Limited Liability Partnership: Limited Liability Partnership Act, 2008

Admin
March 04, 2023

The Limited Liability Partnership (LLP) Act, 2008 is an Indian legislation that enables the formation of LLPs in India. An LLP is a hybrid business entity that combines the features of a partnership firm and a company. It offers the benefits of a partnership firm, such as flexibility and tax efficiency, with the added advantage of limited liability to its partners. In this article, we will discuss the provisions of the LLP Act, 2008 in detail.

Definition of LLP

The LLP Act, 2008 defines an LLP as a partnership formed and registered under the Act. An LLP is a separate legal entity from its partners, and it can sue or be sued in its own name. The liability of the partners is limited to the amount of their agreed contribution in the LLP, and they are not personally liable for the debts and obligations of the LLP.

Formation of LLP

The formation of an LLP involves the following steps:

  1. Obtaining Digital Signature Certificates (DSCs) and Designated Partner Identification Numbers (DPINs) for the proposed partners.

  2. Obtaining the name approval of the proposed LLP from the Registrar of Companies (ROC).

  3. Drafting and filing the LLP agreement with the ROC. The LLP agreement specifies the rights and duties of the partners, the profit-sharing ratio, and other terms and conditions of the LLP.

  4. Obtaining the Certificate of Incorporation from the ROC.

  5. Obtaining the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) of the LLP.

Management of LLP

An LLP is managed by its partners, who can be designated as either designated partners or ordinary partners. The designated partners are responsible for complying with the provisions of the LLP Act, 2008. At least two designated partners must be individuals, and they must have a valid Digital Signature Certificate.

The LLP Act, 2008 requires every LLP to maintain proper books of accounts, prepare an annual statement of accounts, and get the accounts audited by a Chartered Accountant if the turnover exceeds a prescribed limit.

Taxation of LLP

An LLP is taxed as a partnership firm, and it is not subject to the corporate tax rate. The income of the LLP is taxed in the hands of the partners, and the LLP is not liable to pay any tax on its income. The partners of an LLP are required to file their income tax returns, and they are taxed on their share of the profits from the LLP.

Advantages of LLP

  1. Limited Liability: The partners of an LLP have limited liability, and their personal assets are not at risk in case the LLP incurs any debts or liabilities.

  2. Tax Efficiency: An LLP is taxed as a partnership firm, and it is not subject to the corporate tax rate. This makes it a tax-efficient business structure.

  3. Flexibility: An LLP offers flexibility in terms of the management structure and the distribution of profits.

  4. Separate Legal Entity: An LLP is a separate legal entity from its partners, and it can sue or be sued in its own name.

  5. Easy Formation: The formation of an LLP is relatively simple and can be completed in a few steps.

Disadvantages of LLP

  1. Regulatory Compliance: An LLP is required to comply with various regulatory requirements, such as the maintenance of books of accounts, filing of annual returns, and getting the accounts audited.

  2. Limited Liability Protection: The limited liability protection of an LLP is not absolute, and the partners may still be held personally liable in certain situations.

  3. Perpetual Succession: An LLP has perpetual succession, which means that the LLP continues to exist even if one or more partners leave the LLP.

Conclusion

The LLP Act, 2008 provides a legal framework for the formation