Why choose LLP- The ability of an LLP to contract and sue

Introduction

A limited liability partnership is a business structure that has the features of both, a partnership and a company. An LLP registration comes under the purview of the Ministry of Corporate Affairs (MCA) and the Limited Liability Partnership Act of 2008. Limited liability is the most important characteristic of an LLP. It means that the ability of an LLP allows partners to be free from any obligation to use their personal assets to pay off the debts of the company, unlike in the Partnership Act of 1932. LLP is a separate legal entity distinct from its owners. This allows it to enter into a contract and have a property in its own name. It is not a new concept in the 22nd century. The formation of an LLP includes features of a partnership and a corporation. Also, it gives a person a freer and a positive approach towards the formation of an enterprise. In this article, we will talk about LLPs in details, as well as different aspects of them, such as Perpetual succession in LLP, LLPs ability fo enter into a contract, Limited Liability, etc.

The Ability of LLP to Enter Into a Contract

Section 3 of the Limited Liability Partnership Act of 2008 states an LLP to be a body corporate. In addition, the requirements of the Indian Contract Act of 1872 includes the capacity to enter into a contract. Hence, it is important to note that the same runs co-extensive as in the case of an LLP also.

Considering the power to contract, the separate legal entity concept is important. As an LLP, it is also a form of a company. It means that the ability of an LLP covers everything that a natural person can do including the capacity to enter into a contract, “to sue and to be sued.” Change in the partner of an LLP does not affect its existence. It is a feature of an LLP. An LLP is an artificial person. It has a character that is distinct from its partners. It means that an LLP is able to exist is separate from its partners. Also, the law states that LLPs have a separate legal existence.

An LLP is a separate legal entity while the partnership is not. Here’s a read to burst myths regarding LLP in India.

Capacity to Sue and to be sued

Capacity means the legal competence of a person. It implies that LLPs have such competence that it can bring upon a case against someone. And that someone may also sue the LLP for any wrong done to him.  

The fact is that an LLP is also the classification of a form of company. And, it can now be said that a company has the capacity to sue and to be sued. An LLP must also come into the same domain. An LLP is also a subset of the term company. One can sue both the partnership and its partners, for damages and liability.  LLP is liable for wrongful acts or omissions of a partner done in the course of his employment or with the authority of the LLP. Hence, we may conclude that to make a person liable for something, he must have such a capacity that he may be made liable. And that the person should also have the capacity to make liable someone who does any wrong to him. Thus, LLPs have such an ability.

Benefits of Having a Limited Liability

The members of an LLP are only the agents of such an enterprise. It means that the liability of the members is only limited to the amount of their respective contributions. It also includes any undrawn profits, out of such a formation. Then, there are exceptions, which include negligence, wrongful trading, personal guarantees, etc. Thus, the most important and useful aspect of an LLP is the limited liability of its members. It is not so, under the Partnership Act of 1932. Moreover, there would be no resort to the attachment of the personal assets of the other partners. Except for the one who is personally liable for the negligence, others are free.

Perpetual succession in LLP

Perpetual succession in LLP means that an LLP continues to exist until it is wound up or struck off. Under the provisions of the Limited Liability Partnership Act, LLPs have perpetual succession. A general partnership firm does not observe perpetual succession. It means the ability of LLP allows it to continue with its business regardless of possible partner change. Also, it can hold properties in its own name. The reason is that it is an independent entity separate from its individual partners. While a standard partnership refers to its partners, an LLP is independent of its partners.

Conclusion

An LLP is a great business structure to go for. Especially for small business owners as it will provide you with all the benefits of a company as well as of a partnership firm, and at the same time ensure you do not have to deal with the issues of partnership firms and companies. LLPs are also fairly cheap to incorporate as have very few compliance requirements. This added with the benefit of Perpetual succession, makes it a great choice.