An LLP or Limited Liability Partnership is a business structure more preferred than a general partnership as it ensures limited liability of the partners. It was introduced in 2008 and is governed by The Limited Liability partnership Act, 2008.
The liability of each partner is limited to the capital he/she has contributed. It has all the features of ease and flexibility of a general partnership and provides an improvement in the form of limited liability.
An LLP Agreement must be executed between the partners detailing the name of the LLP, business to be conducted, names and details of each partner along with intimation of who are the designated partners, the profit and loss sharing ratio and retirement and induction process for partners etc.
An LLP must have at least two partners and there is no ceiling on the maximum. One of the partners of the business must be a resident of India. There is no minimum capital required in private limited company and Rs.5 Lakhs in case of a public limited company.
In an LLP, “Designated partners” will be selected and as such they will be responsible for the day to day management of the LLP and will be key in monitoring the business and filing annual returns and compliances with various government authorities.
- Limited Liability secures the personal assets of partners.
- An LLP is a separate legal entity with right to sue and be sued and own properties in its own name.
- Limited compliance requirement in comparison with a Private Limited company.
- Simple and hassle free to set up as well as wind up.
- No need for compulsory audit unless contributions of LLP exceeds Rs.25 lakhs or the annual turnover of LLP exceeds Rs.40 lakhs.
- The distribution of dividends or partners does not attract the same higher rate of tax as that of a company.
- Inability to attract VC funding as the VC’s will have to become partners if they intend to fund the business as all shareholders in an LLP must be partners.
- Higher penalties for non-compliance- If there is any failure to complete the compliances i.e. File income tax returns, MCA annual return in the Form 8 (Statement of Account and Solvency) and Form 11 (Annual Return) then severe penalty even up to the tune of Rs.5 Lakhs may be levied in a year.
Documents for Designated Partners & Partners
- PAN Card;
- ID Proof – Voters Id / Passport / Driving License (Front and Back);
- Address Proof: Latest Bank statement with transactions or Telephone bill or Mobile Bill;
- Passport Size Photograph;
Documents for registered office address:
- Anyone: Latest Electricity / Gas Bill / Mobile Bill
Procedure for LLP registration
An LLP registration process is very similar to that of incorporating a private limited company but with minor differences.
Step 1- Applying for DSC (the digital signature certificate for designated partners for the purpose of signing the electronic documents while registering online. It is advisable to get a Class 2 or 3 DSC.)
Step 2- Apply for DIN (the Director Identification Number for the designated partners in Form DIR-3. After that eForm 1 is applied for reservation of name of LLP with the MCA (Ministry of Corporate Affairs). It is advised that you make a preliminary check for availability of the desired name at the dedicated search link on the MCA portal)
Step 3- Submitting the eform 2 with requisite fees for the incorporation
Step 4- the final step i.e. post incorporation which is filing the LLP agreement within 30 days from date of incorporation, (Apply for PAN/TAN with the NSDL (National Securities Depository Limited) and with that open bank accounts in your business name and operate your business.)