LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership
The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
• The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
• Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
• Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
• Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
Structure of an LLP
• LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.
Advantages of LLP form
LLP form is a form of business model which:
1. is organized and operates on the basis of an agreement.
2. provides flexibility without imposing detailed legal and procedural requirements
3. enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner
Difference between LLP & “traditional partnership firm”
• Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.
• Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.