A Limited Liability Partnership or LLP is a form of business Registration which offers the benefits of limited liability to the partners at low compliance costs.
LLP provides features of a partnership and the company are combined together.
A limited liability partnership is a legal entity, liable for the full extent of its assets
What is an LLP?
LLP or Limited Liability Partnership is an alternative business form that provides the advantages of a limited liability company and the flexibility like that of a partnership firm.
An LLP, therefore, exhibits elements of both partnerships and corporations. This innovative and most awaited form of company was introduced into the Indian corporate world in 2009 by the Limited Liability Partnership act of 2008.
This unique hybrid combination of a limited and partnership company is thus suitable for small, medium-sized businesses or professionals.
Being one of the easiest types of businesses to incorporate and manage there are over one lakh registrations received in India since the introduction. Minimum two partners can incorporate an LLP, there is no upper limit as such.
In an LLP one partner is not responsible for the other partner's misconduct or negligence. The mutual rights and the duties of the partners with an LLP are governed by an agreement that is signed between the partners.
As LLPs, are not capable of issuing equity shares LLPs should not be chosen for any business that plans for raising equity funds Angels investors, Venture Capitalists or Private Equity.
Why register an LLP company? - Benefits
After deciding on your business model, it's important to choose between the Private limited company registration and LLP, by understanding their differences and advantages they provide, so as to choose what’s best for your business model.
The most vital reason for registering as LLP is the limited liability. The members of the firm are only liable for a small amount of debt incurred by it. This is entirely different from proprietorship and partnership where the personal assets of directors and partners are not protected if the business becomes bankrupt.
Seperate Legal Entity:
LLP is a separate legal entity from the partners. Each partner can sue the other in case a situation arises.
It has an uninterrupted existence that follows perpetual succession, i.e., the partners might leave, but the business remains. A term of dissolution has to be mutually agreed on for the firm to dissolve.
Transferring the ownership of LLP is also simple. A person can quickly be inducted in as a designated partner and the ownership switches to them.
Suitable For Small Business:
LLPs having a capital amount less than 25 lakhs and turnover below 40 lakhs per year do not require any formal audits. It makes registering as LLP beneficial for small businesses and startups.
An LLP can own or acquire property because it is recognized as a juristic person. Partners of LLP cannot claim the property as theirs.
No Owner /manager Distinction:
An LLP has partners, who own and manage the business. This is different from a private limited company, whose directors may be different from shareholders. For this reason, VCs do not invest in the LLP structure.
Process of Registration as LLP
Obtaining DSC And DIN
The first step is to obtain DSC of the desired partners of the Limited Liability Partnership. The reason for this is that all the forms need to be submitted online and require the directors' digital signatures.
The law also requires that all directors file for a DIN number. The application has to be made in Form DIR- 3.
Application For Name Approval
This process involves registering the LLP. Before you do this, you would need to see if the name is already taken. You can check on the free search facility on the MCA portal. The registrar only approves LLP names that are not taken before.
The approval of the name will be made by the Registrar only if the Central Government does not deem it undesirable. The name should also not hold any resemblance to any of the existing partnership firms, LLPs, trademarks, or body corporates.
LLP agreement is very crucial in a limited liability partnership as it determines the mutual rights and duties amongst the partners, and between the LLP and the partners. The partners enter into the LLP agreement upon the LLP registration by filing form 3 online on the MCA portal. This procedure has to be done within 30 days of the date of incorporation.
LLP Incorporation Certificate
Once the registrar approves your MOA and AOA, you’re steps closer to getting your LLP registered. The next step is to get the LLP Incorporation Certificate. You can do by submitting all documents to the registrar. The time frame is between 2- 12 days. Once you get your LLP Incorporation Certificate, you’re ready to go.
Apply For PAN & TAN & Bank Account
As soon as you get the incorporation certificate, you need to apply for your company PAN & TAN with the NSDL.
Documents Required for Limited Liability Partnership
For the registration of an LLP in India following documents are required.
For the Partners:
- PAN card or Passport if the applicant is a foreigner.
- Drivers license or Aadhar card, resident card or election card, or any other identity proof issued by the government.
- Less than 3-month-old bank statement or telephone bill.
Registered office proof:
- The authorization from the landlord ( Name mentioned in the Electricity bill or Gas bills or Property Tax receipt or sale deed) to use the premises as a registered office. This acts as a NOC from the landlord and;
- Proof of evidence of any utility services like gas, electricity, telephone depicting the address of the premises bearing the name of the owner or document, which is not old than two months.
Why Prefer LLP Over Partnership?
The main purpose of introducing LLP is to introduce a form of business that provides limited liability to the owners and is comparatively easy to manage and hassle-free. It is an alternative to Partnership firms. Here, we take a look at the major differences between an LLP and a partnership firm.
In an LLP the partners are not responsible to the creditors externally. Hence, the partners are liable to the extent of their contribution to the LLP. On the contrary, in the case of a partnership firm the partners are personally responsible to the creditors. Because of this entrepreneurs may deny being partners in the partnership firm. In an LLP the partners enjoy limited liability protection.
The number of partners
LLP and partnership firms both must have a minimum of 2 partners. However, there is no upper limit in the number of partners in an LLP. Just in case if the number of partners reduces below 2 in a partnership firm due to any reason the firm would stand dissolved. Whereas in the case of LLPs if the number of partners reduces below 2, the sole partner can find a new partner without actually dissolving the LLP.
Central vs State Government
An LLP can shift their registered office and open a bank account anywhere in India as it is registered under the Ministry of Corporate Affairs of India.
The Registrar of firms that registers the partnership firms are controlled by the state government. Hence, it is more tedious to operate or move across India with Partnership firms.
The subsistence of LLP does not depend on its partners. The partners of the LLP can change from time to time, but that will not affect the existence, continuity, or operations of the LLP. In the case of a Partnership firm, the resignation or death of any partner would have huge consequences and the Partnership would have to be reconstituted.
Members can be added to LLP during incorporation or post incorporation. The following persons can be partners in LLP
- Limited liability partnership
- Foreign Limited Liability partnership
- Foreign Companies
The LLP agreement must be executed and filed within 30 days of incorporation of an LLP. If the LLP fails to file the agreement, then there is no agreement and the First Schedule of the LLP Act will administrate the relationship between the Partners and LLP. In case there is written agreement and no detailed declaration about any of the matters dealt with in the first schedule, such matters will be administered by the first schedule.
What Makes an LLP Different From Private Limited Company?
Entrepreneurs starting a new business are always curious about the difference between a Private Limited Company and an LLP, as both of them offer similar features. Here's the comparison between a Private Limited Company and an LLP from an entrepreneur's perspective for starting a new business.
Both LLP and Private Limited company are registered with the Ministry of Corporate affairs under Central Government. The processing time for incorporation of both Private and public limited company takes around 15-20 working days.
- Cost of Registration: The LLPs have been designed to meet the needs of small businesses and hence, the incorporation fee for an LLP is comparatively cheaper than that of a Private Limited Company. LLP registration requires a lesser number of documents that need to be printed on Non-Judicial stamp paper as compared to the Private Limited Company Registration.
- Features: Similar features are offered by LLP and Private Limited Company. Both being separate legal entities have assets and liabilities that are separate from that of the promoters. Even though both LLP and Private Limited companies are transferrable, a Private Limited Company offers more flexibility when it comes to transferring or even sharing of ownerships. Unless closed by the promoters or by a competent authority both Private Limited Company and LLP have a perennial life.
- Ownership: In LLP the partners hold the ownership as well as the powers to manage and control the LLP. Therefore, a Partner in LLP will play a very significant role as he will play the role of both owner as well as a manager. In parallel, flexibility is offered to the promoters by a Private Limited Company when it comes to ownership and ownership sharing.
- Compliance: For LLP and Private Limited Company the Tax Compliances are similar. LLPs enjoy several advantages when it comes to Compliances relevant to the Ministry of Corporate affairs. An LLP doesn't need to have its account audited it the annual turnover of the LLP is less than Rs. 40 lakh and the capital contribution doesn't exceed Rs. 25 lakh. An LLP would however have to file LLP Form 8 and LLP form 11. On the contrary, a Private Limited Company would have to file an annual return with the Ministry of Corporate Affairs each year.
FREQUENTLY ASKED QUESTIONS
How many peoples are required to form an LLP?
A Limited Liability Partnership must have a minimum of two Partners and an LLP can have any number of Partners.
How to be a partner in an LLP?
The designated Partner must be a natural person who is above 18 years of age. LLP Act 2018 allows a foreign national including Foreign Companies to incorporate an LLP in India, provided at least one designated partner is Indian.
How much capital is required to start an LLP?
An LLP can be started with any amount of money. There is no such minimum requirement.
What is Digital Signature Certificate?
A DSC is helpful in identifying the sender or the signee electronically. The Ministry of Corporate Affairs (MCA) has made it mandatory for all the designated partners to apply with the Digital Signatures.
What is DPIN?
Designated Partner Identification Number is a unique identification number that is assigned to all existing and proposed Designated Partner of an LLP. All the present or proposed Directors must have a DPIN.
How long it takes to Incorporate an LLP?
The time taken for incorporation depends on the submission of relevant documents by the client as well as the Approvals from the Government authorities. IndiaFilings can help you Incorporate an LLP in 14-20 days.
Can NRIs / foreign nationals be designated partners in an LLP?
An NRI can be a designated partner in a Limited Liability Partnership if he has a Designated Partner Identification Number. However, at least one Designated Partner in the LLP must be a resident Indian.
Do LLPs allow Foreign Direct Investment (FDI)?
FDI is allowed under automated route in an LLP by the Foreign Investments Promotion Board (FIPB).
Note: Foreign Institutional Investors and Foreign Capital Investors are not allowed to invest in LLPs.
Can we convert a Partnership Firm into an LLP?
An existing partnership firm or a Company that is unlisted can be converted into an LLP. This conversion into an LLP brings in many benefits.
What documents are required for Incorporating an LLP?
For the Partners
1. PAN or Passport
2. Any Identity proof
3. Bank statements
Registered office proof
4. NOC from the landlord to use the premises of the registered office
5. Any utility bills of the premises which is not less than two months.
Is LLP a good idea?
LLP is a combination of both Partnerships and a Limited Company, offering the advantages of both the companies.
What are the Compliances for LLP?
An LLP is supposed to file
1. LLP Annual return by Filing Form 11.
2. Final Statement of Account and Solvency
3. Income Tax Return.
Is it possible for an LLP to raise funds?
An LLP cannot raise funds from the public in any form. In an LLP only partners can contribute their capital and the liability of the Partners is limited to the extent of their contribution.