View of LIMITED LIABILITY PARTNERSHIP IN INDIA: CONCEPT AND ITS CHALLENGES

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ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING

Peer Reviewed and Refereed Journal, ISSN NO. 2456-1037 Available Online: www.ajeee.co.in/index.php/AJEEE

Vol. 6 Special Issue 06, (NC-ETLEB-2021) August 2021 IMPACT FACTOR: 7.98 (INTERNATIONAL JOURNAL) 32 LIMITED LIABILITY PARTNERSHIP IN INDIA: CONCEPT AND ITS CHALLENGES

Keshav Negi

Assistant Professor, S & S Law College, Indore, Madhya Pradesh Urvashi Sharma

Assistant Professor, S & S Law College, Indore, Madhya Pradesh

Abstract- In the era of evolution, most of the concepts are evolving according to the requirements and the need of the current situations. This paper will trace such evolution in the area of forms of business i.e. Partnership Business. In this era of full of risk, Limited Liability Partnership is that kind of business form that brings the element of risk-free business or we can say as the name suggests limited liability to the partners. Limited Liability Partnership opens the new gates of opportunities for the people who want to do their own business and that even without the risk of involving unlimited liability. Limited Liability Partnership is that form of business that fills the gap which was remained unfilled between the partnership and companies in respect of certain omissions.

The partnership is considered as the oldest form of the business relationship, but it was still felt that this kind of relationship does lack certain elements which were enjoyed by Limited Liability Company. Partnership as a form of business was getting replaced by Limited Liability Company. As the demand for bringing Limited Liability under the concept of the partnership was growing day by day, it was finally fulfilled with the Limited Liability Act, 2008.

In this paper, we will get to know about the concept of LLP and its challenges, and how this concept is changing the current scenario for new business. The Paper also tries to give a detailed structure of Limited Liability Partnership according to Limited Partnership Act, 2008.

Keywords: LLP, Partnership, Limited Liability Partnership Act, 2008.

1 INTRODUCTION

The very concept of Limited Liability Partnership found its roots in German Company Law, Gesellschaft mit beschrnkter Haftung (GmbH). As it was new and having a mixture of Partnership business and Corporate business, this concept was offering limited liability to the partners, separate legal entity to the firm, and various benefits, this concept was growing at a very fast pace. Having a disadvantage in the traditional partnership business it was the need of the hour to bring some changes in the form of the partnership business, to provide more control over the business, flexibility in the operations, and less or no involvement of personal property in the business losses.

Parliament with the accent of the President of India passed Limited Liability Act, 2008 on 7th January 2008 which ultimately came into force on 1st April 2008. So, with this act, the government tried to overcome the disadvantages of the traditional partnership business, as it was losing its existence because of its old form. This new form of business is getting popular very quickly as it offers more control, flexibility. In this era of Covid and people losing so much due to business losses, LLP is offering a better opportunity to the partners to do business which held partners liable to only the extent of their contribution in the partnership firm, which was absent in the traditional form of partnership.

1.1 Concept of LLP

Limited Liability Partnership is nothing but generally a partnership that is constituted in corporate form. The need for LLP was introduced by the Naresh Chandra Committee that, encouraged Indian professionals to participate in the international business community without the risk of being subject to unlimited liability, the need for having a legal structure like the LLP is self-evident.

LLP Act, 2008 introduced a hybrid form of corporate business and partnership business as Limited Liability Partnership. LLP can be incorporated under the act with having advantages like limited liability and perpetual succession. LLP is also a suitable form of business for small and medium entrepreneurs and also for other professionals like CS, CA, etc. Running an LLP business feels like running a limited company. In terms of liability LLP firm itself is liable to pay its debts, and there is no further involvement of partners in terms of paying all the debts of the firm, partners will be only held liable up to their contribution to the

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ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING

Vol. 6 Special Issue 06, (NC-ETLEB-2021) August 2021 IMPACT FACTOR: 7.98 (INTERNATIONAL JOURNAL) 33 firm. Rights and liabilities of partners in LLP will be governed according to the Partnership Deed.

The procedure for formation of LLP in India lights that any two or more persons who want to move on any lawful business concern, commerce, occupation, or service with a profit need may apply for incorporation by sign in their names in the papers of the LLP. The incorporation papers are to be made in the official form. The papers so made shall be submitted with the Registrar of Companies (RoC) of the respective state in which the listed office of the LLP is to locate along with the needed fee. After all the documents get scrutinized, the RoC will provide the certificate of incorporation to allow the kickoff of commerce operation by the LLP.

Any two individuals or corporate may get along to be the partner of an LLP. Even so, a single person cannot be the partner of an LLP if that person is declared unsound mind by the court; insolvent. However, the number of partners of LLP cannot be below two. If at any instance the number of members of an LLP comes less than two and the LLP carries on business concern on the far side six months thereof with one partner then the partner who knowingly carries on the LLP business shall be in the person responsible for any obligation of the LLP come during the aforesaid period.

LLP is required to have at least two designated partners, must be individuals and one of them has to be resident in India. Designated partners are the most essential members of an LLP and they ordinarily take the major role in pull off and moving the LLP business. If all the partners of an LLP are the body corporate, nominees of such body corporate will act as designated partners of that particular LLP. An individual has to give his prior consent to work as a designated partner in LLP. A designated partner will be answerable for the administration of all acts, matters, or belongings of the LLP as needed under the Act such as submission of tax return, papers, statement of accounts and financial condition, reports, etc.

in terms of the LLP Act and the LLP Agreement and will be in person liable for any penalization imposed on the LLP for any dispute on the provisions of the Act.

1.2 Advantages of LLP:-

The want of a young businessperson is always to have full power over his/her business concern, LLP here is that kind of variety of the establishment where a young businessperson can accomplish his aspiration, can start an establishment of his selection, and passion.

Execution of plans is also simple in the case of LLP. Personal affection, earnestness, and desire towards the business make it easier to run the LLP much with efficiently and effectively.

LLP is an idea that is almost favorable to the small business person who wants power with the profit of restricted liability. LLP gives the benefit of fast decision making, adaptability.

Tax benefits are too obtainable for LLP as a domestic establishment. It has a separate legal entity than its member, and the perpetual succession attribute is also relevant here in the case of LLP, even in the case of the death of Partner the LLP does not get moved, nominee takes the place of the deceased partner of the LLP.

Some of the advantages of LLP are given below:

 Separate Legal Entity.

 Limited Liability of members.

 Partners are not personally liable.

 Tax benefits are available for LLP.

 Perpetual Succession enjoyed by the LLP.

1.3 Disadvantages of LLP

Everything comes with a cost, LLP has several benefits, but at the same time, it also has some disadvantages. Decision-making is fast in the instance of LLP but the said is restricted by the potentiality of the member's ability and knowledge.

On one hand, the limited liability characteristic of LP is to the highest degree advantageous to the member, but on the other hand, creditors feel a bit insecure while financing their money in this kind of undertaking.

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ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING

Vol. 6 Special Issue 06, (NC-ETLEB-2021) August 2021 IMPACT FACTOR: 7.98 (INTERNATIONAL JOURNAL) 34 1.4 How LLP is Different from Traditional Partnership:-

 Liability is limited in case LLP, but in traditional partnership partners liability is unlimited.

 There is no limit in case of maximum partners an LLP can have, whereas in the case of traditional partnership maximum limit is 100.

 LLP is governed by the Limited Liability act, 2008, and Traditional Partnership is governed by Partnership Act, 1932.

 There is no need to file an annual return in the case of Traditional Partnership, but for LLP it is necessary to file an annual return with MCA.

 Traditional Partnership gets registered under Registrar of Firms, whereas LLP is registered with the Ministry of Corporate Affairs (MCA).

There is so many other difference between these two concepts. LLP has a greater advantage over traditional partnerships as it removes various problems of traditional partnership which were earlier faced by the businessperson.

1.5 Issues and Challenges of LLP

As it is a very new concept from India's point of view, it will take some time to develop itself via various correction processes. Time is testing the credibility of this form of company, as it provides promising support and features to the young entrepreneurs but at the same time, it creates some worries in the mind of the investors.

 Tax-related provisions are not provided under the Limited Liability Act, 2008.

 There is nowhere mentioned about the implication on converting Company into LLP.

 There is also no exemption provided from Capital gain taxation.

 If a company converts itself into LLP, then there is no going back.

2 IMPACT OF LLP IN ENTREPRENEURSHIP

Less documentation, limited liability, full power are the characteristic of LLP which are appealing to entrepreneurs.

As the COVID condition came into the world, young businesspeople were pleased by these features of LLP to set their enterprise to make themselves self-dependent. LLP is giving the solution for the wants which a young businessperson desire. Most significantly it consists of limited liability which cuts down the risk of other forms of business organization.

LLP is doing fine in the other countries, similar has been hoped-for India that after some time it will going to execute like other states. Being a new idea still requires some care.

3 CONCLUSION

The need of the present time of young business persons is freedom of speech, power over the act he wants to get engaged in, quality of thought. In the case of establishing a business enterprise, a businessperson attempts to get all these freedoms and gains, and LLP is the type of idea which provides most of these attributes.

Yes, there is few unfavorable judgment for this idea, but let's not neglect the benefits it has over the traditional partnership business. Creditors do have some concerns while dealing with an LLP, but the same can be neglected as the other companies enjoy limited liability but still, creditors are dealing with them.

The fast and simple formation of LLP makes it more charismatic, tax benefits and other deductions provided by LLP Act, 2008 is also a plus which is making this idea more bright.

As of now, this idea is dealing with a lot of situations, there is a demand for some shift in the concept which will be certainly be improved as time will pass. As it is a very fresh and exciting form of business, pull in the young generations towards it.

It will be too advance to say that if this idea is has made its place in India or not.

REFERE$NCE

1. Limited Liability Partnership as Advantage to Small Business: Indian Scenario- Deepak Kashyap National Law University Jodhpur (NLUJ), Amit Kumar Kashyap Institute of Law, Nirma University. Limited Liability Partnership as Advantage to Small Business: Indian Scenario by Deepak Kashyap, Amit Kumar Kashyap ::

SSRN.

2. Limited Liability Partnership in India: A New Era Dr. Chitta Ranjan Sarkar, Department of Commerce, The University of Burdwan, Burdwan, West Bengal.

3. Limited Liability Partnership in India- Sharmendra Chaudhry, National Law School of India University (NLSIU) Limited Liability Partnership in India by Sharmendra Chaudhry :: SSRN.

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ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING

Vol. 6 Special Issue 06, (NC-ETLEB-2021) August 2021 IMPACT FACTOR: 7.98 (INTERNATIONAL JOURNAL) 35 4. Limited Liability Parntership Act, 2008.

5. Partnership Act, 1932.