Limited liability partnership also referred as LLP’s is governed under the limited liability partnership Act of 2008. However in India LLP was introduced in April 2009 to provide partnerships with the limited liability previously only available to companies.
It is a combination of both partnership and corporation since it has features of both these forms. In this form of partnership the partners have limited liability in the company which means that the personal assets of the partners are not used for paying off the debts of the company.
Hence, in the event of losses or debt the company will be liable to bear it & the individual members shall not be liable for such losses or debts.
FEATURES OF LLP –
- Liability of Partners– The liability of Partners is limited to their contribution of share in the
- Separate Legal Entity – Unlike regular partnership firms, limited liability partnerships are treated as separate legal entities. It can enter into a contract and acquire property in its name.
- Limit of Partners – A minimum number of 2 partners are required to form a LLP & there is no limit on maximum number of partners.
- Audit of Accounts – LLP shall maintain annual accounts where audit of the accounts is required only if the contribution exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh.
ADVANTAGES OF LLP –
The following are the main advantages of a limited liability partnership :
- Limited liability protects the member’s personal assets from the liabilities of the business.
- An LLP allows its members to join and depart with no tax burden.The members of an LLP are taxed directly as if they had earned their share of the LLP’s profits themselves.
- Forming an LLP is an easy process. It is not complicated and time consuming like the process of a company. The minimum amount of fees for incorporating an LLP is Rs 500 and the maximum amount which can be spent is Rs 5600.
- The life of the Limited Liability Partnership is not affected by death, retirement or insolvency of the partner.
DISADVANTAGES OF LLP –
- If a partner wants to transfer his/her ownership rights then he/she has to obtain the consent of all the partners hence it is a difficult process.
- Public disclosure is the main disadvantage of an LLP. Financial accounts have to be submitted to Companies House for the public record.
- Due to various tax benefits and provisions many states restricts the formation of LLP in their states.
Thus, in simple words Limited Liability Partnership is a partnership form in which some or all partners have limited liabilities & is beneficial for both medium as well as small sized firms.