India: Limited Liability Partnership -The Hybrid Structure

Background

The concept of limited liability partnership was first originated in United States and it came to India through Limited Liability Partnership Act, 2008. Its history is quite interesting. During the financial crisis of United States in the late 1980s and early 1990s hundreds of saving and loan firms were declared insolvent. This resulted in collapse of many accountancy and legal firms who thereafter faced enormous legal claims instigated by the US government. These claims led to burden on those partners of such firms who were not even responsible for the failure and were held liable to repay millions of dollars in compensation. Then in 1991 a new concept of limited liability partnership (LLP) was introduced in the city of Texas which gained popularity in majority of United States and eventually resulted in passing of LLP legislation.

The Company form of business is considered to be the most popular form of business in the industry but in case of professionals who render secretarial, legal, accountancy, and doctorate services, who not only have to comply with the legal entity structure but are also regulated by their respective governing statues of which they are members, for them Company form of business is not possible to start with as they are not allowed to operate as corporate body.

On the other hand the concept of partnership firm which does not provide limited liability and moreover where the personal property of all the partners is always at risk is not considered to be suitable for many.

Thus to overcome the drawbacks of company and partnership form of business there was a need of a hybrid form of entity which can have the characteristics of both, a partnership firm and a Company. As it is a universal truth that necessity is the mother of all inventions, hence India adopted the concept of Limited Liability Partnership which was already tried and tested by the countries like UK, US, China etc.

Limited Liability Partnership (LLP) is a newly introduced corporate entity type in India favorable for small and medium sized businesses. A LLP provides many of the benefits of a Private Limited Company while being easier to maintain compliances. Low registration fee and easy maintenance make LLP a first choice for many of the small businesses in India.

A limited liability partnership is a partnership form of business which has a separate legal entity from its partners having a perpetual succession. In India it is governed by Limited Liability Partnership Act, 2008 which was notified on 31.03.2009 and came into effect from 01.04.2009 which is amended from time to time. Being the separate legislation, the provisions of Indian partnership act, 1932 are not applicable to LLP. This is a great relief to the partners, particularly professionals like Company Secretaries, Chartered Accountants, Cost Accountants, Advocates and other professionals.

Characteristics and Features of an LLP

1. LLP is a blend of body corporate and a separate legal entity from its partners which has a perpetual succession;

2. LLP can own assets in its own name, and can also sue and be sued;

3. The partners of LLP have the right to manage the business directly, unlike the corporate shareholders which thereby means no Owner/ manager distinction;

4. Every LLP shall have at least 2 partners and there is no limit for the maximum numbers of partners. The partners to LLP can be an individual as well as body corporate;

5. One partner is not responsible or liable for another partner's, misconduct or negligence;

6. LLP should be formed with a profit motive; 7. The rights and duties of partners in an LLP are to be governed by the agreement between partners. The duties and obligations of Designated Partners shall be as provided in the law;

8. Partners of LLP are liable only to the extent of their contributions in the LLP

9. Every LLP shall use the words "Limited Liability Partnership" or its acronym "LLP" as the last words of its name;

Benefits and Advantages of LLP alluring start -ups:-.

There is no limit on number of owners of LLP

LLP requires minimum 2 partners but there is no limit on maximum number of partners unlike a private limited company wherein there is a restriction of not having more than 200 members.

Lower cost involved in formation of LLP

The cost of registering LLP is low as compared to cost of incorporating a private limited or a public limited company.

No requirement of conducting compulsory Audit in case of LLP

All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. A Limited Liability Partnership is required to get their accounts audited only if:-

a) If the paid up capital of the LLP exceeds Rs. 25 Lakhs, or

b) If the annual turnover of the LLP exceeds Rs. 40 Lakhs

Lower compliance burden as compared to other forms of business structure

In case of Limited Liability Partnership, the only requirement is to file the Annual Return & a Statement of Accounts & Solvency as compared to other forms of entities which require large number of compliances.

Easy to windup

It is not only easy to start a LLP; it is also easier to wind up the same as compared to other business entities.

Procedure for incorporating a Limited Liability Partnership :

1. To incorporate a Limited liability Partnership, all designated partners of the proposed LLP shall obtain "Designated Partner Identification Number (DPIN)" by filing an application individually online in E-Form DIR -3 with Ministry of Corporate Affairs. In case any of the desired partners obtain Director Identification Number (DIN) then the same can be used as a DPIN.

2. The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the Limited Liability Partnership (LLP) are required to be filed with the use of Digital Signatures by the person authorized to sign the documents.

Acquire DSC- The person authorized to sign the documents is required to obtain Digital signature certificate (DSC) the same can be acquired by a Certifying Authority, who has been granted a license to issue a digital signature certificate under section 24 of Indian Information Technology Act 2000.

Register DSC- After acquiring Digital Signature Certificate, the role check can be performed on MCA portal only once the signatories have registered their Digital Signature Certificates with LLP application.

3. To file an e-form or to avail any services on LLP portal, it needs to first require registering as a user in the relevant user category, such as registered and business user.

4. To apply for name of the proposed LLP to be registered, Form 1 for application for reserve tion or change of name to be filed with MCA Portal. Once the name is reserved for proposed LLP, Form 2 needs be filed for incorporation of the LLP along with required documents. Once the form is approved by the concerned official of the Ministry, an email regarding the incorporation and status of the form will changed to "Approved."

5. After incorporation of LLP, an initial LLP Agreement is to be filed within 30 days of incorporation of the Limited Liability Partnership. Form 3 shall be filed for the information with regard to Limited Liability Partnership and Changes, if any made in the agreement.

CONCLUSION

The Limited Liability Partnership Act, 2008 is recognition of the changing needs of the business environment in the current era. The incorporation of the LLPs will provide a helpful new option for startups like professional partnerships which are anxious about their exposure to liability. In view of the growth of Indian Service industry in recent times, startup LLPs would further contribute to the growth of the service industry and a large number of existing companies, public as well as private, are expected to convert into LLPs with a view to have access to the benefits of the LLP. Further the Government of India has made an Endeavour to create a facilitating environment for entrepreneurs, service providers and professionals by bringing such hybrid business structure to meet the global competition.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
Global Jurix, Advocates & Solicitors
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
Global Jurix, Advocates & Solicitors
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions