Limited Liability Partnerships: An Upcoming Avenue


With the Limited Liability Act being notified in India with effect from 31 March 2009, Limited Liability Partnership will now be possible in India too. A perfect blend of features of a partnership and company, LLP is a body corporate with limited liability of partners the liability is usually limited to the extent of capital contributed by them. With US adopting LLPs as early as in 1996 and UK IN 2001, this has certainly been a welcome step as far as the Indian entrepreneurs are concerned.

An LLP is a separate legal entity having perpetual succession, liable to the full extent of its assets, wherein the liability of the partners is limited to their agreed contribution, however in case of fraud the concept of limited liability would not apply. Further more no partner is liable for the unauthorized actions of another partner. The concept of holding out is applicable to an LLP..Sole proprietor LLPs are not allowed by the Limited Liability Act.

The legislators have cleverly retained the beneficial features of a partnership and a company and have removed the maladies making LLC a better option than a partnership or a company.

In case of a partnership the partners have unlimited liability which is not the case in an LLP with only the exception of fraudulency. In a partnership there are maximum 20 partners, but there is no such limitation in case of an LLP. Most importantly in an LLP a partner is only an agent of the LLP and not of the partners as in the case of partnership. The legislators have retained the concept of holding out, having made it applicable to the LLP. The act also introduces the concept of designated partners (at least two) who are to look after all statutory compliances.

Conversion of present partnership or company into LLP is possible after satisfying formalities with registrar. However, listed public companies can’t be converted into LLP. Company can be converted into LLP only after satisfying any charge on the assets of the company. However, the said rule does not apply for the Partnership conversion. The main condition of the conversion is that the same partners or members of the converting entity will remain as partners in the resulting entity. Once the conversion into LLP is finished, it cannot be re-converted into its original entity.

Thus the concept is surely said to bring in a revolution in the business world with all the investors looking forward to enter into partnerships or for those who were interested in incorporating a private company, the concept of LLP has surely come across as more beneficial. Several private companies have been lying defunct because of the tedious procedure to be followed for winding up; they are still annually required to submit all necessary documents. With the introduction of LLPs people will surely opt for LLPs since it is easier to form and to close. However certain core issues like amendments in different acts so as to have partnership with different professionals (CA Regulation Act and Bar Council Act needs to be amended accordingly) ,attracting foreign Investment in LLP ,Whether the minor can be taken as partner in LLP or not Are to be considered. Compulsory insurance etc needs to be immediately addressed to make this legislature truly functional.

Akriti Chaubey

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