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Saturday, November 19, 2011


Limited Liability Partnership is a new type of business entity introduced by Limited Liability Partnership Act, 2008. It is an artificial legal entity recognized independent from its partners and has a perpetual succession. Introduction of LLP in India was much awaited and its arrival ensured that Indian economy has taken one more step towards the globalization. Numbers of Committees were working on this issue including Bhatt Committee in 1972 and Naik Committee in 1992. It is an alternative corporate vehicle that provides benefit of limited liability but at the same time the partners are free to determine the internal rules and regulations as per their wish. A company has a limited liability but lot of compliances. A Partnership firm has least number of Compliances but it has got unlimited liability. So in order to combine the benefits of a corporate entity and freedom of a Partnership firm the new entity was introduced called Limited Liability Partnership. As a Company has Directors, a LLP has Designated Partners (DP) for conducting affairs of the LLP. Every LLP has at least two designated partners out of which at least one of them has to be Indian resident. If a LLP is formed by two Companies together, then DP can be duly authorized representatives of the Companies. A DP shall be responsible for doing all acts done on behalf of the LLP and to make Compliances with the requirements of the LLP act including filing of documents with government authorities.

LLP is new concept for India and hence it is natural to have doubts about its recognition as an corporate entity. The Concept yet to attract popularity among business entities as most of them prefer to form traditional partnership and Companies for their business. However as the time will pass it will get some recognition and we as professionals also understand the complexities of issues relating to it. 
Apart from India other Countries that Recognize LLP includes the countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.

What is limited liability?

Now from layman`s point of view two things are essential to understand i.e. “what is limited liability?” and “Limited to what?” so here the liability is limited to the Contribution you are going to bring in the LLP. Which means that, if I bring Rs. 50,000/- as my contribution, my liability is limited to Rs. 50,000/- only. This benefit was attached only to the Limited Companies. The shareholder of a limited Company was liable to pay only that much money which he was agreed to pay at the time of subscription.

What do you mean by Contribution? Can it be increased?

Contribution in reference of LLP can be termed as, what a partner is contributing towards the Limited Liability Partnership for running of his business. A contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, agreements to contribute cash or property, and contracts for services performed or to be performed. The Contribution can be increased. Contribution of LLP would be provided under the LLP Agreement and the same can be increased by way of amendment in the LLP Agreement.

Major advantages as compared to Company

Now going further we need to know why exactly we should form a LLP if we have option to form a limited company. For this purpose we need to understand what advantages are there of a LLP over a Company.

  1. No need of converting into Public Company to have members more than 50 as there is no limit on maximum number of partners.
  2. Minimal Government Intervention. 
  3. Minimal cost of conversion
  4. Less Compliance level (No Annual Compliance Certificate from Company Secretary)
  5. No requirement of holding any meeting.
  6. No requirement of maintenance of Large statutory records.
  7. Limited Liability as in case of Companies.
  8. No need to pay large fees for increasing the contribution , as required in case of capital.
  9. Llp is also not liable to pay dividend distribution tax (DDT)
  10. No limit on Partners Remuneration as in case of Company
  11. No stamp duty on conversion of Company into LLP as same entity is converted.
Can an existing Company get itself converted into a LLP?

Now considering the advantages of LLP, an existing Company may want to convert into a LLP. It is possible by following simple procedure of Conversion. It is essential to note that on conversion, all the members of the Company shall become the partners of the LLP. It is provided that no other person would become partner on conversion into an LLP for the simple reason that on conversion, it should be a mirror image. On conversion, all the tangible (movable and immovable) property and the intangible property, all assets, interest, rights, privileges, liabilities, obligations of the Company shall stand transferred to, and vest in, the LLP. Also, the Company so converted into an LLP shall cease to exist upon conversion.

Comparative Study of Company, Traditional Partnership & LLP

Traditional Partnership
Company is registered the Registrar of Companies of respective state.
Not compulsory. Unregistered Partnership Firm will not have the ability to sue.
Compulsory registration required with the ROC
Private company should have a minimum paid up capital of Rs. 1 lakh and Rs.5 lakhs for a public company
Deed Specifies but no specific guideline
Deed Specifies 
Legal Status
Separate Legal Status
No Separate Legal Status
Separate Legal Status
Limited to the extent of unpaid capital.
Limited to the extent of the contribution
No. of shareholders
For a Private limited Company minimum 2 and max 50. For a Public Company minimum 7 and max unlimited
2-20 partners
Minimum 2 and max no limit.
Meeting in every quarter mandatory.
Not requirement
Not requirement
Annual Return
Every year with ROC
Not required
Every year with ROC
Only if contribution exceeds 25 lacs or turnover exceeds 40 lacs.
Very stringent procedure.
By agreement between partners.
Less procedural compared to Company.