An Existing Partner of an LLP be a Partner of another LLP: The partners jointly hold the ownership of a Limited Liability Partnership. The partners in an LLP have distinct rights and responsibilities compared to the rights and obligations of the partners in a traditional partnership. For instance, the partners in a traditional partnership are completely responsible for controlling its management, whereas the partners in an LLP do not get involved in its management to any extent. Moreover, unlike a traditional partnership, none of the partners are 100% liable towards their LLP under any circumstance, whatsoever.
Here, in this blog, we shall discuss whether partners of an LLP can join other LLPs as partners or not.
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Who Can Become a Partner in an LLP?
The LLP Act, 2008 draws eligibility criteria for individuals to become partners in Limited Liability Partnership businesses. Listed below are entities that can collaborate with each other to form a Limited Liability Partnership.
| S.No | List |
|---|---|
|
1. |
All entities registered under the Companies Act, 2013 |
|
2. |
Partnership Firms |
|
3. |
Companies / LLPs registered outside India |
|
4. |
Companies Registered under the Companies Act, 1956 |
|
5. |
Individuals |
Can an Existing Partner of an LLP be a Partner of another LLP?
Under Section 5 of the Limited Liability Partnership Act of 2008, any number of eligible individuals or business entities can become partners in a limited liability partnership. However, for one can become a partner of a limited liability partnership only if:
- A court of law has not found him to be mentally incapable of performing his duties
- Is not an undischarged insolvent
- Has submitted a valid statement of solvency
Contribution of partners in a Limited Liability Partnership
As owners of a Limited Liability Partnership, the partners make significant contributions towards the business. Limited Liability Partnerships offer their partners absolute autonomy over making key decisions for the business they own. Partners can decide how much they will contribute physically and financially towards the operations of the LLP.
However, as far as management responsibilities are concerned, the LLP enjoys the privilege of separation between ownership and management. This means that the owners / partners of an LLP do not get involved in the management of the LLP. The management of the LLP is controlled by a separate authority known as its “designated partners”. This feature of the LLP is completely different from that of a traditional partnership, and is akin to that of a limited company.
As far as the tax contributions of partners in an LLP are concerned, it may be distributed equally or unequally depending on the provisions mentioned in the LLP Agreement, or the terms and conditions mutually agreed between the partners. However, partners are personally liable to pay their personal taxes levied on the income they earn from the LLP. On personal tax returns, the partners can claim the same tax deductions as that claimed by the LLP.
The shortcomings of an LLP
Since, the existence of traditional partnership as well as a limited liability partnership depends upon the existence of the partnership or the LLP Agreement, the death or departure of the partners of an LLP, makes the existence of the LLP impossible, as after the death or departure of the partner completely invalidates the LLP Agreement.
A second major benefit of an LLP is that, the partners here do not have equal voting rights, as is the case in a traditional partnership business. The voting rights of partners in an LLP are divided on the basis of the capital contribution of each partner, or according to the ratio mentioned in the LLP Agreement.
Also, the number of compliances that an LLP has to fulfill throughout a financial year, is way more than that in a traditional partnership. This increases the overall cost of operations of an LLP, when compared to a traditional partnership.
How to Incorporate an LLP as an associate in another LLP
The form for the incorporation of LLP is known as the FiLLiP form, and is available for online filing on the official portal of the Ministry of Corporate Affairs. This form has to be duly filled out and submitted to the Registrar of Companies, in order to incorporate a Limited Liability Partnership. The form is submitted along with the prescribed documents and the prescribed application fee.
Conclusion
According to the Law, any person or company may become a partner in an LLP. This is accurate because an LLP qualifies as a “body corporate” with the exception of cooperative societies created in accordance with the aforementioned Act. For further information, you can read the blog section of Setindiabiz.
I like how this article simplifies LLP partnership rules for easy understanding. It’s a quick and informative read for anyone.