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AN OVERVIEW ON LIMITED LIABILITY OF PARTNERSHIP

The Limited Liability Partnership Act, 2008 extends to the whole of India including the State of
Jammu & Kashmir and came into existence from 31st March, 2009. The organization and
operations of general partnership firms is regulated by the Indian Partnership Act, 1932. An
entity formed as a partnership firm under Indian Partnership Act, 1932 faces the major constraint
of unlimited liability of the firm extending to partners' personal assets. This act is a deterrent for
general partnership firms, particularly for firms of professionals which have not grown in size
and operations. The Limited Liability Partnership Act, 2008 has been enacted to remove this
major handicap. The basic purpose of Limited Liability Partnership Act, 2008, is to provide a
new form of organization with the twin objective of limiting the liability of the partners and at
the same time providing them absolute flexibility in the matter of running the business and
regulating their relationship inter se.
MAIN FEATURES OF LIMITED LIABILITY PARTNERSHIP ---- The main features of
Limited Liability Partnership Act, 2008 are as follows:
1. Incorporation---- LLP is a body corporate and it must be registered with the Registrar of
Companies similar to a company.
2. Partners -----The LLP must have at least two members. Any legal person may be a member
of LLP.
3. Structure ----The partners are given full freedom under LLP to engage in any lawful business
and manage and conduct the operations of the business in a manner they deem fit. The
relationship inter se of the partners has also been left to them to decide. In the absence of
agreement between them, provisions of the Act will apply. LLP agreement is confidential to the
members.
4. Separate legal entity---- The LLP has a separate legal entity from its partners, in the same
way as a company registered under the Companies Act, 1956 constitutes as a separate legal
entity.
5. Liability--- The LLP is liable to the full extent of its assets, but the liability of the partners is
limited to the extent of their agreed contribution in the LLP. The assets of individual partners are
not burdened for meeting the liability of LLP.
6. Liability for unauthorized act of other partner---- A partner of LLP is not liable for any
unauthorized of act or misconduct of other partner or partners.
7. Management--- The LLP is required to name two individual persons as designated partners
and at least one of them must be resident in India. If the LLP does not designate two partners as

designated partners or designate only one as designated partners, then all the partners will be
treated as designated partners. A designated partner is required to do all acts, matters and things
which are required to be done by LLP under the Limited Liability Partnership Act.
8. Annual accounts --- The LLP is required to maintain annual accounts. The accounts are to be
maintained in the same manner as is required in case of a company. The accounts are to be
audited unless exemption has been obtained from the Central Government.
9. Submission of Accounts -- The LLP is required to file returns, annual accounts etc. of the
LLP to the Registrar of Companies and not to the Registrar of Firms.
10. Central Government's power to investigate Under LLP Act------- The Central
Government has the power to investigate the affairs of LLP through inspector appointed for this
purpose. The Central Government has also the power to extend such provisions of the
Companies Act, to LLP which provided for mergers, amalgamations, winding up with
appropriate modifications.
11. Conversion of other forms of organization----- A partnership firm, private company and
unlisted public company have been given the option in the LLP Act to convert themselves into
limited liability partnership.
12. Capacity---- LLP has capacity to do any legal business.
13. Security----- LLP may take loan on the security of fixed asset or there may be floating
charge on the assets of the LLP.
14. Tax---- LLP is taxed in the similar way as a general partnership with members being taxed
individually on their share of the LLP's profit or loss.
Limited liability partnership provide a new corporate form of business entity with unlimited
liability on one hand, and the statute based governance structure of the limited liability company
on the other in order to enable the professional expertise and the entrepreneurial skill. Thus it is a
body corporate, with a distinct legal entity from that of its partners. It has a perpetual succession
and may have a common seal. Any change in its partners, will not affect its existence. It can
make a contract, sue or be sued, hold property or become insolvent.
DISTINCTION BETWEEN (GENERAL OR TRADITIONAL) PARTNERSHIP FIRM, LLP
AND JOINT STOCK COMPANY: The following are the points of distinction between the
partnership, LLP and company:
1. Formation ----- A partnership is governed by the Indian Partnership Act, 1932.

A limited liability partnership is governed by the Limited Liability Partnership Act, 2008.
A company is governed by the Companies Act, 1956.
2. Registration-- A partnership may or may not be registered.
A limited liability partnership is required to be registered. An unregistered limited liability
partnership will be considered as partnership under the Indian Partnership Act, 1932 as if it
fulfills the requirement of partnership as per that Act.
A company must be registered. An unregistered company maybe either a partnership or an
illegal association, depending upon the number of members, or it may be an association of
persons.
3. Legal Status---- A partnership is not a separate legal entity. The partners collectively are
called 'firm'.
A limited liability partnership is a separate legal entity from its partners.
A company is also a separate legal entity.
4. Agreement ---The agreement to enter into partnership may or may not be in writing.
Limited liability partnership agreement must be in writing as Section 23(2) requires the LLP
agreement and changes therein to be filed with the Registrar of Companies in the form and
manner and accompanied by such fees as maybe prescribed. As per Rule 21 this is to be done
within 30 days of incorporation.
The persons who want to form a company prepare Memorandum of Association.
5. Number of Members---- A partnership can be formed by minimum two persons. Maximum
number of persons for a partnership doing business is 100. 1 A limited liability partnership must
have at least two partners and at least one of them must be resident of India. There is no
maximum limit of partners.
1 According to Section 464(1) of the Companies Acts, 2013, a maximum number of partners permissible for
business firms at 100 and sub-section (2 ) provides that nothing in sub section (1) shall apply to an association or
partnership, if it is formed by professionals who are governed by special Acts. As per the previous Companies Act,
1956the maximum number of members in case of partnership was 10 and 20 for banking
business.

In case of private limited company the minimum number of members is two and the maximum
limit has been increased by the Companies Act, 2013 from 50 to 200. The minimum number of
members in case of public limited company is 7 and there is no maximum limit of members.
6. Liability--- The liability of the partners of a partnership firm is unlimited Partners are jointly
and severally liable for the acts of the firms.
The liability of a partner of an LLP is limited to his contribution in the LLP. The liabilities of the
LLP shall be discharged from its own assets.
The liability of a member/shareholder of a company is limited to the face value of the shares held
by him or the amount guaranteed by him depending upon the case.
7. Business--- A partnership may engage itself in any lawful business which the partners like.
An LLP shall state the name of the proposed lawful business of the LLP in the incorporation
document.
A company can engage itself in any lawful business mentioned in the objects clause of the
Memorandum of Association of the company.
8. Capital--- The capital contributed by the partners can be altered by the partners freely in case
of partnership firm. A partner may not contribute as capital.
The quantum of each partner of an LLP is left to be decided by them inter se. However, capital
contribution of a partner cannot be nil but may be nominal.
Share capital held by a member/shareholder may change, particularly in case of listed
companies. Capital of a company can be altered by following the procedure laid down by the
Companies Act, 1956.
9. Property ---The partnership property belongs to all the partners.
The LLP property belongs to the LLP.
The property of the company belongs to the company.
10. Agency-- In case of partnership every partner is an agent of the firm and of every other
partner of the firm.

Partner is an agent of LLP but not of other partners.


A member is not an agent of the company. However, a director of a company may act as an agent
of the company.
11. Management--- Every partner is entitled to take part in the management of the partnership
firm.
Every partner may take part in the management of the LLP as per First Schedule if there is no
clause to the contrary in the LLP agreement. The LLP Act makes designated partners wholly
responsible and accountable for compliance with the provisions of the Act.
In case of company management of its affairs is entrusted to Board of Directors.
12. Transfer of shares----- In case of partnership a partner cannot transfer his interest to any
other person without the consent of other partners so as to make him the partner. If a partner
transfers the whole of his interest in the partnership to any other person without the consent of
other partners, the other partners can file a suit for dissolution of the firm.
The rights of a partner to a share of the profits and losses of the LLP and to receive distributions
in accordance with the LLP agreement are transferable either wholly or in part.
The shares of a public limited company are freely transferable. The shares of a private limited
company can be transferred subject to restriction imposed on them.
13. Dissolution------ A partnership may be dissolved by the death or insolvency of a partner. A
firm is dissolved by the adjudication of all the partners but one as insolvent and subject to
contract between the partners, a firm is dissolved by the death of a partner.
An LLP is not dissolved by the death or insolvency of a partner. The circumstances in which an
LLP may be wound up by the Tribunal are prescribed in Section 64.
A company is not liquidated in case of death or insolvency of a member. It has perpetual
existence.
14. Accounts and audit----- The accounts of a partnership need not be got audited as per the
Indian Partnership Act, 1932.
LLP is required to get its accounts audited unless exempted by the Central Government by
notification.

A company is required to get its accounts audited and placed before the members. A copy of the
accounts is required to be sent to the Registrar of Companies.
15. Nature of document---- Partnership deed is a private document.
LLP agreement is a public document. It is available at registered office of the LLP and a copy of
it may be obtained by submitting prescribed fee.
In case of a company Memorandum of Association and Articles of Association are public
documents.
16. Applicability of relevant Acts------- Indian Partnership Act, 1932 is not applicable to the
State of Jammu & Kashmir
Limited Liability Partnership Act, 2008 and Companies Act, 1956 are applicable to the State of
Jammu & Kashmir.
17. Rules regarding Name---- There is no provision in the Indian Partnership Act, 1932
regarding the last words of the name of the firm.
Every limited liability partnership shall have either the words "limited liability partnership or the
acronym "LLP" as the last words of its name.
The Companies Act, 1956 makes it mandatory. A use the words "Limited" or "Private Limited",
as the case may be, at the end of the name of the company.
18. Winding up----- A partnership firm is dissolved as per the agreement or by consent of the
partners or by notice by a partner, or on the happening of certain events. It can also be dissolved
by the Civil Court having jurisdiction under certain circumstances.
The winding up of a limited liability partnership may be either voluntary or by the Tribunal and
limited liability partnership so wound up may be dissolved. If the Tribunal is established then
winding up is to be done by the High Court.
Section 433 of the Companies Act set out certain grounds on which Court/Tribunal may wind up
a company. Six grounds are similar to the grounds set out in Section 64 of LLP Act.

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