LLP, a legal form available world-wide is now introduced in India and is governed by the Limited Liability Partnership Act

2008, with effect from April 1, 2009. link (pdf) . LLP combines the advantages of ease of running a Partnership and separate legal entity status and limited liability aspect of a Company. Here are some of the main features of a LLP

LLP is a separate legal entity separate from its partners, can own assets in its name, sue and be sued.

Unlike corporate shareholders, the partners have the right to manage the business directly One partner is not responsible or liable for another partners misconduct or negligence. Minimum of 2 partners and no maximum. Should be for profit business. Perpetual succession. The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided in the law.

Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud.

LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs.

A LLP is indeed advantageous because of comparatively lower cost of formation, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public. The process for incorporating a LLP is pretty simple. The flow chart here depicts it clearly. The Registrar of Companies (ROC) is the authority having jurisdiction over the incorporation. The steps required are:

Decide on the Partners and the Designated Partners Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate. Decide on the name of the LLP and check whether it is available. Draft the LLP agreement File the LLP Agreement, incorporation documents and obtain the Certificate of Incorporation.

In order to help you decide on which legal form to choose, heres a feature comparison between the LLP, Partnership firm and a Company:

Features

Company

Partnership firm

LLP

Registration

Compulsory registration required with the ROC. Certificate of Incorporation is conclusive evidence.

Not compulsory. Unregistered Partnership Firm will not have the ability to sue.

Compulsory registration required with the ROC

Name

Name of a public company to end with the word limited and a private company

No guidelines.

Name to end with LLP Limited Liability

with the words private limited

Partnership

Capital contribution

Private company should have a minimum paid up capital of Rs. 1 lakh and Rs.5 lakhs for a public company

Not specified

Not specified

Legal entity status

Is a separate legal entity

Not a separate legal entity

Is a separate legal entity

Liability

Limited to the extent of unpaid capital.

Unlimited, can extend to the personal assets of the partners

Limited to the extent of the contribution to the LLP.

No. of shareholders / Partners

Minimum of 2. In a private company, maximum of 50 shareholders

2- 20 partners

Minimum of 2. No maximum.

Foreign Nationals as shareholder / Partner

Foreign nationals can be shareholders.

Foreign nationals cannot form partnership firm.

Foreign nationals can be partners.

Taxability

The income is taxed at 30% + surcharge+cess

The income is taxed at 30% + surcharge+cess

Not yet notified.

Meetings

Quarterly Board of Directors meeting, annual shareholding meeting is

Not required

Not required.

mandatory

Annual Return

Annual Accounts and Annual Return to be filed with ROC

No returns to be filed with the Registrar of Firms

Annual statement of accounts and solvency & Annual Return has to be filed with ROC

Audit

Compulsory, irrespective of share capital and turnover

Compulsory

Required, if the contribution is above Rs.25 lakhs or if annual turnover is above Rs. 40 lakhs.

How do the

High creditworthiness, due to stringent

Creditworthiness depends on goodwill and credit

Perception is higher compared to

bankers view

compliances and disclosures required

worthiness of the partners

that of a partnership but lesser than a company.

Dissolution

Very procedural. Voluntary or by Order of National Company Law Tribunal

By agreement of the partners, insolvency or by Court Order

Less procedural compared to company. Voluntary or by Order of National Company Law Tribunal

Whistle blowing

No such provision

No such provision

Protection provided to employees and partners who provide useful information during the investigation process.