PARTNERSHIP – Relevance and Features
of Limited Liability Partnership
(Limited Liability Partnership Act, 2008)
Difference between Partnership &
Limited Liability Partnership
Prepared by: ________________________
Submitted to: ________________________
Introduction
Partnership has been a well-established form of business organization for centuries,
especially in India, where small and medium businesses often rely on it for its simplicity
and flexibility. The Indian Partnership Act, 1932 governs traditional partnerships, which
are formed when two or more persons agree to share the profits and losses of a business
carried on by all or any of them acting for all. However, traditional partnerships have
inherent limitations, primarily unlimited liability, where partners’ personal assets can be
used to settle business debts.
To address these shortcomings, the Government of India introduced the Limited Liability
Partnership (LLP) through the Limited Liability Partnership Act, 2008. The LLP
combines the flexibility of a partnership with the limited liability feature of a company,
making it a preferred choice for professionals, startups, and SMEs.
Content
Relevance of Limited Liability Partnership
The Limited Liability Partnership structure is increasingly relevant in the current
economic environment for several reasons:
1. It offers limited liability protection, shielding personal assets from business debts.
2. It allows flexibility in internal management through an LLP agreement.
3. It ensures perpetual succession, meaning the entity’s existence is unaffected by
changes in partners.
4. It is cost-effective compared to a private limited company, with lower compliance
requirements.
5. It is recognized as a separate legal entity, enabling it to enter contracts and own
property in its own name.
Features of Limited Liability Partnership
The key features of LLP under the Limited Liability Partnership Act, 2008 are:
• Separate Legal Entity – The LLP exists independently of its partners.
• Limited Liability – The liability of each partner is limited to their contribution.
• Perpetual Succession – Changes in partners do not affect the existence of the LLP.
• No Minimum Capital Requirement – An LLP can be formed with any amount of
capital.
• Contractual Agreement – Governed by an LLP Agreement instead of rigid company law
provisions.
• Taxation – Taxed like a partnership firm, avoiding dividend distribution tax.
• Compliance – Filing of annual returns and statements of accounts with the Registrar is
mandatory but simpler compared to companies.
Difference between Partnership & Limited Liability Partnership
Aspect Partnership Limited Liability
Partnership
Legal Status Not a separate legal entity Separate legal entity under
LLP Act, 2008
Liability Unlimited liability of Liability limited to agreed
partners contribution
Registration Optional Mandatory under LLP Act,
2008
Management Governed by Partnership Governed by LLP
Deed Agreement
Continuity Dissolves on Perpetual succession
death/retirement of a
partner
Compliance Minimal compliance Moderate compliance
requirements
Taxation Taxed as a partnership Taxed as a partnership
Ownership of Property Partners jointly own assets LLP owns assets in its own
name
Analysis / Relevance
The LLP model strikes a balance between ease of operation and legal protection. It caters
to the needs of modern business enterprises, especially in the service sector where
professional expertise and collaboration are key. LLPs are highly suitable for chartered
accountants, lawyers, architects, consultants, and IT firms.
In comparison to traditional partnerships, LLPs mitigate financial risks for partners and
ensure continuity of business. While compliance requirements are higher than a simple
partnership, they are significantly lower than for companies, making LLPs a practical
choice for many businesses.
Conclusion
The Limited Liability Partnership has emerged as a modern and efficient business
structure in India. Introduced through the LLP Act, 2008, it combines the operational
flexibility of a partnership with the limited liability of a company. This makes it ideal for
professional firms, startups, and SMEs. While traditional partnerships remain relevant for
small-scale, informal businesses, LLPs provide greater legal protection, credibility, and
scalability.
References
1. Limited Liability Partnership Act, 2008.
2. Indian Partnership Act, 1932.
3. Ministry of Corporate Affairs, Government of India – www.mca.gov.in
4. Kansal, A. (2019). Business Law. McGraw Hill Education.
5. Singh, A. (2021). Company Law and Practice. Taxmann Publications.
