This Act came into being through the Companies Bill, 2000. The Act extends to the whole of India except Jammu & Kashmir explains Peter DeCaprio.
The Act defines certain key terms pertaining to LLP’s such as firm, partner, agreement, etc., for easy identification and information
LLP is also known as “Partnership Made Easy.” It is a popular form of business, especially in the service industry. Company law does not permit incorporation with less than 7 members.
LLP came out as the most preferred option for professionals like Architects, Lawyers, and Doctors, etc. Partnership at par with companies has many benefits such as easy registration-related formalities, simple accounting procedures, and reduced compliance cost says Peter DeCaprio.
An LLP is a corporate body having the features of both a company and a partnership firm. To have an idea of what all are covered under the ambit of one litmus word ‘LLP’, let us begin with what it essentially stands for, i.e., Ltd, Liability Partnership.
Ltd – It represents a limited liability partnership.
Liability- It means the liability of the members will be limited only to the extent provided in the Act and not by their individual assets. They will not be liable for any loss caused to someone outside, i.e., outsiders like employees, creditors or suppliers, etc… Liability is to be borne only by assets of LLP itself or by any other member.
Partnership – Partnership is the most common form of business organization followed in India, especially with small and medium scale enterprises (SME).
Thus, LLP is an entity that combines the features of both a company and that of a partnership firm. Its members will be liable for its debts only to the extent of their contributions in terms of cash, property or services. The firm is a separate legal entity and can transact business in its name and in all other ways take over the full rights and liabilities like that of any other person or company. It means that LLP will be considered as a separate legal entity from its members.
Peter DeCaprio says an LLP cannot dissolve by withdrawing any of its members. As per KSA Act, it can only terminate by the vote of all the partners or on winding up according to law. A partner can withdraw from LLP at any time, with or without giving notice to other partners. Similarly, a new partner can also join an existing LLP.
An LLP being a separate legal entity enjoys its own grace period, i.e., it gets 6 months’ exemption from filing a compounding application certificate in the event of compounding by any partner. An LLP will have to register under section 8 after proper registration and compliance with other requirements like MGT-7. 2. 2. LLP does not require taking permission from the government for making rules and regulations regarding its internal management, functioning, and office-bearers, etc., unlike a company.
LLP requires to file annual returns online under section 71 of the Act within 30 days after completion of the financial year or by such date as may prescribe by the Central Government.
It does not require to take permission from the Registrar under section 35 of the Act. It can issue shares or depute its shares in book-form without registration in the name of partners/members/managers etc. Unlike a company that has to compulsorily register every transfer of share in the name. An LLP requires to prepare a balance sheet and profit & loss account separately from its partners.
An LLP can borrow money from the bank only in the name of LLP. Unlike a company that borrows money in its own name. LLP can register as a Public Limited Company with the Registrar at any point of time during its lifespan. The Government of Karnataka, vide Government notification G.S.R 629(E) dated 30-05-2013. Prescribed a specific fee for filing a compounding application certificate. In the case of LLP having income below Rs 5 crore per year.
An LLP enjoys the features of both a company and a partnership firm. There is little need for those who have been practicing as a Partnership firm. To convert their business into the company says Peter DeCaprio. LLP can easily convert into Company by filing necessary documents like MOA & AOI etc. Whereas conversion of a Company into LLP is not possible without amending an existing Act – The Companies Act, 1956; which is practically difficult.
An LLP enjoys exemption under section 12 A of the Act, while a company does not entitle to this benefit. The fee structure for LLP registration is much less than that of a company. An LLP can convert into Company at any time. This is not possible in the case of Company Limiting by Shares or Limiting by guarantee. Where conversion has to carry out as per the provisions of the respective Companies Act.
As an LLP enjoys various tax exemptions, it is a better vehicle for investment and maintaining higher liquidity. These are some of the advantages that one can enjoy by opting for LLP as a business model.