LIMITED LIABILITY PARTNERSHIP ACT 2008 NOTES
QUESTION: Distinguish between Limited Liability Partnership and Company?
LIMITED LIABILITY PARTNERSHIP
A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization. Limited Liability Partnership (LLP) is a new corporate form that enables professional knowledge and entrepreneurial skill to combine, organize and operate in an innovative and proficient manner.
It provides an alternative to the traditional partnership firm with unlimited liability. By incorporating an LLP, its members can avail the benefit of limited liability and the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.
A business entity which acts as an artificial legal person, formed by a legal person or a group of legal persons to engage in or carry on a business or industrial enterprise.
The difference between LLP and company is as follows:
|BASIS OF DIFFERENCE||COMPANY||LIMITED LIABILITY PARTNERSHIP|
|Prevailing Law||Companies are prevailed by ‘Companies Act, 2013’||Limited Liability Partnership are prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made thereunder|
|Capital Required||Normally Rs. 1 Lacs||No minimum amount|
|Time of Registration||7-10 days in complete process||7-10 days in complete process|
|Name of Entity||Name to contain ‘Private Limited’ in case of Private Company as suffix.||Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.|
|Registration||Registration with Registrar of ROC required.||Registration with Registrar of LLP required.|
|Cost of Formation||Minimum Statutory fee for incorporation of Company is Relatively High||The cost of Formation is statutory filling fees, comparatively lesser than the cost of formation of Company.|
|Charter Document||Memorandum and Article of Association is the charter of the company that defines its scope of operations.||LLP Agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.|
|Formalities of Incorporation||Various eforms along the Memorandum & Articles of Association are filled with Registrar of Companies with prescribed fees||Various eforms are filled with Registrar of LLP with prescribed fees|
|Number of Members||2 to 200 members in case of Private Company||Minimum 2 partners and there is no limitation of maximum number of partners.|
|Liability of Partners/Members||Generally limited to the amount required to be paid up on each share.||Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.|
|Transfer / Inheritance of Rights||Ownership is easily transferable.||Regulations relating to transfer are governed by the LLP Agreement .|
|Transfer of Share / Partnership rights in case of death||In case of death of member, shares are transmitted to the legal heirs.||In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partners|
|Director Identification Number / Designated Partner Identification Number (DIN / DPIN)||Each director is required to have a Director Identification Number before being appointed as Director of any company.||Each Designated Partners is required to have a DPIN before being appointed as Designated Partner of LLP.|
|Admission as partner / member||A person can become member by buying shares of a company.||A person can be admitted as a partner as per the LLP Agreement|
|Cessation as partner / member||A member / shareholder can cease to be a member by selling his shares.||A person can cease to be a partner as per the LLP Agreement or in absence of the same by giving 30 days prior notice to the LLP.|
|Requirement of Managerial Personnel for day to day administration||Directors are appointed to manage the business and other statutory compliances on behalf of the members.||Designated Partners are responsible for managing the day to day business and other statutory compliances.|
|Statutory Meetings||Board Meetings and General Meetings are required to conducted at appropriate time.||There is no provision in regard to holding of any meeting.|
|Maintenance of Minutes||The proceedings of meeting of the board of directors / shareholders are required to be recorded in minutes.||A LLP by agreement may decide to record the proceedings of meetings of the Partners/Designated Partners|
|Voting Rights||Voting rights are decided as per the number of shares held by the members.||Voting rights shall be as decided as per the terms of LLP Agreement.|
|Remuneration of Managerial Personnel for day to day administration||Company can pay remuneration to its Directors subject to law.||Remuneration to partner will depend upon LLP Agreement.|
|Contracts with Partners/Director||Restrictions on Board regarding some specified contracts, in which directors are interested.||Partners are free to enter into any contract.|
|Share Certificate||Share Certificates are proof of ownership of shares held by the members in the Company||The ownership of the partners in the firm is evidenced by LLP Agreement.|
|Audit of accounts||Companies are required to get their accounts audited annually as per the provisions of the Companies Act, 2013||All LLP except for those having turnover less than Rs.40 Lacs or Rs.25 Lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act 2008.|
|Applicability of Accounting Standards.||Companies have to mandatorily comply with accounting standards||The necessary rules in regard to the application of accounting standards are not yet issued.|
|Oppression and mismanagement||Provisions providing for remedy against Oppression and mismanagement exists||No provision relating to redressal in case of oppression and mismanagement|
|Credit Worthiness of organization||Due to Stringent Compliances & disclosures under various laws, Companies enjoys high degree of creditworthiness.||Will enjoy Comparatively higher creditworthiness from Partnership due to Stringent regulatory framework but lesser than a company.|
Due to the flexibility in the structure and operation, the LLP and Company are appropriate for small and medium companies. These are also famous among start-up founders, professionals and service providers, as the two forms of organization perfectly suit their business requirements.