In business studies, what is Limited Liability Partnership is a common question. It is a broad concept which forms a crucial part of partnership norms. LLP or Limited Liability Partnership is an alternative form of corporate business that offers benefits of limited liability to partners at minimal compliance costs. It is a newer concept in a business where partners have lesser financial obligations and limited personal liability in the firm.
What is the Meaning of LLP?
LLP, better known as Limited Liability Partnership, requires every partner to contribute to daily business operations while having limited responsibilities. In usual partnership firms, partners have unlimited liability towards the overall debts and legal concerns of business. Assets of these partners are also liable to be utilized for meeting any debt or liability of the firm. However, in LLP, partners are free from such huge liabilities.
Separate legal existence with a lesser extent of liabilities is what is Limited Liability Partnership all about. Other than this, it has all the features that a regular partnership has.
What is the Limited Liability Partnership Act 2008?
The concept of LLP was introduced through the Limited Liability Partnership Act of 2008 by the Parliament of India. As mentioned in Section 3 of the LLP Act, a Limited Liability Partnership is a corporate body that is formed and incorporated under this act. A partnership is a legal entity separate from the partners.
What is an LLP Agreement?
LLP agreement is the mutual deal between all partners which decides the rights and duties of partners. In some firms, a partner can also modify the agreement if he wishes. If any such agreement has not been made by partners, mutual rights and duties in the partnership will be governed by the LLP Act of 2008.
What is Meant by the Limited Liability Partnership and Mutual Agency?
One of the significant differences between an LLP and a regular partnership firm is the presence of mutual agency. In a Limited Liability Partnership, independent actions taken by one of the partners does not hold other partners responsible for it. Just like other liabilities, liability for sharing the responsibility of each other’s actions is also limited.
All partners involved in it are agents of LLP, and their individual actions are not binding on one another. This is what is Limited Liability Partnership in business and partnership firms.
Salient Features of Limited Liability Partnership
LLP is characterized by some unique features and norms, which the partners have to abide by. Here are some of the salient features of Limited Liability Partnership.
LLP differs from a general partnership on aspects of succession. Unlike a general partnership, LLP firms can continue to exist even after retirement, death, withdrawal, or insolvency of any of the partners. It can also hold property rights and sign contracts in its name.
Just like any other company, entity, or corporation, LLP is a separate legal entity. While an LLP is entirely liable for its assets, partners involved in it hold limited liability when it comes to their contribution in the LLP. Creditors of an LLP are not the creditors of partners taking part in it.
In order to address various legal aspects, LLP is turned into an artificial legal person. This is done through a proper legal procedure, after which an LLP holds all rights of an individual. It is intangible yet has equal significance in dealing with legal complications.
The understanding of what is Limited Liability Partnership Act 2008 remains incomplete without being aware of the common seal under Section 14(c). It is mentioned that an LLP can have a common seal if it wishes to. The Act does not mandate it. However, if a firm decides to have a common seal, it is mandatory that the seal remains under the custody of a responsible authority. At least two LLP partners have to be present during the affixation of the common seal of an LLP.
An LLP must include at least 2 partners. Out of two designated partners, at least one has to be a resident of India. When it comes to the maximum number of partners in an LLP, there is no specified number.
The Central Government of India holds sole power to investigate matters related to LLP firms and disputes. The authority can also appoint a competent authority to investigate the matter if they feel necessary.
An LLP partnership cannot be formed for charitable work or non-profit purposes. Every LLP firm must carry on a lawful business with the motive of earning returns in the form of profit.
Partners included in an LLP firm hold the right to manage a business. However, the right to deal with legal issues lies only with designated partners of the firm.
The Limited Liability Partnership Act gives the right to any private firm, start-up, or unlisted company to convert into an LLP firm.
Compromises or arrangements related to the merging or amalgamation of partners have to be done in accordance with the LLP Act.