Limited Liability Partnership and its Nature

LLP is a new form of legal business Entity with limited liability. It refers in that form of Business Organization which has the features of both the Partnership Organization and Company.
LLP is a new form of legal business Entity with limited liability. It refers in that form of Business Organization which has the features of both the Partnership Organization and Company.
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A Limited Liability Partnership (LLP) is a form of business organisation where the liability held by each of the partners is limited by law. It is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in a flexible, innovative and efficient manner. Since LLPs contain elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ they are a hybrid between a company and a partnership (retain the partnership model but are closer to corporations in design and function).

Though a new concept for organizing the business associations of the professions it is already very well working in some of the developed (e.g. U.K., USA, Australia) and developing countries (Singapore). Also, though specifically the LLP are not prescribed for any specific sector but it will be practical for the professionals and non-business fields to form these types of organization for the sake of safety of personal interest of the partners. Multi-disciplinary professional LLP can be formed. LLP can only carry business with profit motive.


On the basis of the recommendations of the Naresh Chandra and JJ Irani Committees a Bill for LLP was introduced in the Rajya Sabha which was then referred to the Parliamentary Standing Committee on Finance. The Standing Committee submitted its report on 27.11.2007 taking into consideration the suggestions of the august committee, the revised Bill, namely the Limited Liability Partnership Bill, 2008 was introduced in the Rajya Sabha on 21.10.2008. The various expert committees felt that the Companies Act need not enforce limitations on the other forms of the organization. Section 11 of the Companies Act bars the formation of any partnership consisting of more than 20 persons for carrying on any other business that has for its object the acquisition of gain by the partnership. If the number exceeds 20, the association will have to be registered as a company. Now all that has changed with the enactment of the Limited Liability Partnership Act 2009. The President of India gave assent on 7.01.2009.

While the Naresh Chandra Committee of 2003 looked at LLP mainly for professionals to prepare them for global competition, the JJ Irani Committee of 2005 suggested that the concept may also be considered for small enterprises not seeking access to capital markets through listing on the stock exchange. The idea is to enable them access technology and face increasing global competition, and bring in business synergies. The preamble to the Act states that it is “an act to make provisions for the formation and regulation of limited liability partnerships and for matters connected therewith or incidental thereto”.

It applies to the whole of India and its provisions have been brought into force w.e.f 31.03.2009.The government has notified the Limited Liability Partnership Rules, 2009 w.e.f 01.04.2009. 


Ministry of Corporate Affairs defines LLP as “LLP: A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.”

Limited liability partnership (LLP) is an alternative corporate business entity that provides the advantage of limited liability of a company as that of shareholders of a corporation). At the same time this structure allows its members the flexibility of organizing their internal management (right to manage the business directly) on the basis of a mutual agreement like any partnership firm. Liabilities of its partners are restricted to the extent of their individual contributions to the LLP. They would not be held responsible for loss caused on account of fraud of other partners, of which they had no knowledge.

Nature of LLP:

LLP is a new form of legal business Entity with limited liability. It refers in that form of Business Organisation which has the features of both the Partnership Organisation and Company.

  1. Partner:
    For the establishment of LLP the minimum number of partners has to be not less than two. There is no limit imposed on the maximum number of partners. The following can be partners in an LLP:
    • Individuals
    • LLP
    • Company: If a company becomes a partner of LLP, it has to nominate one of its members for this purpose.
  1. Contribution:
    There is no practice of Share Capital in LLP. But all the partners contribute to LLP in some or the other form. Contribution can be of several forms, namely, cash, movable or immovable property.
  1. LLP Agreement:
    A written agreement is a must among the people interested in establishing an LLP. Such an agreement is known as ‘LLP Agreement.
    This Agreement is in two parts. In the first part the agreement done among the partners is shown; while in the second part the agreement done between the partners and L.L.P is indicated.
  1. Designated Partner:
    In LLP there should be at least two designated partners. One of them must be Resident in India.
    A designated partner is one who has been designated through Incorporation Document. The designated partners are responsible for implementing all the Provisions of LLP Act 2008 in the L.L.P Organisation.
  1. Designated Partner Identification Number (DPIN)
    Every designated partner has to obtain an Identification Number from the Central Government. We call it DPIN. If a partner has already got DPIN, he can use it in LLP.
  1. Digital Signatures
    For the registration of LLP several forms like e-Form 1, e-Form 2, e-Form 3, etc. are filled up.
    These forms are sent ON LINE. They have the signatures of designated partners. It is not possible to put signatures manually on the forms to be sent ON LINE. Therefore, it is necessary that the signatures of the designated partners should be obtained in the Digital Form.
  1. Limited Liability:
    The liability of partners in LLP is limited. Every partner has his liability limited to the investment made by him. Besides, every partner is responsible for any of his misconduct rather than any other partner.
  1. Participation:
    Contrary to a company Organisation, in LLP all partners, apparently, can be partners in a partnership business. In company, apparently, the shareholders cannot be partners in the company business. The company business is looked after by the Directors.
  1. Separate Legal Entity
    LLP has a separate legal entity. It implies that LLP and its members both have a separate entity. It means that the partners of a firm, neither individually nor collectively, are responsible for the liabilities created by the activities of the firm.
    Also, it implies that a firm can have assets in its own name, it can file a suit and a suit can also be filed against it.
  1. Creation:
    The LLP is created by law and its registration is a must. The registration is done in accordance with the provisions of Limited Liability Partnership Act, 2008.
  1. Perpetual Succession:
     LLP has a perpetual succession. Its existence is not affected by the quittance of old partners or entry of new partners.
  1. Body Corporate:
    LLP is a body corporate. Body corporate refers to an organization having a separate legal entity. On this very basis, the following can be called as Body Corporates:
    • A Company
    • A Foreign Company
    • A Corporation
    • A Statutory Company
    • A Limited Liability Partnership – LLP
  1. Common Seal
    LLP is an artificial person by law, cannot put its signature. That’s why LLP has its common seal. So Common seal is the official signatures of LLP and it is affixed on all the important documents of LLP.

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