Wednesday, July 8

Limited Liability Partnership (LLP)

The Limited Liability Partnership (LLP) Bill 2008 was passed by the Parliament on December 12, 2008 and legislated vide notification of the Act in the Gazette of India on January 7, 2009.
Subsequently ‘The Limited Liability Partnership Rules, 2009’ were notified by the Central Government on April 01, 2009.

Key features of the LLP Act are as below:
– An LLP Is a separate legal entity under the Limited Liability Partnership Act, 2008 and can sue and be sued.
– An LLP has a perpetual succession and partners may come and go
- The LLP Agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.
– Foreign Nationals can be a Partner in an LLP.
– The liability of partners is limited to the extent of their contribution, except in case of intentional fraud or wrongful act of omission or commission by the partner.

In essence LLP combines the advantages of both the Company and Partnership into a single form of organization. While one partner is not responsible or liable for another partner’s misconduct or negligence, in an LLP, all partners have a form of limited liability for each individual’s protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly.

A “designated partner” is responsible for all acts, matters and things to be done by the LLP including compliances, report filing etc. and shall be liable for all penalties imposed on the LLP for violation of provisions of law.

- Minimum 2 designated partners (individuals, with at least 1 being resident in India) with the option of having Corporate as partners.
- An existing Firm, private company and unlisted public company can be formed into an LLP.
- A partner may give loan to the LLP and be treated as a creditor in respect of such loan
- Every partner may take part in the management of the LLP
- In the absence of any agreement, no partner shall be entitled to remuneration for acting in the business/management of the LLP
- In the absence of any agreement, no person may be introduced as a partner without the consent of all other partners.
- No majority of partners can expel any partner unless the power to do so has been conferred by express agreement between the partners

Internationally, LLPs are allowed to act as auditors. However, it is yet to be seen if they are allowed in India as the Chartered Accountants Act and the Institute of Chartered Accountants of India (ICAI) explicitly mentions that only individuals and firms are allowed to act as auditors. Since companies cannot act as auditors and companies can become members of LLPs, the ICAI will have to allow LLPs to function as auditors.

Taxation: The Finance Bill 2009 provided that LLPs will treated at par with Partnership firms in respect of taxation. LLP will be taxed at entity level and income of partners of LLP will be exempt from tax.


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