LLP Registration: Limited Liability Partnership
Partnership Firm and its Shortcomings
Before discussing the LLP Registration , let us first understand the Partnership Firm. A Partnership Firm is a partnership arrangement in which the business is owned by its member partners. It is an archaic business model.
This partnership model was conceived in 1932. In that year, the Partnership Act came into effect. The said model has since been a recognized corporate model in India and around the globe. But the Firm Model has its share of shortcomings.
The Partnership Firm is susceptible to structure dissolution if one of its member partners leaves the Firm or dies. Consequently, the partnership arrangement comes to an end. Also, the Firm's partners are responsible for all the losses as well as debt incurred by it.
The personal assets of the member partners are at stake. If the Partnership Firm goes bankrupt or incurs enormous losses, or is debt-ridden, then the partner must pay for them at any cost.
LLP to the Rescue
Now let us talk about the LLP and how it overcame the shortcomings of the Partnership Firm. An LLP is a combination of a Partnership Firm (minus its disadvantages) and an incorporated Company.
The LLP model has many similar features to that of a Company. The Limited Liability Partnership operates as per the regulations of the LLP Act of 2008. Every Limited Liability Partnership maintains, organizes, and operates as per its LLP Agreement.
Purpose of setting up an LLP
To overcome the shortcomings of a Partnership Firm Registration model, the Ministry of Corporate Affairs, to effectively serve the purpose of a Partnership arrangement in running businesses, came up with a new partnership model, i.e., a Limited Liability Partnership.
A Limited Liability Partnership is a joint business with the advantages of a registered company. An LLP is considered a separate legal entity from its member partners. The LLP model limits the liability of its designated partners only to their investments in that Partnership business.
