Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization. In an LLP one partner is not responsible or liable for another partner’s misconduct or negligence; this is an important difference from that of an unlimited partnership. In an LLP, all partners have a form of limited liability for each individual’s protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP’s employees or other agents. LLP has a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct. Limited Liability Partnership Act, 2008 came into effect by way of notification dated 31st March 2009. Provisions of the Partnership Act, 1932 do not apply to Limited Liability Partnership.

Advantages of LLP

– Separate legal entity

– Easy to establish

– Flexibility without imposing detailed legal and procedural requirements

– Perpetual existence irrespective of changes in partners

– Internationally renowned form of business in comparison to Company

– No requirement of minimum capital contribution

– No restrictions as to maximum number of partners

– LLP & its partners are distinct from each other

– Partners are not liable for Act of other partners

– Personal assets of the partners are not exposed except in case of fraud

– Easy to dissolve or wind-up

– No requirement to maintain statutory records except Books of Accounts

– Less Cost of formation (Compared to a company)

Disadvantages of LLP

– LLP cannot raise funds from Public

– Any act of the partner without the knowledge of other partners may bind the LLP

– Under some cases, liability may extend to personal assets of partners

– No separation of Management from owners Lesson 8 Indian Partnership Act, 1932

Limited Liability Partnership Agreements

Limited Liability Partnership Agreement (LLP Agreement) is a written agreement between the partners of the limited liability partnership or between limited liability partnerships and its partners which determines the mutual rights and duties in relation to that limited liability partnership. Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describes the matters relating to mutual rights and duties of partners of the LLP and of the limited liability partnership and its partners.