The way business is done in India, has changed a lot in the last decade. There have been a lot of new rules and regulations both from the private as well as public sector. One of the main change was to implement the rule of an LLP (Limited Liability Partnership). This post is all about Limited Liability Partnership (LLP) in India.
What is LLP (Limited Liability Partnership)?
\nLimited liability partnership, often written as LLP, is a form of a registered company where some or all the partners have limited liability over the assets. This form of a company was implemented to make sure that the misbehaviour and negligence of one partner of a company do not affect the career record of other partners.
This helps in maintaining a transparency in the records as well in the minds of customers. It depends on the partners whether they want to take the unlimited liability or limited. There can be an unlimited number of partners in an LLP and new partners can be added at any point of time. The new, as well as existing partners, can have the liability of any type depending upon the need of the situation or the company. All the registered LLPs have to put Limited Liability Partnership or LLP behind the registered name.
The history of LLP (Limited Liability Partnership)
History of Limited Liability Partnership form of the incorporation is not so old. The first LLP was formed in the United States in the early 1990s (It is named as LLC, Limited Liability Company in the United States).
In the early 1990s, when the market in the United States was still recovering from the downfall of the last decade, banks had a lot to recover as there were so many businesses which had failed and banks were on the verge to go bankrupt. According to a new tactic, banks started finding the chartered accountants and the lawyers who had advised banks to give loans to those particular companies and that is when the United States government passed a law to favour all those partners who were innocent and had no role in their companies going bankrupt. To make sure the careers of those people didn’t get ruined, the government came with a new law of limited liability which made sure that the misconduct of one partner does not become a hassle for others.
Once the United States started this concept of limited liability, many countries like India, Canada, China, Germany, Japan, Kazakhstan, Poland, Romania and Singapore felt the need and implemented the law.
Limited Liability Partnership in India
The limited liability partnership act was first published in the official gazette of India on January 09, 2009 and it was implemented from the financial year beginning on April 01, 2009.
The first Limited Liability Partnership (LLP) in India was registered in the very first week of April. However, there were a lot of changes required in the original Limited Liability Partnership act and the updated version with all the instructions and procedure to convert the unlisted public companies, as well as the private firms to LLP, came into effect on May 31, 2009.
According to the rules and the points mentioned in the Limited Liability Partnership Act, there are at least 2 partners required to form an LLP in India. Out of those 2 partners, at least one of the has to be a permanent citizen of India and has to be residing in the country. Till date, more than 10,000 organizations have been registered in India under the LLP act.
Features of an LLP (Limited Liability Partnership)
- Every LLP has to use the term Limited Liability Partnership or LLP after the registered name, same as an incorporated company uses Private Limited.
- A Limited Liability Partnership contains the features of a corporate structure as well as a partnership firm.
- An LLP in India comes under a separate jurisdiction. The Limited Liability Partnership does not come under the provisions of either The partnership act, 1932 or The company act 1956.
- Just like an incorporated private limited in India, the LLP needs at least 2 partners at the time of formation. There is no limit on the maximum number of partners required. Out of those 2 partners, one has to be an Indian citizen.
- Having an LLP agreement is not necessary. However, in case of any dispute or the problem, rules stated in the LLP act would come into action.
Advantages of Limited Liability Partnership (LLP) in India
- The liability of all the partners is mentioned in the agreement at the time of formation of the LLP. If a partner is guilty of misconduct or an action which turned out to be against the organization, then other partners are not affected by that and other partners can still have the same right, responsibility towards the organization.
- LLP is more flexible and hassle-free as compared to a private limited.
- There is no need of minimum capital. The procedure to register an LLP is also very simple.
- You can add an unlimited number of partners and any partner can join or leave the organization anytime.
- Operates on the basis of an agreement.
- The best thing about Limited Liability Partnership is, if the LLP is sued by someone for some case, then the partners will not have any effect of that.
- The partners need not expose their personal assets unless and until there is a case of fraud against any of the partners.
- Foreign direct investment is allowed in case of an LLP.
\nDisadvantages of Limited Liability Partnership (LLP) in India
- An LLP cannot raise money from the public.
- There are various cases, where the liability might cover the personal assets of partner as well.
- Under some cases, it becomes very hectic for the LLPs to solve some issues legally as often there is a conflict between the LLP agreement and the LLP act.
- It is very hard to close the business listed under the Limited Liability Partnership (LLP) in India.
Accounting for Limited Liability Partnership
The accounting procedure is little relaxed in case of LLP as compared to a private limited. However, you need to maintain accounts and need to submit the report to the ministry of corporate affairs within 30 days of the end of the financial year.
In case of LLP in India, it is also mandatory to file annual returns which should reach the ministry within 60 days from the end date of a financial year. However, there is no need of auditing until your turnover reaches Rs 40 lakhs (4 million).
Limited Liability Partnership (LLP) taxation model
The name might be Limited Liability Partnership, but when it comes to taxation, LLP will also be considered as a partnership firm. The income of the company is taxable at 30%.
Sales Tax / VAT
Under this criterion, an LLP is also treated as a corporate body and all the rules are same as of the corporate bodies.
I hope this article was useful. Let me know if you have any other query to ask.