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What is LLP?
LLP or Limited Liability Partnership is an alternate form of business where the founders’ liability is limited to the extent of their capital contribution.
Here’s an explainer blog on how Limited Liability Partnerships work, the benefits of an LLP, how you can register your own partnership and more.
How does an LLP Work?
To understand, let’s break Limited Liability Partnerships down: limited liability and partnership.
What is Limited Liability?
Limited Liability means that each founder is only liable to the extent of the capital contribution. In a Limited Liability Partnership, partners only have to bear losses to the extent of their actual contribution to the business, and nothing beyond that.
This means that in the case of business losses or bankruptcy, the partners’ personal assets are protected. In a general partnership, liability is not limited, and every partner is personally liable to bear all the losses.
What is a Partnership?
A partnership, in business terms, is when two or more people come together to do business. Each partner contributes resources to the business: capital, knowledge or even a good network.
There are many different kinds of partnerships: based on liability, contributions, duration and more.
Features of LLP
- An LLP’s existence is perpetual, meaning it continues to exist even if one or more of the partners drop out of the partnership.
- An LLP exists as a legal entity separate from its partners.
- It is incorporated on the basis of an agreement that details important details like profit sharing ratio and capital contribution ratio.
Benefits of LLP
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- It protects the personal liability of its founders in case of litigation and losses.
- An LLP also gives the benefit of perpetual succession – this means that the partnership continues to exist even if a partner drops out of the business.
- Partners can add new partners who can bring more expertise or resources to the business.
- Limited Liability Partnerships are ideal forms of business for professionals who want to start their own practice. For example, many law firms choose to register as LLPs.
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LLP vs LLC – Which one should you choose?
Another form of business that gives owners the benefit of limited liability is an LLC or a Limited Liability Company.
The only similarity between a Limited Liability Company and a Limited Liability Partnership is that both types of businesses protect owners’ personal interests.
| LLP | LLC | |
| Incorporation | Needs at least two partners | Can be formed by one person |
| Compliances | Annual disclosure of accounts & solvency and annual report. | Many expensive and complicated compliance requirements |
| Personal Liability | If a partner is found personally responsible for any wrongdoing, he can be directly sued. The other partners remain protected. | Lawsuits can only be filed against the entire company, and never against any individual director. |
Limited Liability Partnership vs Limited Partnership
A limited partnership is also made up of two or more people who come together for the purpose of doing business.
However, a limited partnership constitutes a general member who oversees and manages the business and limited partners, who contribute resources and do not oversee the business.
The general partner has unlimited liability while the limited partners are only liable up to their contribution to the business.
How to Register an LLP in India?
- Obtain Digital Signature Certificate (DSC)
- Apply for Director Identification Number (DIN)
- Name Approval to be processed by Central Registration Certificate
- Incorporate your Partnership
- File for an LLP Agreement
Documents Required for LLP Registration In India
To register your limited liability partnership in India, the following documents are typically required:
| Identity Proof |
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| Address Proof |
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| Registered Office Proof |
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| Partnership Agreement | Including the following details:
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| Director Identification Number (DIN) | This can be obtained from the Ministry of Corporate Affairs |
| Digital Signature Certificate | DSC is required for online filing of these documents |
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Frequently Asked Questions
What is LLP(Limited Liability Partnership)?
LLP is an alternative corporate business form that gives the benefits of the limited liability of a company and the flexibility of a partnership.
What is a General partnership?
A general partnership is a business arrangement by which two or more individuals agree to share in all assets, profits, and financial and legal liabilities of a jointly-owned business.
