Limited liability partnership


A limited liability partnership is a partnership in which some or all of the partners have limited liability. An LLP is the partnership form of a limited liability company and has aspects of both partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This distinguishes an LLP from a traditional partnership in which each partner has joint liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Depending on the jurisdiction, however, the limited liability may extend only to the negligence or misconduct of the other partners, and the partners may be personally liable for other liabilities of the firm or partners.
Unlike corporate shareholders, the partners have the power to manage the business directly. In contrast, corporate shareholders must elect a board of directors under the laws of various state charters. The board organizes itself and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. An LLP also contains a different level of tax liability from that of a corporation.
The combination of the flexibility of the partnership structure with the protection from liability for the individual negligence or misconduct of other partners makes the structure attractive to professional-services firms with potentially large exposure to professional malpractice claims in the absence of limited liability. The form has thus historically been adopted most widely by law firms and accounting firms.

Effect of limited liability

Limited liability partnerships, as well as all forms of limited liability companies, offer alternatives to traditional company and corporate structures. Limited liability can enable opportunities for new business growth that were formerly accessible only to those who had access to large amounts of capital or other resources.
Depending on jurisdiction and industry, there can be negative consequences for stakeholders associated with limited liability. For some large accountancy firms in the UK, reorganizing as LLPs and LLCs has relieved them of owing the "duty of care" to individuals and clients who are adversely affected by audit failures.
Accountancy firm partners share the profits, but don't have to suffer the consequences of negligence by firm or fellow partners. Not content with lobbying and financing political parties to get their way, accountancy firms have hired entire governments to advance their interests. PricewaterhouseCoopers and Ernst &Young hired the legislature of Jersey to enact an LLP Bill, which they themselves had drafted. They awarded themselves protection from lawsuits, with little public accountability... Accounting is central to all calculations about institutionalised abuses, tax and responsibility avoidance.

In the U.S., the Delaware Supreme Court Chief Justice Myron Steele suggested that limited liability entities should not be held to common law standards of fiduciary principles. Instead, he argued that courts should use contractual analysis of the partnership agreement when assessing cases of improper corporate governance. This directly led to elimination of the "independent fiduciary duty of good faith" in Delaware corporate law in 2006.

Worldwide

When limited liability partnerships are authorized by law, in contrast with limited partnerships, the jurisdiction in which a LLP is formed may extend limited liability to all of its partners, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor.
In some jurisdictions, an LLP must have at least one person known as a "general partner", who has unlimited liability for the company.
There is considerable difference between LLPs as constituted in the U.S. and those introduced in the UK under the Limited Liability Partnerships Act 2000 and adopted elsewhere. The UK LLP is, despite its name, specifically legislated as a corporate body rather than as a partnership.

Australia

Partnerships are governed on a state-by-state basis in Australia. In Queensland, a limited liability partnership is composed of at least one general partner and one limited partner. It is thus similar to what is called a limited partnership in many countries.

Canada

All provinces and territories—except Yukon, Prince Edward Island, and Nunavut—permit LLPs for lawyers and accountants. In British Columbia, the Partnership Amendment Act, 2004 permits LLPs for lawyers, accountants, and other professionals, as well as businesses.

China

In China, the LLP is known as a special general partnership. The organizational form is restricted to knowledge-based professions and technical service industries. The structure shields co-partners from unlimited liabilities due to the willful misconduct or gross negligence of one partner or a group of partners.

France

There is no exact equivalent of a limited liability partnership in France. A limited partnership is equivalent to the French law vehicle known as a fr:Société en Commandite. A partnership company can be an equity partnership, known as a fr:Société en Participation, or a general partnership, known as a :fr:Société en Nom Collectif.

Germany

The German Partnerschaftsgesellschaft or PartG is an association of non-commercial professionals, working together. Though not a corporate entity, it can sue and be sued, own property and act under the partnership's name. The partners, however, are jointly and severally liable for all the partnership's debts, except when only some partners' misconduct caused damages to another party — and then only if professional liability insurance is mandatory. Another exception, possible since 2012, is a Partnerschaftsgesellschaft mbB where all liabilities from professional misconduct are limited by the partnership's capital.
The Partnerschaftsgesellschaft is not subject to corporate or business tax, only its partners' respective income is taxed.

Greece

An LLP is an approximate equivalent to the Greek ΕΠΕ, meaning Company of Limited Liability. In an ΕΠΕ the partners own personal shares that can be sold by a partner only when all other partners agree. The business management can be exercised either directly by the board of partners or by a General Manager. In the aspect of liability, an ΕΠΕ is identical to an LLP.

India

was published in the official Gazette of India on 9 January 2009 and has been in effect since 31 March 2009. However, only limited sections of the Act have been ratified. Rules of the Act were published in the official Gazette on 1 April 2009 and amended in 2017. The first Indian limited liability partnership was incorporated on 2 April 2009.
In India, as in many other jurisdictions, a limited liability partnership is different from a limited partnership. An LLP operates like a limited partnership, but in an LLP, each member is protected from personal liability, except to the extent of their capital contribution to the LLP.
  1. In India, for all purposes of taxation, an LLP is treated like any other partnership firm.
  2. Liability is limited to each partner's agreed upon contribution to the LLP.
  3. No partner is 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.
  4. An LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. The Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on the number of partners in an LLP, unlike an ordinary partnership firm where the maximum number of partners can not exceed 20.
  5. The Limited Liability Partnership Act has a mandatory requirement that one of the partners in the LLP must be an Indian.
  6. Provisions have been made for corporate actions like mergers and acquisitions.
  7. While enabling provisions in respect of winding up and dissolution of LLPs have been made, detailed provisions in this regard would be provided by way of rules under the Act.
  8. The Registrar of Companies shall register and control LLPs.

    Characteristics

  9. Separate legal entity: Like a company, an LLP is a separate legal entity from the people that constitute it. Thus, in law the partners and the LLP are distinct from each other. This is like a company where directors are different from the company.
  10. No requirement of minimum capital: A minimum amount of capital is required to be contributed by the members or owners who want to form a company, but there is no minimum capital requirement to form an LLP.
  11. Minimum number of members: To start a limited liability partnership, at least two members are required initially. However, there is no limit on the maximum number of partners.
  12. No requirement of compulsory audit: All companies, whether private or public, irrespective of their share capital, are required to get have accounts audited by a practicing Chartered Accountant in India. But in the case of an LLP, there is no such mandatory requirement. A limited liability partnership is required to be audited only if:

    Benefits

  13. It is more flexible to organize the internal structure of an LLP. Comparatively, it is complex to organize the internal structure of a company.
  14. There is no maximum limit for the number of partners in an LLP. In a private limited company, there can be a maximum of 200 shareholders.
  15. Raising and utilization of funds depends on the partners' will. Funds can be bought and utilized only as per the norms listed under the Companies Act, 2013.
  16. LLPs are exempt from the Dividend Distribution Tax. In contrast, a company has to pay DDT on dividend distribution.
  17. Professionals like chartered accountants, cost accountants, advocates, engineers, and doctors may prefer to register a trade association as an LLP.