LLP the abbreviation for Limited Liability Partnership. This type of business is defined as a recent business set in India. It was finally acknowledged and enacted by the Parliament on December 12, 2008, commencing from the year 2009 as ‘The Limited Liability Partnership Act 2008’.
This is indeed an interesting business model formed keeping in mind all the disadvantages of the partnership form of business. Let us excavate on this structure in a detailed manner.
The Limited Liability Partnership Act 2008
The Act is divided into 14 chapters, four schedules, and with a wide number of sections ranging from section 1 to section 81. In each chapter, the Act details about the formation of such a business model – their definitions are defined in-depth, the nature of the LLP is discussed, it’s a process of incorporation, what kind of relations are shared among the partners, their contributions in the business, financial disclosures are too further detailed out in the Act.
Provided below are the 14 chapters with their related names:
Chapter I - Preliminary
Chapter II - Nature of Limited Liability Partnership
Chapter III - Incorporation of Limited Liability Partnership and Matters Incidental Thereto
Chapter IV - Partners and Their Relations
Chapter V - Extent and Limitation of Liability of Limited Liability Partnership and Partners
Chapter VI - Contributions
Chapter VII - Financial Disclosures
Chapter VIII - Assignment and Transfer of Partnership Rights
Chapter IX - Investigation Chapter X Conversion Into Limited Liability Partnership
Chapter X - Conversion Into Limited Liability
Chapter XI - Foreign Limited Liability Partnership
Chapter XII - Compromise, Arrangement or Reconstruction of Limited Liability Partnerships
Chapter XIII - Winding up and Dissolution
Chapter XIV - Miscellaneous Sections
Further, we will take up the important parts of this act and continue without discussion. Before that let us understand what an LLP business is?
A limited liability partnership also abbreviated as LLP is yet another type of partnership business where all or some partners have limited liabilities. This gives exposure to the business to include elements of both partners as well as a company form of business. In LLP, every partner is not responsible or liable for another partner's misconduct or negligence.
This is a corporate business model which enables professionalism, entrepreneurial strategies, all these combine to operate in a flexible and innovative manner, which provides benefits of limited liability also allowing its members the flexibility to organize their internal structure as a partnership.
Important Definition of the LLP Under this Act
We discuss the definition of LLP from the first chapter of this Act as this is mandatory for the students to know the language of the Act. The exact words are taken from the Act to keep the legal effect, with further our explanation on the definition:
Limited Liability Partnership - "Limited liability partnership means a partnership formed and registered under this Act”.
The act makes it clear LLP is to be denoted ‘only’ to that partnership business which is formed under the rules stated in this Act, and registered in this Act itself. The definition is exhaustive, as it uses the word ‘means’, this signifies no other partnership model which is not formed or registered under this Act is to be called as Limited Liability Partnership.
Nature of Limited Liability Partnership
The nature of the Limited Liability Partnership is to be justified by the following points:
LLP is a separate legal entity apart from its Members.
LLP provides a benefit of limited liability to its Members.
They are to be taxed as a partnership business.
Their internal organisational flexibility is like that of a partnership.
Agreement between the Members governing the operation of the LLP is a private document which is confidential to the Members only.
They have at least two “designated” Members.
Their accounting and filing requirements are similar to those of a company form of business.
Incorporation of LLP
The Limited liability type of Partnership is formed by following the hereunder procedure:
User Need to be Registered
Users need to be registered in the official website of Ministry of Corporate Affairs, uploading their digital signatures.
Obtain the Designated Partners Identification Number
All LLPs must obtain Designated Partners Identification Number (DPIN)
Obtain Digital Signature Certificates
From any authorised certifying agency LLPs need to obtain Digital Signature Certificates (DSC).
Reserve the Name
Search and Reserve the name in the MCA portal.
Incorporation of LLP
After the name is reserved, the LLP needs to pay the prescribed registration fee. Also, the statements in the e-form need to be digitally signed by the designated members, and an advocate or a company secretary.
Within 30 days of incorporation LLP may file the agreement in forms 3 and 4.
LLP is a modern business setting, with all the advantages of a Partnership and Company form of business. We discussed a minor portion about the LLP structure, to know in detail information can always be researched in the official website.