Limited Liability Partnership

Limited Liability Partnership is a hybrid between a company and a partnership that, as the name suggests, provides the benefits of limited liability and allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement.


The Indian Legislature, keeping in view, the international business trends where a range of services is being offered by professionals and businesses in the form of Limited Liability Partnerships, has enacted the much awaited Limited Liability Partnership Act. The Limited Liability Partnership Bill, 2006, was approved by the Cabinet on Dec 7, 2006 and was introduced in the Rajya Sabha on 15th Dec, 2006. It was later referred to the Department Related Parliamentary Standing Committee on Finance for examination. The Committee submitted its report to both Houses of Parliament on 27th Nov, 2007, recommending some changes along with some suggestions regarding the LLP Bill, 2006. [1] On 12th Dec 2008, the Parliament passed the Limited Liability Partnership Bill, 2008. The Limited Liability Partnership Bill, 2008 received the assent of the Hon’ble President on 7th January, 2009 and has now become a legislation to be called as ‘Limited Liability Partnership Act, 2008’.

Limited Liability Partnership [LLP] is viewed as an alternative corporate business vehicle that provides the benefits of the limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. LLP form is expected to enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
With this background, Limited Liability Partnership Act, 2008 [LLP Act] was enacted on January 7, 2009.
The concept of joint and several liabilities which is a part of a partnership firm implies that the personal property of the partners is also liable for attachment for the satisfaction of the company’s debts in addition to the capital contributed by the partners in the firm. The unlimited liability attached a to a partnership makes it a risky affair. Law does not permit incorporated companies to practice as a company’s secretaries, chartered accountants, lawyers or related professionals. The only option available with such professionals is to either work in conventional partnership firm set up or as a sole proprietor. Further, Section -11 of the Companies Act, 1956 specifically provides that a partnership firm cannot expand beyond 20 partners without being incorporated as a company. This acts as a major deterrent in the growth and development of service based organizations and is incompatible with the policy of globalization and liberalization adopted during the 1990’s and has a detrimental effect on the foreign direct investment.
Requirements for Forming an LLP
Today, Startup companies have thronged the marketplace with the opening of the Indian economy and for any Startup, the LLP structure provides the best of both the corporate as well as partnership world. Before embarking on incorporating an LLP it is important to check whether the proposed LLP name is available with the Registrar of Companies. It is also important to obtain the Director Identification Number (DIN) and the Digital Signature for the LLP in advance. One of the basic requirements of an LLP is a minimum of two partners but there is no limit to the maximum number of partners allowed in a limited liability partnership firm. Again, the minimum two designated partners of the LLP must be individuals, of whom at least one is a resident of India. However, body corporate or organization, a foreign company, a foreign LLP can also be partners of a LLP as long as the above requirement of two designated partners is fulfilled.
LLP structure allows small and medium sized enterprises (SMEs) as well as Startups with the freedom of incorporating with bare minimum capital. There is no minimum capital contribution required from the partners and the partners can even contribute in instalments into the LLP without any limitations.
Extent and Limitation of Liability
An LLP being a separate legal entity is liable for an obligation arising in contract or otherwise and the liabilities of the LLP will be met out of its property. A partner will not be held personally liable, directly or indirectly for an obligation of the LLP, solely by reason of being a partner of the LLP. However, such liability shall not affect the personal liability of a partner for his own wrongful act or omissions and in the event of an act carried out by the LLP or any of its partners, with intent to defraud creditors of the LLP or any other person, or for any fraudulent purpose, the liability of the LLP and partners who acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP. Therefore, a partner will be held personally liable for his own wrongful act or omission, but not for the wrongful act or omission of any other partner of the LLP.