Limited Liability Partnership (LLP) is a term introduced in Indian Corporate world on 1st April 2009 via much awaited Act Limited Liability partnership Act 2008, with the idea of providing the Indian Corporate world with a relatively new & innovative business vehicle and an alternative that integrates the features of limited liability of the company along with flexibility of traditional partnership firm for designing the Internal structure of the entity.
It is essentially a body corporate having a legal entity distinct from its partners and has perpetual succession. Being a separate legislation the provisions of the Indian Partnership Act, 1932 are not applicable to a LLP and it is regulated by the mutually agreed partnership agreement known as LLP Agreement.
LLP is a combination of partnership and corporate which gives flexibility and tax status as that of Partnership while having status of body corporate. Every such organization needs to affix limited liability partnership (LLP) after its company's name. Two or more persons associated for 'carrying on a lawful business with a view to profit', can incorporate LLP and therefore, not applicable for charitable or non-profit making activities. In LLP, one partner is not liable for another partner's misconduct or negligence.
All the firms/Companies whether listed or unlisted public or private are allowed to convert themselves into LLP according to provisions as given under LLP Act, 2008. No prior approval required to be obtained from Central Government for increasing number of partners to organization. Any LLP organization can close or wind up either voluntarily or by interference of Tribunal.
Incorporation of Limited Liability Partnership is governed by Limited Liability Partnership Act 2008
The basic obligations for getting a LLP registered are:
- Minimum two partners (Individual or Body corporate) without limit on the maximum number of the partners.
- Minimum two designated partners who are individuals and at least one of them should be resident in India
- Registered Office
- LLP Agreement*
*LLP Agreement shall consist of:
- Contribution made by both the partners
- Ratio of sharing profit and losses
- Objectives of the LLP must be mentioned
- Rights of the partners
- Duties of the partners
- Provisions for cessation of an existing partner
- Duties of designated partners
- Extent of liability of LLP
These were points which must form an essential part of the LLP Agreement. However, in the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the LLP & the partners shall be determined by the provisions relating to that matter as are set-out in first schedule to the Act.
LLPs are required to maintain proper books of accounts in the prescribed manner relating to affairs for each year of its existence on cash or accrual basis and according to its double entry system of accounting at its registered office for a specified period of time.
- The LLP is required to file an annual return duly authenticated with the Registrar in Form 11 within 60 days of the closure of its financial year in such manner & shall be accompanied by prescribed fee.
- The LLPs are required to prepare & file a Statement of Account & Solvency in form 8, within 6 months from the closure of the respective financial year and the said Report is required to be signed by the designated partners of LLP.
Also note that the delay in filing of Form 11 & Form 8 will attract a penalty of Rs. 100 per day.
Every LLP whose Annual turnover exceeds 40 lakhs or total contribution of partner exceeds 25 lakhs, has to mandatorily get the Accounts audited as per the rule defined under LLP Rules, 2009. In other case where the LLP does not meet the above criteria, the audit of accounts is optional, if partners of such LLP decides to get the accounts audited and the accounts shall be audited in compliance with these rules And where the partners of such LLP do not decide for audit of accounts, such LLP shall include in the Statement of Account and Solvency, a Statement by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and Rules with respect to preparation of books of account and a certificate in the form as prescribed.
Popularity of LLP in India
Limited Liability Partnership though came very late in India, has finally found its space. It is best suited to small and medium business enterprises, as it is a hybrid of company and partnership form of organization. The Government is also encouraging the concept of LLP`s as it helps the entrepreneurs to focus on their core activities, and the Direct Tax benefits which flows from LLP`s is just one of many advantages provisioned by it. Also irrespective of the Profit & Loss in a given year LLP can claim interest up to 12% on capital and the borrowings from partners.
And also Foreign Direct Investment in LLPs are allowed, through the Government approval route, only for LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions.
LLP is an idea for constitution of team of Professionals with a view to address multidisciplinary issues. Through LLP`s, there comes, high potential opportunities, which Indian professionals must seize.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.