WHAT IS LLP ?
A limited liability partnership (LLP) is a legal business structure that came into being by the passing of the LLP Act, 2008 and the notification of the LLP Rules, 2009. It has the features of both partnership and corporation. The partners have limited liability in the company which means that personal assets of the partners are not used for paying off the debts of the company.
This form of partnership is particularly suited to accountants, solicitors, architects, consultants, surveyors and other fields of expertise where as partnership is preferred to a limited company.
The partnership is incorporated at Companies House, and can only be used by profit-making businesses. To incorporate an LLP, a minimum of 2 persons are required. However, there is no limit on the maximum number of partners in an LLP. The following persons can be partners in an LLP:-
- Limited Liability Partnerships
- Foreign Limited Liability Partnerships
- Foreign Companies
BENEFITS OF CHOOSING LIMITED LIABILITY PARTNERSHIP OVER TRADITIONAL PARTNERSHIP
A Limited Liability Partnership is better than Partnership firm because of the following benefits :-
- EASY TO FORM – The process of forming a LLP is very easy as compared to a partnership firm. 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.
- LIABILITY – The partners of the LLP have limited liability which means partners are not liable to pay the debts of the company from their personal assets. No partner is responsible for any other partner misbehaves or misconduct. Whereas in case of a partnership firm the liability of the partners is unlimited.
- NO LIMIT ON NUMBER OF PARTNERS – There is no limit on the maximum number of partners in case of an LLP whereas the maximum number of partners is limited to 20 in case of a partnership firm.
- ABILITY TO PURCHASE PROPERTY – An LLP can purchase and own property in its own name since it has a separate entity from its owners. But in case of traditional partnership firm, property must be purchased in the name of individual partners.
- FLEXIBILITY – The internal structure of an LLP is flexible and can be drafted as per the mutual understanding and requirements of the partners as compared to the structure of traditional partnership firm.
Thus, in a nutshell Both types of partnerships, whether an LLP or a traditional partnership, require a minimum of two partners. Both of them have certain limitations when compared to a corporation.
Still, having an LLP is safer than a traditional partnership when it comes to interacting with outsiders like investors and vendors.