Limited Liability Partnership or LLP is an alternative business form that provides the advantages of Company and flexibility of a Partnership firm. Limited Liability Partnership therefore, exhibits the elements of Partnerships and Company. This innovative and most awaited form of company was introduced in India in April 2009 with the enactment of the Limited Liability Partnership Act, 2008.
This unique hybrid combination of a limited and partnership company is thus suitable for small, medium-sized businesses or professionals.
In a Limited Liability Partnership one partner is not responsible for the other partner’s misconduct or negligence. The mutual rights and the duties of the partners, the management of day-to-day business are outlined in the Limited Liability Partnership Agreement, providing partners with the freedom to regulate affairs of the business. All partners have limited liability, limited to their own acts of commission or omission, similar to shareholders’ liabilities in a limited company. Limited Liability Partnership also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP’s employees or other agents.
Limited Liability Partnership registration is administered by the Ministry of Corporate Affairs (MCA) through the Office of the Registrar of Companies. The incorporation process is fully electronic, similar to the company registration process, i.e. applications and documents are filed electronically and the Registrar issues a digitally-signed Certificate of Incorporation (COI).
Benefits of Limited Liability Partnership
- Low registration cost: The cost of registering an Limited Liability Partnership is comparatively lower than that of incorporating a company.
- No requirement for minimum contribution: As an Limited Liability Partnership can be formed with the least possible capital, there is no minimum capital requirement in the incorporation of an Limited Liability Partnership.
- No limits on the owners of the business: An Limited Liability Partnership requires a minimum of 2 partners but there is no such upper limit on the maximum number of partners. Whereas in a private limited company there are restrictions on having more than 200 members.
- No requirement of compulsory audit: Whether the company is Public or Private irrespective of their share capital is expected to get its account audited. But here in the case of LLPs, there is no such mandatory requirement and this is considered to be one of the significant compliance benefits of forming an Limited Liability Partnership. A Limited liability company is supposed to get its audit done only in two cases
- When the contribution of LLP’s exceeds over Rs. 25 lakhs or
- When the annual turnover of LLP’s exceeds over Rs. 40 lakhs.
- Taxation aspect on Limited Liability Partnership: LLP is liable for payment of income tax and the share of the partner is not liable to taxation. Thus, no Dividend Distribution Tax (DDT) is payable.