Through my last post i indicated the advantages and disadvantages of Private limited companies and Partnership firms which are the most popular form of organisations in India. Through this post we will have a look at the new form of organisation and how it brings the good elements of partnership firms and limited companies. LLP stands for Limited Liability Partnership. The name itself shows that it is a mixture of Limited company and Partnership. In middle east and other parts of the world, it is commonly known as LLC or Limited Liability Company.
How it solves the drawbacks of Partnership:
(a) Separate legal status : LLP has a separate legal status from its members whereas partnership firm doesnt possess this. The separate legal status allows the LLP to own property, to sue others and to be sued by others, transfer property etc thus providing a complete corporate status to the organisation whereas this element is missing in partnership. In partnership the organisation's existence completely depend upon the members. It has no separate legal status.
(b) Limited Liability : The member's liability in the case of an LLP is limited to the extent of amount remaining unpaid on the agreed amount of contribution. That means the creditors cannot make his estate liable for the debts of LLP. This feature is not present in Partnership firms and hence a partner can be made personally liable for the debts of partnership firm. This corporate facade is the highlight of LLP.
(c) Number of Members : A partnership firm can have a maximum of 20 members whereas LLP can have UNLIMITED number of members...!! That means LLP has got similar status of a public limited Company and hence the resources are unlimited. The above said features makes LLP a much preferable form of organisation than Partnership firms.
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