About LLP and its incorporation

LLP as a business structure / model was awaited by the business fraternity doing business as a firm (non-corporate), but always needed ‘limited liability cover’ for decades, to ensure that business risk does not create a personal liability on owners / partners including their personal wealth.

There are a large numbers of business houses which always wanted to do business as ‘closely held’ but had to compulsorily do business as a Private Limited Company to have the shield of ‘Limited Liability.’ Similarly, there are a large number of firms which had to restrict their exposure to finance etc. to avoid risk of direct claim on partners' properties in the event of business loss, etc.

The Govt. of India has taken the call to resolve the business limitations of firms where the entrepreneurial skills are high, which leads to national GDP growth and finally in 2009 the Govt. provided a legally acceptable solution by allowing the incorporation of LLP.

LLP is a hybrid type of business structure where the features of a Partnership Firm as well as Limited Liability Company are available. LLP is a body corporate with perpetual succession and has a separate legal identity distinct from its partners. Further, the liability of the partners is limited to their agreed contribution in the LLP which may be of a tangible and/or intangible nature.

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Main Features:

1. Limited Liability, like a limited liability company
2. Simplicity to incorporate and understand, like partnership firms
3. No. of Partners without limits as against restrictions in a partnership firm
4. Separate entity like limited liability company and can hold its own assets
5. Perpetual existence, like a company
6. Capacity to sue and to be sued like a company 

The mutual rights and duties of partners of an LLP inter se and those of the LLP shall be governed by an agreement called LLP Agreement executed between partners as per the provisions of the LLP Act 2008 .  The act provides flexibility to devise the agreement as per their choice.  In the absence of any such agreement, the mutual rights and duties shall be governed by the provisions of the proposed LLP Act.

No partner would be liable on account of the independent or unauthorized actions of other partners or their indivudual misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.

Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be a resident in India. The duties and obligations of Designated Partners shall be as provided in the law.

The LLP shall be under an obligation to maintain annual accounts reflecting the true and fair view of its state of affairs.  A statement of accounts and solvency shall be filed by every LLP with the Registrar every year.  The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government.

Any existing firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act.

All LLPs should have the suffix ‘LLP’ in its name. The Indian Partnership Act, 1932 shall not be applicable to LLPs.