Implications of limited liability partnership under the Indian Partnership Act.

Question: Implications of limited liability partnership under the Indian Partnership Act. [HJS 2019]

Find the answer to the mains question of the Law of Partnership only on Legal Bites. [Implications of limited liability partnership under the Indian Partnership Act.]

Answer

Under the Indian Partnership Act, 1932, the concept of a limited liability partnership (LLP) was introduced in 2008. An LLP combines the features of a traditional partnership and a limited liability company. Here are the key implications of an LLP under the Indian Partnership Act:

Separate Legal Entity: An LLP is a separate legal entity distinct from its partners. It can own property, enter into contracts, sue, and be sued in its own name. The liability of the partners is limited to their agreed contributions, protecting them from personal liability for the LLP's debts and obligations.

Limited Liability: The partners of an LLP have limited liability, meaning their personal assets are not at risk in case of any losses or liabilities incurred by the LLP. The liability of each partner is limited to the extent of their agreed contribution to the LLP unless fraud or wrongful conduct is involved.

Perpetual Succession: An LLP has perpetual succession, which means it continues to exist even if there are changes in the partners or management. The death, retirement, or insolvency of a partner does not affect the LLP's existence, and it can be continued with the remaining partners or new partners.

Flexible Management Structure: An LLP allows for flexibility in its management structure. The partners have the freedom to manage the LLP directly, or they can appoint designated partners to manage its affairs. At least two designated partners are required, and they have certain statutory obligations and responsibilities.

Taxation: An LLP is taxed as a partnership, with partners being individually taxed on their share of the LLP's profits. LLPs are not subject to the corporate tax rate applicable to companies. The LLP itself is not taxed, but it is required to file an annual return and comply with other tax-related obligations.

Statutory Compliance: LLPs are subject to certain statutory compliance requirements. These include maintaining proper books of accounts, filing annual returns, and getting the accounts audited if the LLP meets certain prescribed thresholds.

Partner Liability: While partners have limited liability, they can still be personally liable for their own wrongful acts or negligence. They can also be held liable if they have given personal guarantees or indemnities on behalf of the LLP or have committed any fraudulent or wrongful acts.

Legal Formalities: LLPs must be registered with the Registrar of Companies (RoC) under the Ministry of Corporate Affairs. The registration process involves filing the necessary documents, such as the LLP agreement, and paying the prescribed fees.

Professional Services: LLPs are particularly popular among professionals, such as lawyers, accountants, architects, and consultants, who want to combine the benefits of limited liability with the flexibility of a partnership.