LLP stands for Limited Liability Partnership. Limited liability partnership definition – It is an alternative corporate business form that offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal body, liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership. It is not the same as limited liability company LLC.
Salient Features of Limited Liability Partnership
LLP is a body corporate
According to Section 3 of the Limited Liability Partnership Act 2008 (LLP Act), an LLP is a body corporate, formed and incorporated under the Act. It is a legal entity separate from its partners.
Unlike a general partnership firm, a limited liability partnership can continue its existence even after the retirement, insanity, insolvency or even death of one or more partners. Further, it can enter into contracts and hold property in its name.
Separate Legal Entity
Just like a corporation or a company, it is a separate legal body. Further, it is completely liable for its assets. Also, the liability of the partners has certain limitations in their contribution to the LLP. Hence, the creditors of the LLP are not the creditors of individual partners.
Another difference between an LLP and a partnership firm is that independent or unauthorized actions of one partner do not make the other partners liable. All partners are agents of the LLP and the actions of one partner do not bind the others.
An agreement between all partners governs the rights and duties of all the partners. Also, the partners can devise the agreement as per their choice. If such an agreement is not made, then the Act governs the mutual rights and duties of all partners.
Artificial Legal Person
For all legal purposes, LLP is an artificial legal person. A legal process creates it and has all the rights of an individual. It is invisible, intangible, and immortal but not fictitious since it exists.
If the partners decide, the LLP can have a common seal [Section 14(c)]. It is not mandatory though. However, if it decides to have a seal, then it is necessary that the seal remains under the custody of a responsible official. Further, the common seal can be affixed only in the presence of at least two designated partners of the LLP.
According to Section 26 of the Act, every partner is an agent of the LLP for the purpose of the business of the entity. However, he is not an agent of other partners. Further, the liability of each partner has limitations to his agreed contribution to the LLP. It provides personal liability protection to its partners.
Minimum and Maximum Number of Partners in an LLP
Every Limited Liability Partnerships must have at least two partners and at least two individuals as designated partners. At any time, at least one designated partner should be resident in India. There is no maximum limit on the number of maximum partners in the entity.
Business Management and Business Structure
The partners of the LLP can manage their business. However, only the designated partners are responsible for legal compliances.
Business for Profit Only
Limited Liability Partnerships cannot be formed for charitable or non-profit purposes. It is essential that the entity is formed to carry on a lawful business with a view to earning a profit.
The power to investigate the affairs of an LLP resides with the Central Government. Further, they can appoint a competent authority for the same.
Compromise or Arrangement
Any compromise or arrangement like a merger or amalgamation needs to be in accordance with the Act.
Conversion into LLP
A private company, firm, or an unlisted public company or a small business can convert into an LLP in accordance with the provisions of the Act.
E-Filing of Documents
If the entity is required to file any form/application/document, then it needs to be filed in an electronic form on the website www.mca.gov.in. Further, a partner or designated partner has to authenticate the same using an electronic or digital signature.
Solved Question on LLP
Q: What are the advantages of an LLP?
Ans: Advantages of forming an LLP are as follows
- Operates based on an agreement
- Offers flexibility without imposing detailed legal and procedural requirements
- Easy to form
- Offers limited liability to all partners
- Has a flexible capital structure
- Is easy to dissolve