gov.in, the website developed by the Ministry of Corporate Affairs for LLP services.
Reservation of Name of LLP:
For reservation of the name of an LLP, Any partner or designated partner in the proposed LLP may fill up 'Form-1' where up to six choices can be indicated.
Incorporation of LLP:
Once the name is reserved by the Registrar, next is the filing of Incorporation documents, consent of Partners and declaration, electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees given in Annexure A of the LLP Rules, 2009, on the total monetary value of contribution of partners in the proposed LLP.
Filing of LLP Agreement & Partners' Details:
Form 3 (Information with regard to LLP agreement and changes, if any made therein) and Form-4 (Notice of Appointment of Partner/Designate Partner, etc.) may be filed with the prescribed fee simultaneously at the time of filing Form-2 or within 30 days of the date of incorporation or within 30 days of such subsequent changes.
Taxation of Limited Liability Partnerships
Since the taxation related matters in India are provided under Tax Laws, the taxation of LLPs has not been provided in the LLP Act. The Finance Bill, 2009 has made provisions in this regard, pursuant to which the taxation scheme of LLPs has been proposed to be introduced in the Income Tax Act.
Conversion of Other Entities into LLPs
Other business entities like a firm or a company may convert themselves into an LLP. The LLP Act 2008 contains enabling provisions pursuant to which a firm (set up under Indian Partnership Act, 1932) and private company or unlisted public company (incorporated under Companies Act) would be able to convert themselves into LLPs. But, the LLP Act bars an LLP from converting it into a company despite provisions in the Companies Act, 1956 which enable an LLP to convert itself into a company.
Merger and Winding-Up of Limited Liability Partnerships
Provisions of section 60 to 62 of the LLP Act provide for the manner in which compromises or arrangements including mergers and amalgamations involving LLPs shall be allowed.
The sections provide the provisions and procedures required to be complied with when the affairs of LLPs are to be wound up and dissolved.
Offences & Penalties
Offences and penalties arising out of the non-compliance with the provisions of the LLP Act have been defined along with substantive provisions themselves. However, for defaults/non-compliance on procedural matters such as time limits for filing requirements, penalties have been provided for application in a non-discretionary manner, through the levy of a default fee for every day for which the default continues.
The Act contains provisions empowering the Union Government to compound any offence punishable with fine only by collecting a sum not exceeding the amount of maximum fine prescribed for the offence.
Though most of the offences in the Act provide for punishment by way of charging fine, imprisonment too has been provided for in respect of violations.
Enabling provisions have also been made in the Act in respect to protection to "whistle blowers".