LIMITED LIABILITY PARTNERSHIP:

For a long time, a need had been felt by the business community and the people in governance to provide for a business format that would combine the flexibility of a traditional partnership and the advantages of limited liability of a company, at a low compliance cost. As a matter of fact, business does not always run on set lines. Situations may arise, for which codified laws may not provide an answer. It is under these circumstances, it would appear, legislation regarding limited liability partnership is being thought of.

With the growth of Indian economy, the role played by entrepreneurs as well as technical and professional personnel has been universally acknowledged. It is opportune that entrepreneurship, knowledge and risk capital combine to provide an added impetus to India's economic growth. In this background, a need has been felt for a new corporate form that would provide an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based gover-nance structure of the limited liability company on the other, in order to enable professional expertise and entrepreneurial initiative to combine, organise and operate in a flexible, innovative and efficient manner.

Alternate vehicle:

The limited liability partnership (LLP) is viewed as an alternate corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organising their internal managerial structure as a partnership based on mutual agreement as is the case in a traditional partnership. Owing to flexibility in its structure and operation, this format would be useful for small and medium enterprises in general, and for the enterprises in services sector in particular, providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their specific requirements. For the same reason, the limited liability partnership (LLP) would also be a suitable vehicle for small enterprises and for investment by venture capital.

Internationally, limited liability partnerships are the preferred vehicle of business, particularly, for service industry and for activities involving professionals. Foreign professional bodies can be a partner jointly with the Indian partner as designated partners and form a limited liability partnership for its practice or business as the case may be in India.

Salient features:

Inter alia, the important features of the Limited Liability Partnership Act, 2008, are as follows:

1. The Partnership Act, 1932 shall not be applicable to limited liability partnerships. The orientation is more towards the Companies Act, 1956.
2. Basically, the limited liability partnership is conceived to be a body corporate and a legal entity distinct and separate from its partners/promoters as in the case of a limited liability company. At the same time, as in the case of a traditional partnership, any two or more persons associated for carrying on a lawful business with a view to derive profit, may form a limited liability partnership. As in the case of a body corporate, they have to subscribe their names to an incorporation document and file the same with the Registrar, duly appointed for the purpose. The limited liability partnership will have a perpetual succession as in the case of a limited company.
3. The mutual rights and duties of partners of a limited liability partnership inter se and those of the limited liability partnership and its partners shall be governed by an agreement between partners or between the limited liability partnership and the partners subject to the regulatory provisions in the Act to that effect. However, the law provides flexibility to devise the agreement as per their choice. Only in the absence of any such agreement, the mutual rights and duties shall be governed by the regulatory provisions contained in the legislation.
4. Unlike in the case of a traditional partnership, the limited liability partnership is conceived to be a separate legal entity, with a liability which is coextensive (to the full extent of) with its assets, the liability of the partners being limited to their agreed contribution in the limited liability partnership which may be of, on the one hand either tangible or intangible in nature or on the other hand, both tangible and intangible in nature. No partner would be liable on account of the independent or unauthorised actions of other partners or their misconduct unlike in the case of a traditional partnership. The liabilities of the limited liability partnership and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the limited liability partnership like the one in the cases of both limited company and traditional partnership.
5. Every limited liability partnership shall have at least two partners and shall also have at least two individuals as designated partners, of whom at least one shall be resident in India. The duties and obligations of designated partners are as provided in detail in the statute.
6. The limited liability partnership shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every limited liability partnership with the Registrar every year. The accounts of limited liability partnership shall also be audited, subject to any class of limited liability partnerships being exempted from this requirement by the Central Government.
7. The Government of India is vested with powers to investigate into the affairs of a limited liability partnership, if required, by appointment of Inspectors as competent authorities for the purpose.
8. Any compromise or arrangement including merger and amalgamation of limited liability partnerships has to be in accordance with the regulatory provisions in the Limited Liability Partnership Act, 2008.
9. A firm, a private company or an unlisted public company would be allowed to be converted into limited liability partnership in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the proposed Bill. On and from the date of registration specified in the certificate of registration, all tangible (both movable and immovable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, will be transferred to and will vest in the limited liability partnership without further assurance, act or deed and the firm or the company, will be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.
10. The winding up of the limited liability partnership may be either voluntary or by the Tribunal to be duly established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court.

To sum up, a limited liability partnership is a newly perceived entity that combines all the good traits of a limited company and a partnership. In the current economic scenario of the country, this highly flexible business vehicle will find acceptance. It is going to revolutionise the field in the sense that it will replace the company and the traditional partnership, as a new business form.

Thus the limited liability partnership (LLP) becomes a new corporate form that enables professional expertise and entrepreneurial initiative to combine, organise and operate in an innovative and efficient manner.