Introduction To LLP

Pre-2009, for the purpose of starting a business, people had to either register the business as a Partnership Firm or a Private Limited Company. Partnership firms were known for the flexibility it provided to start a company within a day. There were comparatively less compliances regarding audit and taxation than a Private Limited Company. On the other side of the coin, Private Limited Company had a number of compliances but it provided a professional structure to the business. Investors often preferred it over Partnership firms.

The advent of Limited Liability Partnership combined the benefits of Private Limited Company and flexibility of a Partnership. The Limited Liability Partnership Act, 2008 was introduced, which subsequently came into force in 2009. LLP is defined as "a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners."

In comparatively simpler terms, it can be understood as an amalgamation of the advantages of both Partnership firm and a Private Limited Company.

In the contemporary times, LLPs have been on a rise upon the global scene as well. It has been viewed as an alternative corporate vehicle, fuelling flexible internal organisations. LLPs are brought in nations like the United States, United Kingdom and Singapore as the small and medium enterprises look for risk-free business vehicles.

The Ministry of Corporate Affairs has from time to time consistently reiterated the pivotal role played by the entrepreneurs in launching this very concept in India. The data of the Press Information Bureau of India(PIB) states, "43,050 LLPs were registered during FY 2020-21 as compared to 42,187 in the previous year." This eloquently showcases the rise of LLPs in the country.

In this designated project on "Limited Liability Partnership", the following contents would be discussed:

• Salient Features of LLP
• Formation of LLP
• Merits and Demerits of LLP
• Differences between LLP and Partnership
• Differences between LLP and Company
• LLP across the globe

Salient Features of LLP

Under "Section 3(1) of Limited Liability Partnership Act, 2008[1], a LLP comes under the concept of Corporate Body". It is a corporate entity registered under LLP office. Unlike the Company which have a maximum limit for partners upto 100, LLPs can have minimum 2 partners and there is no maximum limit.

LLP is also defined as a "Separate Legal Entity" under the same section. In Salomon vs. Salomon and Co. Ltd.[2], separate legal entity was defined as "an entity that has its own legal rights and obligations separate from those running the business operations."

The "Section 3(2) of The Limited Liability Partnership Act, 2008" states that "a LLP has a perpetual succession." It is one of the important features of LLP. A LLP can only be dissolved through a legal process. "The assets and liabilities of a LLP would belong to it irrespective of death, insolvency, retirement or even insanity of one or more partners." This concept is in contrast to the traditional standpoint where even with the death of either of the parties would cause the agreement to dissolve.

LLPs are neither formed for charitable purposes nor are they not-for-profit in nature. They should be formed in accordance to law in order to generate profits. As per "Section 26 of Limited Liability Partnership Act, 2008, every partner is regarded as an agent to the LLP." A relationship of principal and agent is shared among them. In essence, the liability of a partner is limited to the amount as agreed in the LLP Agreement.

A "common seal" is typically defined "as an official seal that represents an organisation during execution of contracts." It is "not mandatory" for an LLP to have a common seal. However, as per "Section 14(c) of Limited Liability Partnership Act, 2008[3], a common seal can be created under an authorised official of the organisation."

Formation of LLP

The incorporation process of LLP is an online one and the documents are submitted, by a website of the Government, to the Registrar of companies itself. With the help of this process, a LLP isolates itself from the risk of paperwork challenges and serves as a time-saving option. Therefore, contemporary techniques are being readily accepted and utilised. Registrars would be permitted to refuse registration on the grounds that the LLP lacks profit-driven objectives.

For registering the incorporation of a LLP, at least two partners must be present. However, there is no upper limit regarding the maximum number of partners. They are required to subscribe a paper called the "Incorporation document" to their names as well. This document is synchronous to the "association memorandum" as accordance with Company Act, 1956. A Digital Signature Certificate(DSC) of the designated partners shall be obtained as well.

Furthermore, the partners are required to obtain a "Designated Partner Identification Number". This is similar to the DIN that is to be obtained by the directors of the businesses. The procedures establishing a LLP are in line with that of the Business Act in order to register the company. Thereafter, a form of "LLP -RUN" has to be filed in order to propose a name for the LLP. Subsequently, a FiLLip(Form for Incorporation of Limited Liability Partnership) has to be filled. Lastly, under the governance of the Limited Liability Partnership Act, 2008, an "LLP Agreement" has to be filed in the "MCA Portal" within 30 days of the incorporation date. As per "Section 2(23)(i) of the Revenue Tax Act, 1961[4], a separate taxable entity shall be considered as LLP."

Merits and Demerits of LLP

As per the Ministry of Corporate Affairs, a LLP is an organised model which operates on the basis of an agreement. It provides flexibility and doesn't impose complex legal and procedural requirements. Professional and technical expertise comprises the LLP. An initiative to tackle financial risk in an innovative, effective and efficient manner is bestowed upon a LLP.

Looking at the other side of the coin, LLPs also have certain drawbacks.

In contrast to the company where value is attached to each share, each partner in LLP doesn't have an equal voting value. The rights of the partners are prescribed in the LLP Agreement. In a LLP, in direct contrast to company, profit cannot be retained in a similar way.

Filing an income tax return and MCA annual return every year is a mandate for a LLP. In the occasion of failure in filing the same, "a penalty of Rs. 100 per day shall be levied upon the LLP", which appears to be costlier compared to the fines paid for the violations in case of company.

Differences between LLP and Partnership

Criteria	Limited Liability Partnership	Partnership
Regulating Act	The Limited Liability Partnership Act, 2008	The Partnership Act,1932
No. of Partners Required	Min.:2 partners , Max.: No upper limit	Min: 2 partners, Max: The Partnership Act, 1932 doesn't specify any upper limit but as per Section 464, Rule 10 of the Companies Miscellaneous Rules, 2014, the upper limit is fixed at 100 partners.
Compliances	It has to file annual return to the MCA.	There is no mandate upon filing returns.
Conversion	A LLP cannot be converted into a Partnership but can be converted into Private Limited Company.	The Partnership Firm can be either converted into LLP or Private Limited Company.
Separate Legal Entity	It is considered as a separate legal entity.	It is not considered as a separate legal entity.
Governing Document	LLP Agreement	Partnership Deed

Differences between LLP and Private Limited Company

Criteria	Limited Liability Partnership	Private Limited Company
Regulating Act	The Limited Liability Partnership Ac, 2008	The Companies Act, 2013
No. of partners/members	Min.:2 partners, Max.: No upper limit	Min.: 2 members, Max.: 100 members
Compliances	Less legal compliances to follow.	Comparatively high legal compliances to follow.
Tax Structure	No dividend distribution tax has to be paid by the company.	Comparatively complicated tax structure to abide by and has to pay the dividend distribution tax.
Investment	As of now, there is no limit upon the investment in LLP by a third party.	Private Limited Company have to go through Section 73 of The Companies Act,2013 and any other rules made thereof.
Annual Statutory Meetings	There is no mandate to conduct annual statutory meetings.	Periodic conduct of general and board meetings is required.

LLP Across the Globe

Currently, two basic models of LLP are followed across the globe. They are furnished as follows:

• Texas LLP Model: As per this structure of LLP, the partners' vicarious liability is limited to the wrongful acts of the partnership and not for liability arising in the ordinary course of business.
• Delaware LLP Model: As per this structure of LLP, all obligations of the LLP are solely the liability of the LLP and the partners are not personally liable for any action arising in tort, contract, etc.

The Limited Liability Partnership Act, 2008 draws more inspiration from the "Delaware model" than the "Texas Model". The Indian LLP has managed to find a middle path between a Partnership firm and Private Company Limited. These legislative enactments have surely been a boon for Indian businesses.

In the United States, the LLP concept came into being in the late 90s. Each of the 50 U.S. States has unique laws regarding LLP. However, if we look from a broader perspective, "Section 306(c) of the Revised Uniform Partnership Act(1997)(RUPA) is followed across the country." It grants a similar limited liability to LLPs as compared to a corporation. Furthermore, some states hold the partners personally liable in a LLP.

The U.K. draws great inspiration from the Texas Model of LLP and was introduced in 2000s. The status of a separate legal entity is bestowed upon the LLP. It also has perpetual legal existence independent of its partners. "The Limited Liability Partnerships Act, 2000" and "The Limited Liability Partnerships Act(Northern Ireland), 2002" are applicable in Great Britain and Northern Ireland respectively.

Singapore set forth the concept of LLP in 2005. Their model was inspired by both the U.S. and U.K. models. As seen in the United Kingdom, Singapore also regards the status of body corporate upon a LLP. The Singapore Limited Liability Partnership Act, 2005 governs the LLP model in Singapore.

Conclusion
With due mention to the above text, a thorough analysis of the concept of Limited Liability Partnership has been construed. To start with, the project highlights a basic introduction to LLP and quotes certain data released by the Press Information Bureau in respect with LLPs in India. In connection to it, the Ministry of Corporate Affairs has underscored the due importance of LLP. Furthermore, the salient features of LLP, along with certain merits and demerits of the same have been highlighted.

In continuation to the same, the formation of LLP in India has been delved into as well. Moreover, a comparison of LLP with Partnership and Private Limited Company has been made on the grounds of regulating act, compliances, conversions, members/partners, separate legal entity and so on and so forth. Last but by no means least, an overview of the global scene of LLP has been talked in brief.

Having LLP as an alternate vehicle for trade and industry could elevate the service sector and help pacify the global financial crisis.

References
For the purpose of research work, secondary resources were readily referred. The resources are furnished below:

• Nivedita Sen & Neha Mathen (2011). 'Decoding The New Business Vehicle of India: The Limited Liability Partnership', 4 NUJS Law Review
• Sharma, J. K. (2021). 'Limited liability partnership as better alternative to incorporation.' Jus Corpus Law Journal, 1(4), 440-447.
• Ray, Deep and Ray, Deep (2012). 'The Emergence of Limited Liability Partnerships.' Available at: SSRN: https://ssrn.com/abstract=2117240 or http://dx.doi.org/10.2139/ssrn.2117240
• '1,67,080 companies registered in FY 2021-22 as compared to 1,55,377 in FY 2020-21.' (n.d.). https://pib.gov.in/PressReleasePage.aspx?PRID=1847127
• Mahawar, S. (2022, February 27). 'All you need to know about a Limited Liability Partnership' - iPleaders. https://blog.ipleaders.in/all-you-need-know-about-limited-liability-partnership/
• Ministry of Corporate Affairs – 'Nature of Limited Liability Partnership (LLP).' (n.d.). https://www.mca.gov.in/MinistryV2/natureoflimitedliabilitypartnershipllp.html
• Legal Service India. (n.d.-b). 'Limited Liability partnership in India.' https://www.legalservicesindia.com/article/191/Limited-Liability-Partnership-in-India.html
• IndiaFilings. (2023, February 3). 'Partnership vs LLP vs Private Limited Company.' IndiaFilings - Learning Centre. https://www.indiafilings.com/learn/partnership-vs-llp-vs-private-limited-company/