Definition A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company. Another important feature of LLP is that each partner is not responsible or liable for another partner’s miscoRead more
Definition
A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company.
Another important feature of LLP is that each partner is not responsible or liable for another partner’s misconduct or negligence.
LLP as constituted in INDIA:
The limited liability partnership act, 2008 came into effect on 31st march, 2009. LLP is different from a partnership as it operates like a partnership, but in an LLP each partner is protected from personal liability, except to the extent of his capital contribution in the LLP.
• LLP is subject to income tax like any other partnership firm.
• A partner is not liable for independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner‘s wrongful business decisions or misconduct.
• LLP is a body corporate and legal entity separate from its partners. It has perpetual succession like a limited liability company.
Indian partnership act 1932 is not applicable to LLPs and also the limit on the number of partners in an LLP is not applicable, unlike an ordinary partnership firm where the maximum number of partners cannot exceed the number specified under SEC 464 of Companies Act 2013, which at present is 50.
The LLP Act, 2008 specifies that a least one of the partners in the LLP is a citizen of India and an Indian national.
• The Registrar Of Companies ( ROC) is authorized to register and control LLPs.
Characteristics
• Separate legal entity :
Like a company, LLP also has a separate legal entity. Therefore partners and LLP are distinct from each other, like a company where the company has a legal entity separate from its shareholders.
• Minimum capital :
LLP is not required to maintain minimum capital. Thus partners in LLP decide how much capital will be contributed by each partner.
• The Minimum number of members :
An LLP can be established with at least two members who shall also be the designated partners and shall have Director Identification Number (DIN).
There is no limit on the maximum number of partners. Members other than designated partners are required to have DIN.
• Audit is not mandatory :
All companies, whether private or public, are required to get their accounts audited. However, an audit of LLP‘s books of accounts is not mandatory except :
• If the contribution of the LLP exceeds Rs 25 lakhs: or
• If the annual turnover of the LLP exceeds Rs 40 lakhs.
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Definition Goodwill is an intangible asset that places an enterprise in an advantageous position due to which the enterprise is able to earn higher profits without extra effort. For example, if the enterprise has rendered good services to its customers, it will be satisfied with the quality of its sRead more
Definition
Goodwill is an intangible asset that places an enterprise in an advantageous position due to which the enterprise is able to earn higher profits without extra effort.
For example, if the enterprise has rendered good services to its customers, it will be satisfied with the quality of its services, which will bring them back to the enterprise.
Features
The value of goodwill is a subjective assessment of the valuer.
• It helps in earning higher profits.
• It is an intangible asset.
• It is an attractive force that brings in customers to the business.
• It has realizable value when the business is sold out.
Need for goodwill valuation
The need for the valuation of goodwill arises in the following circumstances :
• When there is a change in profit sharing ratio.
• When a new partner is admitted.
• When partner retires or dies.
• When a partnership firm is sold as a going concern.
• When two or more firms amalgamate.
Classification of goodwill
Goodwill is classified into two categories:
• Purchased goodwill
• Self-generated goodwill
Purchased goodwill :
Is that goodwill acquired by the firm for consideration whether paid or kind?
For example: when a business is purchased and purchase consideration is more than the value of net assets the difference amount is the value of purchase goodwill.
Self-generated goodwill
It is that goodwill that is not purchased for consideration but is earned by the management’s efforts.
It is an internally generated goodwill that arises from a number of factors ( such as favorable location, efficient management, good quality of products, etc ) that a running business possesses due to which it is able to earn higher profits.
Methods of valuation
1. Average profit method
2. Super profit method
3. Capitalization method
Average profit method: goodwill under the average profit method can be calculated either by :
• Simple average profit method or
• Weighted average profit method
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