Limited Liability Partnership: How to incorporate it in India?

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Limited Liability Partnership

Limited Liability Partnership (LLP) is a blend of a Partnership Firm and Private Limited Company and is more preferred by a budding entrepreneur. Further, it is the easiest and simplest form of business with the benefit of limited liability. Furthermore, it gives autonomy to the partners to form a partnership firm where the liability of each concerned partner is limited to the extent of the amount they contribute to the business. Lastly, a Limited Liability Partnership means that if in case the firm fails in making payment, then also the creditors cannot ask for a partner’s personal income or property. 

The LLP is normally a preferred form of business among those who are either professional service providers or the owners of the small and medium-size business. Further, the businesses which are either family-based or closely held by few people notably go for an LLP registration in India. It is governed and administered by the Limited Liability Partnership (LLP) Rules, 2009 and the Limited Liability Partnership Act, 2008. 

Further, as per the act, the Limited Liability Partnership (LLP) is a corporate or incorporate body established under this act. Furthermore, the LLP enjoys the status of a separate legal entity distinct from its partners and also has a feature of perpetual succession. Lastly, the changes or the modifications among the partners will not affect the rights, existence, and liabilities of the LLP. Hence, the Limited Liability Partnership (LLP) is an advanced version of a Private Limited Company.

What are the Features of a Limited Liability Partnership?

Following are the features of a Limited Liability Partnership (LLP) – 

  1. Corporate Body – According to Section 3 of the Limited Liability Partnership Act, 2008, an LLP firm is a corporate body which has come into existence with effect from 1 April 2009. It is significant to mention that though an LLP firm is an advanced version of a Partnership Firm, but it is not regulated and governed by the Indian Partnership Act 1932.
  2. Perpetual Succession – A Limited Liability Partnership (LLP) firm has a feature of perpetual succession, which means the existence of the business will continue even after the insanity, retirement or death of one or more respective partners working in the firm.
  3. Limited Liability – One of the most important and significant features of LLP firm is limited liability. This means that all the partners working in a firm are not required to use their personal assets for paying off the losses or debt incurred by the firm. Besides this, all the innocent partners of a Limited Liability Partnership (LLP) firm are also not liable for paying off for the wrong deeds done by some any other partner.
  4. Least Requirements – An individual can start an LLP firm with just two people out of which one should mandatorily be an Indian resident. Further, the designated partners of an LLP firm can either be an individual or a corporate structure. Moreover, there is no prescribed capital requirement for incorporating a limited liability partnership firm in India.
  5. Limited Liability Partnership Agreement – An agreement which is printed on a stamp paper and duly signed by all the partners working in a firm is known as the LLP Agreements. Further, this agreement defines the roles and duties of the partners working in the firm. It helps them in the decision making process.
  6. Easy Online Registration Process and e-Filing – MCA (Ministry of Corporate Affairs) has simplified the procedure for LLP registration by making it online. The forms required and the documents are now filed electronically on the official MCA (Ministry of Corporate Affairs) portal. Further, a designated partner of an LLP firm has to obtain DSC (Digital Signature Certificate) to sign these documents and forms.
  7. Easy Conversion – If a public or private limited company or a partnership firm decides to come out as a limited liability partnership (LLP) then they can easily convert their organization as per the regulations and provisions of the applicable act.
  8. Business Management – The business is managed and administered by the respective partners as per their designated roles and duties. Further, the designated partners of the firm are responsible and accountable for the legal compliances.
  9. Profit-Sharing Business – Profit is equally distributed amongst all the partners of a limited liability partnership (LLP) firm. An LLP cannot be registered for a charitable purpose. It’s sole and, the core purpose is to carry out business activities with the motive of earning profit.

What are the Types of Forms required in Registration of a Limited Liability Partnership?

Name of the FormPurpose
RUN-LLPA Form required for the firm’s name registration
FiLLiPIncorporation of a Limited Liability Partnership
Form 5Notice regarding the name change
Form 17An application form required for the conversion of a firm into Limited Liability Partnership
Form 18An application form required for the purpose of converting a private or a public limited company into an LLP

What are the Documents required for LLP Registration?

Following are the Documents required for the purpose of LLP Registration –

  1. Documents required from the Partners
  • PAN Card – All the partners working in the firm are required to provide their PAN Card details at the time of the LLP registration. Further, it also works as a partner’s primary identity proof.
  • Address Proof – Respective partners can file any documents such as their Aadhar Card, Passport, driving license or the voter card. But, it is necessary to sure that the details of the residential or the address proof must match with the details mentioned on the PAN card. In case of any spelling mistake, they must get it correct before the actual submission.
  • Identity Proof – All the Partners working in the Firm are required to file a copy of either of the following -Voter ID card, Driving License, Aadhar Card. Further, it is significant to note that all the details must match the details mentioned on the PAN Card.
  • Passport Copy – It is mandatory and compulsory for the NRIs and foreign nationals to file a copy of the passport at the time of LLP registration. Further, the passport must be duly notarized by the appropriate authorities or else can also be done by the Indian embassy located in the respective country. Furthermore, besides this, they also have to submit their residential proof. If in case it is in some other language than English, then they are required to attach a notarized or the translation copy together with the concerned documents.
  • Passport Sized Photographs – All the partners working in a limited liability partnership (LLP) firm have to submit their passport-sized photographs with a white background.
  1. Documents required from the Firm
  • Address Proof – An applicant of an LLP firm is required to submit the residential or the address proof of the registered office within thirty days of the registration. If in case the registered office is on rent, then the rent agreement together with the No Objection Certificate (NOC) has to be submitted.

Further, the applicant concerned can submit any of the utility bills such as the gas bill, electricity, telephone for the residential proof. But, it is important to make sure that the bill should be the latest one and must not be older than two months. Further, the bill concerned must contain the complete residential address of the concerned premises.

  • Digital Signature Certificate (DSC) – Any of the designated partners of the LLP firm can go for a DSC (Digital Signature Certificate) that would be needed to sign all the required forms on a digital platform.

What is the Procedure prescribed for obtaining LLP Registration?

Obtaining online LLP registration is an easy procedure that can be completed with just four steps of registration and three post-incorporation steps. 

Here is the complete step by step guide for obtaining a Limited Liability Partnership (LLP) firm Registration in India – 

  1. Obtain a Digital Signature Certificate – The first and foremost step is to obtain the DSC (Digital Signature Certificate) for a designated partner of the LLP firm. Further, obtaining DSC is important and crucial because LLP registration is purely an online process, and all the required documents and forms are to be signed digitally. Furthermore, the designated partner has to obtain their DSC (Digital Signature Certificate) from the government recognized agency. That’s why the cost of obtaining DSC may vary from one agency to another agency. Lastly, it is significant to note that the designated partner must obtain a class three or a class of two DSC certificate.
  2. Obtain a DPIN for all the Partners – Designated Identification Partners Number or DPIN is a mandatory and compulsory requirement for all the designated partners of a limited liability partnership firm. Further, Form DIR-3 is filed to obtain a DPIN. For obtaining the applicant has to annex a scanned copy of the Aadhar card and PAN card together with the form which must be signed by the CS (company’s secretary) or by the MD (Managing Director) /CFO Chief Financial Officer /CEO (Chief Executive Officer) of the limited liability partnership (LLP) firm in which he or she is appointed as a director.
  3. Firm’s Name – The third step is regarding the reservation of a name for the limited liability partnership firm. For the purpose of reservation, an applicant has to submit LLP-RUN form. Further, the name chosen must be unique and non-offensive. For this, the applicant can make use of the free name search facility offered on the MCA (Ministry of Corporate Affairs) Portal. Further, the system is quite helpful and also provides a list of names akin to the firm’s name. Furthermore, this would also be helpful in selecting an appropriate name. The applicant concerned can provide up to two names that would further be evaluated by the registrar of companies (ROC0. In case of any rejection or objection, the applicant concerned can re-submit the form after fifteen days of the rejection.
  4. Firm’s Incorporation – Once the name has been selected for the limited liability partnership (LLP) firm, the concerned applicant can move ahead in the process of LLP incorporation. For this, he or she has to file the form FiLLiP, i.e. Form for the incorporation of a Limited Liability Partnership. This form is filed with the registrar of the firm of the particular state in which the registered office is located. The concerned applicant then has to pay a specific amount as the incorporation fees as per the Annexure “A”. Lastly, it is significant to note that all the documents and applications submitted are duly checked and verified by the authorities concerned, and if all goes well, the certificate for incorporation.

What are the Post Incorporation Compliances for the Registered LLP?

Just like the registration procedure, post compliances are also crucial and important. Once, the LLP concerned has been successfully incorporated, the applicant has to fulfil the post-incorporation compliances that are required for a single time only.

  1. LLP Agreement – The LLP agreement is an important and essential document that basically demarcates the rights and duties of all the respective partners. Further, it helps to avoid any future conflicts and disputes amongst the partners. Hence, it helps in maintaining peace and prosperity in the firm. 
  2. PAN and TAN – Apply for the PAN and TAN after the completion of the incorporation process, as without it, the firm cannot open a bank account for carrying on further transactions.
  3. Open a Bank Account – Once the applicant has got his or her PAN, now the next step is to open a bank account in the firm’s name to carry out financial transactions.

What is the difference between a Limited Liability Partnership and Private Limited Company?

Points of DifferenceLimited Liability Partnership (LLP)Private Limited Company
Number of membersThe number of members required for the incorporation of an LLP is two, but no maximum limit is prescribed regarding the members required in the Limited Liability Partnership.The numbers of members required to establish a Private Limited Company is also two, but this count can extend up to two hundred in the case of a company.
Minimum CapitalThere is no prescribed minimum paid-up capital in the case of LLP.The minimum paid-up capital required for the incorporation of a Private Limited Company is Rs one lakhs.
ApplicabilityThe LLP is guided and regulated by the provisions and regulations of the Limited Liability Partnership Act 2008.The Private Company is guided and regulated by the provisions and regulations of the Companies Act 2013.
CompliancesThe cost of statutory compliances is comparatively less in LLP.The cost of statutory compliances is comparatively more in the company.
Registering AuthorityThe registering authority in the Limited Liability Partnership is the registrar of the LLP. Further, the cost of LLP registration is also less.  The registering authority for the private company is the ROC (registrar of the company). Further, the cost of registration of a Private Limited Company is more.
Audit RequirementsAuditing is needed when the annual turnover exceeds the threshold of Rupees forty Lakhs or when the contribution of capital is more than Rs 25 Lakhs.Auditing is must for every Private Limited Company regardless of the amount contributed as the share capital.
Accounting MethodThe method of cash accounting cannot be usedThe method of mercantile accounting is used.
Taxation Benefit
  • Both the Wealth-tax and the surcharge are not applicable.
  • The dividend distribution tax is also not applicable.
  • A loan to partners is not taxable.
  • Exemption of tax can be easily be claimed in the case, the money spent is for the benefit of the employees.
  • The rate of minimum alternate tax (MAT) is uniform.
  • Wealth tax is charged at a rate one per cent, and the surcharge is also applicable when taxable income exceeds the threshold of one crore.
  • The dividend distribution tax (DDT) is applicable.
  • A loan to the director is taxable and considered as deemed dividends.
  • There is no exemption of tax in the case, where the money is used for the benefit of the concerned employees.
  • The rate of minimum alternate tax (MAT) is not uniform.
TransferabilityIn the case of LLP, the shares can be allowed to transfer only by executing a written agreement before the notary public.There is no agreement between the shareholders, which is binding either on the company or on the concerned shareholders. Further, the transfer of the company’s shares can only be restricted by the Article of Association.

 

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