Limited Liability Partnership LLP

Limited Liability Partnership Meaning

Any kind of business partnership form is prone to suffer from unlimited liability. The liabilities of the partners involved in the business tend to extend to their personal assets. And this, in turn, makes the partnerships undesirable for many entrepreneurs. However, there exists a solution for this kind of issue which is known as limited liability partnerships, which is referred to as the LLPS full form. Let us discuss LLP and Private Limited and how to change from LLP to Private Limited Company.

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Limited Liability Partnerships 

Partners of the partnership firms possess unlimited liability for their total debts and legal consequences. In this, their assets are liable to get attached to meet the debts and liabilities of the firm. However, the LLP formation solved this issue.


LLPS have all the primary features of a partnership firm, except that of the unlimited liability of the partners involved and same legal entity status. Also, llps include legal existence and the identities are separate from their partners. 


LLP Meaning

The Limited Liability Partnership Act was passed by the Parliament of India in the year 2008 for governing the LLP businesses in the country. The Section 2 of this law states that the LLP is a type of partnership which is registered under this act. Also, the LLP agreement refers to the written agreement between either the LLP partners or the LLP itself and its partners. This agreement tends to define the duties, liabilities, rights and powers of the partners in the LLP.


Since this Limited Liability Partnership Act typically governs the LLPs in India, the Indian Partnership Act, 1932 provisions are not applicable to the Limited Liability Partnerships. They are only applicable to the traditional partnership businesses.


Nature of Limited Liability Partnership

The Limited Liability Partnership consists of the features mentioned below:


1. Distinct Legal Entity

The Limited Liability Partnerships, unlike the traditional partnership firms, are considered as separate legal entities. LLPs may own assets and incur the liabilities in their names. Also, they can enter into the contracts and can sue and be sued in their names.


2. Limited Liability of the Partners Involved

The liabilities of the partners in an LLP are limited and separate. Their personal assets are not liable to the attachment if the LLP is suffering or winding up legal consequences of debt or repayments. 


However, the liability of the partners could become unlimited in certain offensive cases like frauds, illegal and wrongful acts, or commission of offences.


3.Profit Sharing

All the partners of the Limited Liability Partnership would share business profit similar to the partners of the traditional firms. However, they are free to decide the profit ratios amongst themselves. 


4.Partners of Limited Liability Partnerships

The partners of the LLPs can be either body corporations or individuals. Also, an individual cannot be a partner in an LLP in case he or she is insolvent or does not have a sound mind. 


The LLPs should have at least two partners during all the times. Furthermore, the number of the partners that can be involved is unlimited, whereas in the regular partnership firms the partners are restricted to a number of 50 people. If, in case, the number of LLP partners get less than two and if the sole partner carries the business for over six months, then under these circumstances, their liability towards the business’s firm would be unlimited.


LLP and Partnership

Given below is the Difference Between a Limited Liability Partnership and the Traditional Partnership.


Differences

Traditional Partnerships

Limited liability Partnerships

Governing Law

Indian Partnership Act, 1932

Limited Liability Partnerships Act, 2018

Presence of separate entity

No

Yes

Availability of unlimited liability of partners

No

Yes

Nature of the partners

Only natural persons, that are individuals

Both individuals and body corporates

Number of partners

Minimum 2, maximum 50

Minimum 2, maximum is unlimited

Registration

Optional

Mandatory

Assets

Only partners of the partnership can own the assets of the firm

A firm can own assets in its own name

FAQs (Frequently Asked Questions)

1.What Do you Mean by Liability of Partners in LLP?

Ans: A limited Liability Partnership, or LLP is a kind of partnership wherein some or all the partners possess limited liabilities depending on the type of jurisdiction. Hence, it possesses elements of both corporations and partnerships. In the Limited Liability Partnership, every partner is not liable or responsible for the other partner’s negligence or misconduct. This is an essential difference from the conventional partnership firms in which every partner has a joint liability. In the LLP, the partners possess a kind of a limited liability which is similar to the ones of the shareholders of a firm. However, unlike the corporate shareholders the partners of an LLP have the right for managing the business directly.

2.What are the Benefits of Liability of Partnership?

Ans: The Benefits of a Limited Liability Partnership are Mentioned Below.

1. It is Comparatively Flexible for Organizing the LLP’s Internal Structure than for organizing a company’s internal structure.

2. The Partners of an LLP do not have a limit but in a private limited Company, the Maximum number of shareholders can be limited.

3. The Utilizing and raising of the funds depend on the will of the partners. Funds are utilized and bought only according to the norms listed under the respective Acts.

4.There is no Compulsory audit as well. All the companies, be it public or private, irrespective of their capital shares need their accounts to be audited. However, in the case of an LLP, audits are not mandatory.