Legal benefits of forming a Limited Liability Partnership in India

A law to allow Limited Liability Partnership in India was enacted by the Parliament of India and known as the Limited Liability Partnership (LLP) Act of 2008.  This discussion will cover Indian law pertaining to the benefits of LLP.

Basically, a hybrid of a limited liability company and a partnership firm (a new structure as envisaged in the Act), is expected to benefit entrepreneurs, professionals and companies immensely. For a long time, a need was felt for a new corporate form that would provide an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other. This was in order to enable professional expertise and entrepreneurial initiative to combine, organize and operate in an efficient and flexible manner.

Role of LLPs in Corporate Business

The Limited Liability Partnership set-up is also an alternative corporate business vehicle that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutual agreement, as is the case in a partnership firm. This set-up would be quite useful for small and medium enterprises in general and for the enterprises in services sector in particular.  Internationally, LLPs are the favorite set-up of business particularly for service industry or for activities involving professionals.

LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP.

Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.