Limited Liability Partnership (LLP) is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. It shall be a registered body corporate and a legal entity separate from its partners. It will have perpetual succession.
Unlike a “traditional partnership firm”, wherein every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner, under the LLP structure, the liability of the partner is limited to his agreed contribution. Further, in LLP, no partner is liable on account of the independent or unauthorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct. In other words, the LLP is a separate legal entity, is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP.
A Limited Liability Partnership (LLP) must be registered with the Ministry of Corporate Affairs (MCA) in India to operate. Registration is mandatory because it gives an LLP a distinct legal identity, which differentiates it from a traditional partnership firm. Every LLP must have a registered office in India. This address is where all legal notices and official communication will be sent. Even if an LLP is not active, it must file an income tax return and MCA annual return each year. In an LLP, partners have limited liability, meaning their assets are not at risk if the LLP incurs losses or penalties.
Mutual rights and duties of the partners within an LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.
The advantage of a Limited liability partnership is that if the partnership fails, then creditors cannot go after a partner’s assets or income. LLPs are common in professional businesses like law firms, accounting firms, medical practices, and wealth management companies. Besides India, the LLP structure is also available in countries like the United Kingdom, the United States of America, various Gulf countries, Australia, and Singapore.
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