Introduction
Limited Liability Partnership is a combination of both the features of the flexibility of a partnership and limited liability protection. It is a combination of partnership and company. This new type of business entity was introduced to provide a structure best suited for small enterprises that are willing to gain legal recognition but do not wish to divide the control or management. The LLP partnership enjoys the benefits of a company such as a separate legal entity, perceptual succession, and limited liability. An LLP can continue to exist despite changes in the partners. It is capable of entering into contracts and holding property in its own name. It can sue or be sued in its own name. LLP annual compliance standards are significantly less strict.
Duties of a partner in an LLP
The following duties a partner has to perform in an LLP:
According to section 12(b) of the Indian Partnership Act, 1932 every partner is legally bound to attend to his duties relating to the conduct of the firm’s business. A partner is also not entitled to compensation for taking part in the general management of the business as stated in section 13(a). A partner must also impart his knowledge abilities to his fellow partners. Partners are required to carry on the LLP’s business for the benefit of all partners, to be fair and faithful to one another, and to provide true accounts and detailed info about all things affecting the company to any partner. According to Section 10, a partner of a partnership firm is liable for compensating the firm for any losses suffered as a result of a partner’s dishonesty in the conduct of the firm’s business. If a partner runs a rival business that is identical to the firm’s, the partner is responsible for all earnings produced in the business and must pay them to the firm. As per the provisions, a partner in a partnership firm is obligated to make up for any losses or damages caused by willful negligence in the conduct of the firm’s operations.
Rights of a partner in an LLP Listed below are the right of partners in a Limited Liability Partnership:
1. Right of profit sharing The ability to split gains and losses is one of the fundamental rights (if mentioned in the deed) of partners. The partnership agreement may or may not state the profit/loss sharing percentage. In such cases, the partners may equally split the profits and share equal responsibility for the losses incurred.
2. Participating in business activity Each partner is entitled to take part in business management, subject to the restriction in the partnership firm registration form.
3. Verification of Books of Accounts It is the right of each partner to take part in accounting and bookkeeping. Any of the company’s financial statements, including the trial balance, profit and loss account, and balance sheet, are available for them to read, examine, and copy.
4. Right to get interest in advances A partner is entitled to interest at a rate of 6% per year if he makes an advance to the partnership firm that is greater than the capital he will contribute. Interest on advances continues to accrue until the date of payment, whereas interest on capital accounts stops paying upon dissolution. It should be noted that the Partnership Act, 1932 makes a difference between a partner’s capital contribution and his advance to the business. The capital interest is only repaid with interest if there is an agreement to that effect, whereas the partner’s advance is treated as a loan that must be repaid-with interest.
5. Right of reimbursement Every partner of the company has the right to reimbursement from the company for any costs incurred and obligations assumed in the regular and legal course of the company’s activity. This also includes acting in an emergency to prevent a loss if the payments, liabilities, and activities are those that a prudent person would make, incur, or perform in the same circumstance.
6. Right of profits to a departing partner If a partner dies or ceases to be a partner and the other partners carry on the firm’s business using the firm’s property without settling their accounts with the departing partner or his estate, the departing partner or his estate has the right to such share of the profit made since he ceased to be a partner as may be attributed to the use of his share of the firm’s property or, at his or his representative’s option, at the firm’s property.
Conclusion
In an LLP, the partners are free to create a contract and establish their respective duties and rights. Each partner must work for the company’s greatest common good and to take precautions to prevent any losses because the partnership relationship is built on absolute good faith. Mutual rights of the firm are generally defined by the rules of the agreement, but there are some rights granted by the act that can be cancelled by agreeing to the contrary if there is no clear agreement between the partners.
