Limited Liability Partnership (LLP) – Concept & Features
The best of both worlds – flexibility of partnership, protection of a company!
What is Limited Liability Partnership?
Definition: A business structure where partners have limited liability (like a company) but operate with flexibility (like a partnership).
Governed by: LLP Act, 2008
Examples in India:
- Deloitte Haskins & Sells LLP
- EY LLP
- PwC India LLP
- Khaitan & Co. LLP
Why LLP Was Introduced?
| Problem in Traditional Partnership | LLP Solution |
|---|---|
| Unlimited liability → Personal assets at risk | Limited liability → Risk only capital invested |
| Not a separate legal entity | Separate legal entity → LLP can own assets |
| Difficult for professional firms to scale | Professional firms can grow without risk |
Key Features
1. Separate Legal Entity
- LLP ≠ Partners
- LLP can own property, sue/be sued
- Example: "ABC Consultants LLP" can buy office building in its own name
2. Limited Liability
- Partners liable only up to agreed contribution
- Personal assets safe!
- Example: Partner A invested ₹10 lakhs → Maximum loss = ₹10 lakhs (not house/car!)
3. Perpetual Succession
- Doesn't end with partner's death/exit
- Continues forever (like company)
- Example: Partner dies → LLP continues with remaining partners
4. Flexibility
- Internal matters governed by LLP Agreement
- No rigid rules like companies
- Example: Partners can decide profit ratio as they wish
5. Minimum 2 Partners
- No maximum limit
- At least 2 designated partners (responsible for compliance)
- Example: Can have 100 partners if needed!
6. No Minimum Capital
- Unlike companies, no minimum capital required
- Partners decide contribution
- Example: Can start with ₹100 or ₹100 crores!
7. Registration Mandatory
- Must register with MCA (Ministry of Corporate Affairs)
- Gets unique LLPIN (LLP Identification Number)
- Example: Registration on www.mca.gov.in
8. Designated Partners
- Minimum 2 designated partners
- Responsible for compliance (filing returns, maintaining records)
- Example: In 5-partner LLP, 2 are designated (handle legal work)
9. Audit Not Always Mandatory
- Audit needed only if:
- Contribution > ₹25 lakhs OR
- Turnover > ₹40 lakhs
- Example: Small LLP with ₹20L turnover → No audit needed!
Structure of LLP
LLP (Separate Legal Entity)
├── Designated Partner 1 (Liable for compliance)
├── Designated Partner 2 (Liable for compliance)
├── Partner 3
├── Partner 4
└── Partner 5
LLP vs Partnership vs Company
| Feature | Partnership | LLP | Company |
|---|---|---|---|
| Liability | Unlimited | Limited | Limited |
| Legal entity | No | Yes | Yes |
| Registration | Optional | Mandatory | Mandatory |
| Min. members | 2 | 2 | 2 (Pvt), 7 (Public) |
| Audit | No (usually) | If turnover/contribution high | Always |
| Compliance | Low | Moderate | High |
| Best for | Small firms | Professional services | Large businesses |
Quiz
Test Your Knowledge
Question 1 of 4
1. LLP is governed by which Act?
💡 Final Wisdom: "LLP is like having seat belts in a race car – you get to drive fast (partnership flexibility) but stay safe (limited liability)!"