In India, the LLP Act was introduced in the year 2010 to provide businesses with an alternative to Partnership Firms. The Limited Liability Partnership (LLP) Act introduces a form of business entity, which provides limited liability to the owners and at the same time relatively easy to manage.
LLP: The partners are responsible to the extent of their contributions to the LLP. They are not personally responsible to the external creditors.
Partnership: In a partnership firm, the partners are personally responsible to the creditors. That is the reason, many entrepreneurs hesitate to become a partner of a partnership firm. By incorporating an LLP, all the Partners can enjoy limited liability protection.
Number of Partners in LLP
LLPs and Partnership Firms should have a minimum of 2 partners. There is no limit to the number of Partners in LLP.
In Partnership Firm, if the number of partners at any time reduces below the mandatory minimum of 2 due to death, incapacitation or resignation of a Partner, the partnership firm would stand dissolved. On the other hand, If in LLP, if the number of Partners reduces below 2, the sole Partner can still find a new Partner to fill the position without dissolution of the LLP. When a single partner carry on the business individually than only a single partner is responsible. the sole Partner would be responsible individually for the commitment of the LLP incurred during that period.
Central Government vs State Government
LLP is a separate legal entity registered under the MCA of Central Government of India LLP can also open a bank account anywhere in India. . A LLP can shift its registered office between any of the States.
The Registrar of Firms which is controlled by the State Governments is responsible to registed thepartneship firm. Partnership firms are registered by the Registrar of Firms which is controlled by the State Governments. Hence, it’s more cumbersome to move operate across India with a Partnership Firm.
In a Partnership Firm, the death or resignation of a Partner would have serious consequences and the Partnership would have to be reconstituted.LLP is a lawful person and its subsistence does not depend on the partners. Hence, the partners of an LLP were keeping change from time to time, but it will not affect the existence, continutity or operations of the LLP.
Members can be added to a LLP either during incorporation or after incorporation with the concurrence of existing Partner. The following persons can be partners in an LLP:
- Limited Liability Partnership
- Foreign Limited Liability Partnerships
- Foreign Companies.
A HUF represented by its Karta can be a partner of an LLP. However, there is no declaration in the Act concerning the admission of HUF.
A minor cannot become a partner of a LLP. However, in a partnership firm, a minor can be admitted for the advantage of the partnership.
Within 30 days of incorporation of an LLP, the LLP Agreement should be executed and filed with the MCA. If there is no LLP agreement, then the provisions of the First Schedule to the LLP Act will administer the relationship between the partners and LLP. Even if there is a written agreement, but there is no detailed declaration about any of the matters dealt with in the first schedule, such matters shall be administered by the first schedule.
In the case of a registered or unregistered Partnership Firm, the Partnership Deed will provide for the rights and responsibilities of all Partners involved.