Introduction to LLP

An Overview: Limited Liability Partnership (LLP)

A corporate form of business requires much compliance, although the shareholders enjoy limited liability. This means that the shareholders cannot be asked to pay more than the total face value of the shares allotted to them at any given point. On the other hand, a partnership firm Form of business requires much fewer compliances. However, they suffer the disadvantage that the liability of partnership is unlimited here. This means that if the firm cannot honour its commitments, the partners will be jointly and severally liable to pay the firm’s debts. A Limited liability partnership is a business vehicle that is essentially the culmination of a partnership firm and a company and thus provides both these benefits.

Provisions of a Limited liability partnership 

A Limited Liability Partnership comes into existence when at least two partners execute a partnership deed. Under the Limited Liability Partnership Act, this deed is then registered with the registrar. This act which came into existence in 2008, contains all the rules and regulations regarding the LLP formation, its audit, maintenance of books of accounts, its dissolution, etc. A Limited Liability Partnership is essentially treated as a body corporate which is a separate legal entity. So it has an existence different from its partners.

Regulations regarding LLP 

An individual or a corporate body can become a partner in an LLP. However, each partner must obtain a DPIN- Designated Partner Identification Number. Even though the liability of the partners is unlimited, this exemption is lifted in the event of any fraud or wrongful act done by any partner. In such a case, the partners have unlimited liability. The designated partners are responsible for adhering to all the rules and regulations of the LLP Act, 2008, like filing of documents, annual submission of financial accounts, etc., the partnership deed regulates the mutual duties and powers of the partners. The LLP Act does not interfere in the internal working ad procedures of the firm.

Provisions Relating to Financial Statements and their Annual Audit

Every Limited Liability Partnership must maintain its books of account containing the details of revenues generated and money expended. A record of the assets and liabilities in the form of a Balance sheet statement is also to be maintained. Apart from these, the partners may among themselves decide to maintain other records for the smooth functioning of the business. Every LLP, which has an annual turnover of over forty lakh rupees and the contribution from the partners of over twenty-five lakh rupees, is required to get the books audited by a chartered accountant. All those Limited Liability Partnerships which do not satisfy this threshold limit are exempted from the audit of financial statements

Effect of LLP Formation

On the incorporation of an LLP, the partnership deed and a statement that all provisions of the LLP Act have been complied with are to be filed with the registrar. The document must contain the address of the registered office of the LLP and the names and addresses of all the partners of the LLP. The effect of registration of the LLP is that it can sue and can be sued. It can even hold property in its name and have a common seal. 

Annual Filing of Documents with the Registrar

To ensure the sound and transparent working of the LLP partnership, each LLP is required to submit an ‘Annual Statement of Accounts and Solvency’ with the registrar. An Annual Return in the prescribed form is required to be filed by every LLP within sixty days of the close of the financial year. The Registrar of the LLPs has the power to summon any partner or call for further information from the firm if he believes that the documents submitted by the LLP do not give accurate information regarding the state of affairs of the firm. Also, the incorporation deed, the annual return, the statement of solvency, and any document containing changes to the relationship between partners are kept open for public inspection in the registrar’s office.

Conclusion 

As compared to a mandatory audit under the Companies Act 2013 and many additional filings such as the director’s report, a Limited Liability Partnership is an attractive opportunity provided by the Ministry of Corporate Affairs for business venturers who wish to embark upon their corporate journey with much less legal procedures. Over the years, many partnerships have also got themselves converted into LLPs. Being a lean business vehicle, an LLP comes out as a one-stop solution for ambitious entrepreneurs.