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PROFESSIONAL SERVICES

Government’s new Initiatives
Limited Liability Partnership (LLP)

The Indian Partnership Act of 1932 provides for a general form of partnership which over time has lost its charm because of the inherent disadvantages in it, the most important is the unlimited liability of all partners for business debts and legal consequences, regardless of their holding, as the firm is not a legal entity.

General partners are also jointly and severally liable for tortuous acts of co-partners. Each partner has the exposure of their personal assets being appropriated and liquidated to meet partnership dues.

To overcome all these shortcomings the Ministry of Company Affairs (GoI) has introduced the Limited Liability Partnership Bill, 2008, which aims to introduce the concept of LLPs in India.

WHAT IS An LLP?

A limited liability partnership (LLP) is a corporate entity that integrates the organizational flexibility of a partnership with the limited liability protection along the lines afforded to a company.

In an LLP members can freely govern their business, i.e., without the corporate governance rigours of a company and without being exposed to personal liability for other members’ acts and omissions.

ADVANTAGES OF AN LLP

  • Limited partners do not take on personal liability for the obligations of the entire partnership, but only to the extent of the money contributed to the firm by such partners.
  • The members of an LLP would have the option to have a general partner or more with unlimited liability, but it would not release the partners from legal liability arising out of their own personal acts.
  • Separate legal entity distinct from its partners. LLP can sue and be sued, acquire, own and dispose of property and have a common seal like a corporate body
  • Unlike partnerships, where the number of partners is restricted to 20, there is no set upper limit on the number of partners in an LLP which gives them the benefit to spread their firms across the globe.
  • Taxed as a partnership, has benefits of being a corporate.
  • The assets of an LLP are treated as assets of its partners and partners are taxed on capital gains arising on transfer of assets held in the LLP as their own investment. This allows partners to withdraw their money and assets at the time of exiting the LLP without disturbing the business structure.
  • Rights of a partner to share profits and losses of the LLP are transferable.
  • LLP encourages experts specializing in different fields- e.g. company law, accounting, capital markets, marketing, and so on – to come together and provide solutions to customers in a risk-free environment.
  • Helps in transacting with or representing multinationals in international transactions. The law also permits foreign limited liability partnerships to establish a place of business in India.
  • LLPs can also be wound up, either voluntarily or by the tribunal.

WHY LLPs?

LLPs appear to enable professional expertise and entrepreneurial initiative to organize and operate in a flexible, novel and efficient manner. Owing to flexibility in its arrangement and operation, it is expected that LLPs would also be a suitable vehicle for small enterprises and for investment by venture capitalists.

 
 
   
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