A much awaited development that was missing in India was finally enshrined this year through the ‘The Limited Liability Partnership Act, 2008’. This law now allows a formation of limited liability partnership (LLP) which is common in several countries. So far most businesses in India were either companies formed under the Companies Act, or they were partnerships under the Indian Partnership Act. Both had their evils of cumbersome procedures and unlimited liability of partners respectively.

LLP being a hybrid ‐ a corporate entity form with a partnership structure ‐ is expected to usher in a new era of growth for the services sector by providing a platform for small and medium enterprises to conduct their business more efficiently.

LLP has the following advantages

• No limit to number of partners – private companies have a limit of 50 members and partnerships have a limit of 20 individuals.
• No restriction for partners to do business with the LLPs, unlike companies where there are restrictions towards entering contracts with key shareholders;
• Liability of partners is limited to the extent of their contribution as agreed in the LLP agreement. It is a legal ‘person’ in the eyes of the law unlike a normal partnership.
• Individual partner/s are not liable for unauthorized acts of other partners, as opposed to partnerships where other partners are liable for acts of each other;
• Assignment of right to receive profit/loss from LLP can be transferred;
• No requirements to maintain registers, hold minimum board meetings, annual meetings, etc. as is the case for companies;
• Internal structure and functioning can be organised by the partners as per agreement of LLP;
• Perpetual existence‐ as entry and exit of partners does not dissolve an LLP;
• LLPs from other countries can set up business in India for which the government is in the process of making rules;
• Merger and amalgamations allowed with other LLPs;
• Participation of partners can be decided by the partnership agreement and can be restricted for some partners;
• Property can be held in the name of LLP, whereas not in the name of a partnership;
• LLP law has the character of modern law, e‐formation procedures/submissions and a corporate look;
• Private Companies and partnerships can convert into LLP;
• LLPs can also have alternate addresses apart from registered address.

Other features:

LLP requires one partner to be an Indian resident unlike in a company. It also requires minimum 2 individuals (natural
persons) as designated partners. LLP requires that a Statement of Accounts and Solvency be filed annually with the regulator. This includes financial information. There is a likelihood that the government will notify a simpler compliance regime for smaller LLPs that may not require audit to be done each year.

There is a requirement of filing annual return yearly giving basic details of the LLP such as number of partners, changes in address, amount of obligation of partners to contribute, and so on. Some of these filings are more in comparison to regular partnership but they have ease of compliance too, since all of these are to be filed electronically.

Some of the flexibilities given through the LLP structure are that existing companies and partnership formed under Indian partnership law can be converted into LLP. The procedure is yet to be laid down. The winding up procedures are also easier than a company. In addition, it has been clearly stated that the Indian Partnership Act will not be applied to LLPs.

A point to be noted and which requires prompt action from lawmakers is that the Indian Income Tax Act is yet to provide guidance on how an LLP will be taxed! It remains to be seen whether it will have taxation structure more like a partnership or it will take the route of company taxation. Presently the companies get taxed on their taxable profits after a maze of exemptions and partnerships get taxed with a different set of exclusive deductions. It remains to be seen how LLPs will get taxed. We believe that keeping the intention of this law in mind the tax aspects will facilitate LLPs to operate internationally, clearly prohibit any form of double taxation, even allow some rebates to allow foreign investments so as to keep the attractiveness of LLPs internationally.

Thus, LLP is here to bring one more vehicle to entrepreneurs to operate in India.