It is an alternative corporate business form that offers the advantages of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal entity, liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership. But it should not be confused with the limited liability companies.
LLP is a body corporate
According to Section 3 of the Limited Liability Partnership Act (LLP Act), 2008, an LLP is a body corporate formed and incorporated under the Act. It is a legal entity separate from its partners.
Unlike a general partnership firm, a limited liability partnership can continue its existence even after the retirement, insanity, insolvency, or even death of one or more partners. Further, it can enter into contracts and hold property in its name.
Separate Legal Entity
Just like an enterprise or an organization, it is a separate legal entity. Further, it is completely liable for its assets. Also, the liability of the partners is limited to their contribution in the LLP. Hence, the creditors of the limited liability partnership are not the creditors of individual partners.
Another difference between an LLP and a partnership firm is that independent or unauthorized actions of one partner do not make the other partners liable. All partners are agents of the LLP and the actions of one partner do not bind the others.
The rights and obligations of all partners are governed by an agreement between them. Also, the partners can devise the agreement as per their decision. If such an agreement is not made, then the Act governs the mutual rights and duties of all partners.
Artificial Legal Person
For all legal purposes, an LLP is an artificial legal person. It is created by a legal process and has all the rights of an individual. It is invisible, intangible, and immortal but not fictitious since it exists.
If the partners decide, the LLP can have a common seal [Section 14(c)]. It is not mandatory though. However, if it decides to have a seal, then it is necessary that the seal remains under the custody of a responsible official. Further, the common seal can be affixed only in the presence of at least two designated partners of the Limited Liability Partnership.
According to Section 26 of the Act, every partner is an agent of the LLP for the purpose of the business of the entity. However, he is not an agent of other partners. Further, the liability of each partner is limited to his agreed contribution to the Limited Liability Partnership. It provides liability protection to its partners.
Minimum and Maximum Number of Partners in an LLP
Every Limited Liability Partnership must have at least two partners and at least two individuals as designated partners. At any time, at least one designated partner should be resident in India. There is no maximum limit on the number of maximum partners in the entity.
Business Management and Business Structure
The partners of the Limited Liability Partnership can manage its business. However, only the designated partners are responsible for legal compliances.
Business for Profit Only
Limited Liability Partnerships cannot be formed for charitable or non-benefit purposes. It is essential that the entity is formed to carry on a lawful business with a view to earning a profit.
The power to investigate the affairs of a Limited Liability Partnership resides with the Central Government. Further, they can appoint a competent authority for the same.
Compromise or Arrangement
Any compromise or arrangement like a merger or amalgamation needs to be in accordance with the Act.
Conversion into LLP
A private company, firm, or an unlisted public company can convert into an LLP in accordance with the provisions of the Act.
E-Filing of Documents
If the entity is required to file any form/application/document, then it needs to be filed in an electronic form on the website www.mca.gov.in.