What is a Limited Liability Partnership?

What is a Limited Liability Partnership?

A limited liability partnership (LLP) is much used legal business structure in India. Professional & Legal firms such as solicitors and accountants often choose to set up limited liability partnerships. Still, its structure can always be a beneficial option for other categories of business as well.

Limited liability partnerships differ from the ‘traditional’ business partnerships, and the limited company structure and various legislation regulate it, including the Limited Liability Partnership (LLP) Regulations, 2008.

Benefits of an LLP

Professionals who use LLPs tend to rely heavily on reputation. Most LLPs are created and managed by a group of professionals who have a lot of experience and clients among them. By pooling resources, the partners lower the costs of doing business while increasing the LLP’s capacity for growth. They can share office space, employees, and so on. Most important, reducing costs allows the partners to realize more profits from their activities than they could individually.

The partners in an LLP may also have a number of junior partners in the firm who work for them in the hopes of someday making full partner. These junior partners are paid a salary and often have no stake or liability in the partnership. The important point is that they are designated professionals who are qualified to do the work that the partners bring in.

This is another way that LLPs help the partners scale their operations. Junior partners and employees take away the detail work and free up the partners to focus on bringing in new business.

Another advantage of an LLP is the ability to bring partners in and let partners out. Because a partnership agreement exists for an LLP, partners can be added or retired as outlined by the agreement. This comes in handy, as the LLP can always add partners who bring existing business with them. Usually, the decision to add requires approval from all of the existing partners.


LLPs Around the World

LLPs exist in many countries, with varying degrees of divergence from the U.S. model. In most countries, an LLP is a tax flow-through entity intended for professionals who all have an active role in managing the partnership.

There is often a list of approved professions for LLPs, such as lawyers, accountants, consultants, and architects. The liability protection also varies, but most countries’ LLPs protect individual partners from the negligence of any other partner.