Limited Liability Partnership
Limited Liability Partnership (LLP) is an alternative form of business organization. It not only provides the benefits of limited liability but also allows its members the flexibility of organizing their internal affairs as a partnership based on a mutually arrived agreement.
Liability of the partners is not as limited as that of shareholder in a company. Further there could be unlimited liability on partners, in case that of certain other laws.
In an increasingly litigious market environment, a need for a new corporate form providing an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other, was felt, in order to enable professional expertise and entrepreneurial initiative to combine, organise and operate in flexible, innovative and efficient manner.
The Limited Liability Partnership Act, 2008 (the LLP Act), except for certain sections, became operative from 31st March, 2009. The Rules made under the LLP Act have been notified on 1st April, 2009. First LLP was registered on 2-4-2009.
Sections 55 to 58 pertaining to conversion of a firm or a company to LLP and Rules pertaining to such conversion became operative from 31st May, 2009. Section 51 and sections 63 to 65 pertaining to winding up of an LLP have become operative from 10th July, 2012.
Liability of the partners is not as limited as that of shareholder in a company. Further there could be unlimited liability on partners, in case that of certain other laws.
In an increasingly litigious market environment, a need for a new corporate form providing an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other, was felt, in order to enable professional expertise and entrepreneurial initiative to combine, organise and operate in flexible, innovative and efficient manner.
The Limited Liability Partnership Act, 2008 (the LLP Act), except for certain sections, became operative from 31st March, 2009. The Rules made under the LLP Act have been notified on 1st April, 2009. First LLP was registered on 2-4-2009.
Sections 55 to 58 pertaining to conversion of a firm or a company to LLP and Rules pertaining to such conversion became operative from 31st May, 2009. Section 51 and sections 63 to 65 pertaining to winding up of an LLP have become operative from 10th July, 2012.
Salient Features
- An LLP is a hybrid form of organisation having features of a partnership firm under the Partnership Act, 1932 and a company under the Companies Act, 1956/2013.
- The LLP’s are administered by the Registrar of Companies.
- Liability of partners is limited except where an Act is carried out by the LLP with intent to defraud creditors or any other person or for any fraudulent purpose.
- LLP is a body corporate and a legal entity separate from its partners. It has perpetual succession. Thus, an LLP is capable, in its own name, of acquiring, owning, holding, disposing of property, whether movable, immovable, tangible or intangible. It can sue and can be sued, and is capable of doing and suffering other acts as a body corporate may do or suffer.
- There is no limit on maximum number of partners.
- Rights and duties of partners of an LLP and mutual rights and duties between an LLP and its partners are governed by the LLP Agreement between the partners or between the LLP and its partners.
- Partners are agents of LLP but not the agents of other partners.
- An individual or body corporate may become a partner in LLP.
- LLP must have at least two individuals as Designated Partners. At least one of the Designated Partners must be resident in India. A body corporate partner of the LLP may nominate an individual as a Designated Partner.
- LLP must maintain proper books of account. The accounts may be on cash basis or accrual basis.
- Accounts of LLP are required to be audited. However, an LLP whose turnover in any financial year does not exceed ₹40 lakhs or the contribution (capital) does not exceed ₹25 lakhs is exempt from the provisions of audit.
- LLP is required to file Statement of Account and Solvency and Annual Return in the prescribed form every year.
- LLP is required to file information about the LLP Agreement, changes in the LLP Agreement and changes in particulars of designated partners and partners.
- Right of a partner to share profits and losses is transferable.
- A person representing himself (holding out) to be a partner or permitting himself to be represented as a partner of an LLP is liable to person giving credit the LLP relying on such representation.
- Concept of ‘Whistle Blower’ is incorporated in the LLP Act.
- A partnership under the Partnership Act, 1932 may be converted into an LLP. A private company or an unlisted public company may also be converted into an LLP provided there is no ‘security interest’ subsisting on the date of application for conversion.
- Provisions made in the LLP Act for investigation into the affairs of an LLP by inspector to be appointed by the Central Government.
- Provisions made in the LLP Act for Compromise, Arrangement or Reconstruction of an LLP and amalgamation of LLPs. For this purpose, application to be made to National Company Law Tribunal to be constituted under section 10FB of the Companies Act, 1956/ 408 of the Companies Act, 2013. Pending the constitution of such Tribunal under both Acts, application to be made to the High Court.
- All filings under the LLP Act to be done electronically. Similarly, the Registrar may furnish information or provide copies and extracts certifying the same by affixing digital signature.
- Heavy penalties have been provided in case of non-compliance of provisions of the LLP Act.
- For the purposes of taxation, an Indian LLP is treated on par with a partnership firm under the Partnership Act, 1932.
Aspects of Business Accounting And Bookkeeping
Every business is unique, and so are its accounting and book keeping requirements and mandates. The nature of the business warrants some or all of these processes:
Setting up of Internal Accounting System
The first step in establishing an effective accounting and reporting system is defining roles and responsibilities. This is followed by delegation of powers and developing reporting standards. These stages lay the foundations for a strong internal team and a robust accounting system.
Data Entry and Book Keeping
This involves preparing and maintaining day-to-day accounts. An error free accounting and financial system paves the way for all the subsequent stages defined below:
- Preparation of Financial Statements
- Budgeting and Forecasting
- MIS and Internal Reporting
- Financial Analysis
- Vendor Reconciliation
- Tax Planning and Returns
- Regulatory Compliances
- Fixed Assets Management Systems/ Asset Accounting Management
- Liaison with External Agencies – Financial Institutions/Banks/ Tax Authorities