What is the meaning of LLP?

Publishing Date: 25 Sep, 2024

Introduction 

LLP registration in India is outpacing the company registration. Many professionals like engineering consultants, accounting professionals, legal advisors, digital marketing firms & other start-ups etc. have the risk of unlimited liability in case anything went wrong in the business. For example, clients sue an engineering firm due to non-performance of work on time and liability of the engineering firm can be very high. Limited Liability Partnership Act allows businesses to register as LLP where their liability is limited. This business structure is known as LLP or Limited Liability Partnership. New start-ups are encouraged to start business by registering them as LLPs. In this blog, you will learn about the LLP Act in detail. 

What is the meaning of LLP? 

A LLP is a legal business structure and it stands for Limited Liability Partnership. This structure includes the concept of limited liability as the name suggests. Once a business or start-up is registered under LLP, it becomes an artificial person which can enter into agreement with the third party in its own name. LLP once registered becomes a separate legal entity. The partner’s liability is limited to their contribution to the business, personal wealth of the partners of LLP will not be liable to pay any dues of the LLP . The personal assets of LLP are safe from business debts or legal claims. Limited Liability Partnership is different from traditional partnerships where liability of partners is unlimited. 

The ministry of law and justice introduced the concept of LLPs in the year 2007. They introduced the Limited Liability Partnership Act which was later passed by the parliament on 12 December 2008. It was approved by the President on 07 January 2009. Since the law was passed by the parliament in 2008 that was the reason this act was named as the Limited Liability Partnership Act, 2008. 

In LLP, liability is limited to partners' contribution to the business. They can own assets, enter into contracts, and be sued in its own name, similar to a company. LLP has less restriction in terms of changing the capital contribution as compared to companies because of which it is gaining more popularity in India. For example, a dividend paid by a company from post tax profits is again taxed in the hands of shareholders. To start an LLP, a minimum of two partners are required and one of them must be a resident of India. 

Every LLP shall have at least 2 designated partners and if at any time for any reason the number of designated partners is reduced from two then they can't run their LLP for more than 6 months. If there is only a single partner who runs the LLP for more than 6 months then that single partner will be only liable for the upcoming obligations. Every designated partner of the LLP shall obtain a DPIN (Designated Partner Identification Number) for running the LLP successfully. 

Characteristics of a LLP 

There are certain features or characteristics of a LLP. They are as follow: 

• Perpetual Successions: LLP is an ongoing entity. It can continue its operations irrespective of change in partner or death of a partner, retirement or insolvency of a partner. 

• Separate Legal Entity: An LLP is a separate legal entity. In this, the partner’s liability is limited which means their assets will not be used to pay LLPs debts. 

• Mutual Agency: It is a mutual agency that means partners are independent to give their opinion. But it does not mean that any partner can bind another partner by his own act. 

• LLP Agreement: Every LLP has its own LLP Agreement which includes the rights and duties of the partners. This agreement helps to avoid disputes in future regarding any decision. 

• Minimum & Maximum Number of Partners: Atlast two designated partners are required to start a LLP out of which one must be a resident of India. However, there is no maximum number of partners in LLP. 

Benefits of a LLP

LLP Company structure recently gained a lot of popularity. It is because, LLP offers certain benefits which makes its operations easy. These benefits are listed below: 

• Easy to Form: The formation of an LLP required less paper work compared to others. Also it allows a certain time period to fulfill the compliances. It is easy to form a LLP company by gathering two designated partners.

• No Minimum Capital Required: To form a LLP company, there is no minimum limit of capital required. An LLP can be started at a low capital contribution.

1. Operational Flexibility: A Limited Liability Partnership Company is easy to operate. A LLP requires a LLP Agreement to start its operations. This agreement includes the rights and duties of the partner which reduces the chances of conflicts. 

• FDI Allowed: LLP allows Foreign Direct Investment which increases the chances of foreign investors to invest in their business. Also a foreign partner can bring an FDI.

Conclusion

With the benefits of limited liability, Limited Liability Partnership (LLP) is a modern business structure that combines the flexibility of a partnership & benefits of company. The best thing about this is it works continuously even after death, retirement, and insolvency of a partner. Minimum 2 partners are required to start a LLP and there is no upper limit for partners. For the small to medium enterprises and professional service firms LLP is more suitable and ideal for them. The annual compliance of LLP is less as compared to a pvt ltd company. Nowadays, LLP gains popularity due to their low compliance requirements and more flexibility to move funds as compared to private limited companies. If business is looking to balance flexibility with limited liability is an excellent choice.

Frequently Asked Questions (FAQs)

1. Who controls an LLP? 

An LLP is controlled and managed by its designated partners. 

2. Is GST required for LLP?

No, GST is not mandatory for LLP but GST registration is required when LLP turnover exceeds a certain threshold or LLP has sales in different states in India. 

3. What is the Minimum capital for LLP?

There is no minimum capital required for LLP. 

4. Is it mandatory to file ITR for LLP? 

Yes, LLP can file their ITR using the form-5.