Limited Liablity Partnership
Limited Liability Partnership (LLP) is an alternative corporate business entity that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.
The LLP is a body corporate which has minimum of two designated partners and the others can be managing partners out of which one must be a resident of India. An LLP is often a good choice to business owners because is characterized by various benefit including personal protection of assets, ease in formation, separate legal structure, perpetual existence etc.
The mutual rights and duties of partners of an LLP are governed by an agreement between partners or between the LLP subject to the provisions of the LLP Act 2008. The act provides flexibility to devise the agreement as per their choice.
This format is quite useful for small and medium enterprises in general and for the enterprises in the services sector in particular, including professionals and knowledge-based enterprises.
Distinct features of LLP
Under Company Law, both LLP and Partners have separate legal identity that is distinct from each other. Unlike partners, LLP is not a natural person but though it can purchase or sell properties in its own name, can sue or be sued by/from parties without any restrictions. The ideal advantage of LLP is that one partner is not held liable for the other partner own wrongful actions.
Renowned Form of Business
LLP is recently introduced concept in India and has become popular and most demanded form of business over the world wide especially in service sector. Any individual seeking interest to start their operations as a start-up structure in India can incorporate a Limited Liability Partnership in lesser compliances with larger benefits.
Minimum No of Partners
Limited Liability Partnership are the body corporate incorporated under the respective act, which have minimum of two designated partners (Individuals) and the others can be managing partners out of which one must be resident of India. Foreign nationals can also be appointed as a partner with the prior approval from foreign contribution promotional Board.
A LLP existence is uninterrupted and shall continue for generation to generation even the death or insolvency of partners does not affect the continuity, immunities, estates and possessions of business. A member may come or go but the LLP continues to exist for long until it is legally dissolved.
Protection of Personal Assets
The liability of partners is limited to the proportion of unpaid portion on capital and which can only be demanded from the partners in case where LLP’s assets are not sufficient to meet the outstanding liabilities at the time of winding up. So, the personal assets of the partners are fully protected with the above exception.
Corporate entity can be partner:
Unlike partnership firm which permits only natural persons to be partners of the firm, a Limited liability partnership can have a corporate entity as its designated partner
For income tax purpose, LLP is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax and share of its partners in LLP is not liable to tax. Thus no dividend distribution tax is payable. Provision of ‘deemed dividend’ under income tax law, is not applicable to LLP.