Limited Liability Partnership
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What is a Limited Liability Partnership?
An LLP or Limited Liability Partnership is an improvised form of the traditional Partnership Firm. It is, in a sense, the best in terms of the Flexibility offered by a Partnership and the Stability offered by a Private Limited Company.
Envisaged under the Limited Liability Partnership Act, 2008, an LLP is brought into existence by way of an LLP agreement. In the event where the Agreement is absent, or if the Agreement does not address any particular matter, the Act provides for a schedule that governs the business and functions of the LLP.
As the name suggests, the liability of the partner is limited to the extent of their contribution in the LLP. The Creditors or Lenders cannot sue the owner’s personal assets in case of any shortfall.
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Characteristics or Features of Limited Liability Partnership Firm
Independent Separate Legal Entity
An LLP is a Separate Independent Legal Person established under the LLP Act 2008. As such, the business is separate from its partners.
Limited Liability
Limited liability partnership protects your personal assets with the “Limited Liability” feature. Maximum Liability of the partners is limited to the extent of their contribution.
No Minimum Capital Requirement
There is no minimum Capital contribution required to start a Limited liability Partnership.
No Share Capital
LLP does not have the concept of shares like a private limited company or one person company.
Uninterrupted Existence or Perpetual Succession
An LLP has perpetual existence. Which means, they continue to do business even if the partners / directors changed or died (which is not the case of Sole Proprietorship or Partnership Firms).
Minimum Two Designated Partners
- The minimum number of designated partners required to incorporate an LLP is two.
- There is no upper limit on the maximum number of designated partners.
- Among the partners, there should be two designated partners and at least one of them should be an Indian resident.
Lesser compliance requirements
Post incorporation compliance in an LLP is lesser when compared to a Private Limited Company, like board meetings, etc are not mandatory and Statutory Audit by a Chartered Accountant (CA) is not mandatory.
The annual filings of an LLP: Form 8 and Form 11
Form 8 (Statement of Account and Solvency):
It is a document prepared and filed by the Designated Partners with the Registrar of Companies. It must state the ability of the LLP to pay off its debts and dues. Form 8 needs to be filed within 30 days of the end of 6 months from the closure of the financial year to which the statement of account relates, and should be accompanied by the requisite fee.
Form 11 (Filing Annual Return):
It is a document specifying details of the Partners, their contributions, etc. The same needs to be filed within 60 days of the closure of the financial year.
When to consider Registering a Limited Liability Partnership?
Firstly understand that it is NOT at all mandatory to register an LLP for starting a business in India. There are many other ways to start a business. So, consider the below points before deciding to choose the Limited Liability Partnership as your choice of entity to do business.
Opt for a Limited Liability Partnership:
- When you want to have lesser legal compliance, as compared to a Private Limited Company
- If you want to Limit your Liability
- If you have or are considering Expansion Plans for your business
- When you need a separate “Legal Identity” for your business
- Where you don’t want to use your personal assets as collateral
If you have any confusion in choosing the right form of entity for your business, feel free to get in touch with us. Our Business Expert will guide you with the proper form of entity, suitable for your needs.
Steps for Registering / Incorporating a Limited Liability Partnership
Step 1: Obtain Digital Signature Certificate or DSC
It is mandatory for all the Designated Partners (DP) to have a valid Digital Signature Certificate (DSC). The registration process is online and the forms need to be signed electronically using the digital signature. The Digital Signature Certificates (DSC) must be obtained only from government recognized certifying agencies.
Step 2: Name Approval / RUN – LLP (Reserve Unique Name for Limited Liability Partnership)
In order to register or incorporate an LLP in India, the proposed name should be approved by the MCA Authorities. RUN-LLP (Reserve Unique Name-Limited Liability Partnership) is filed for the reservation of the name of proposed LLP. It shall be processed by the Central Registration Centre.
The proposed LLP Name should be unique and should NOT have been taken by any other business. Availability of the name can be searched on http://www.mca.gov.in/mcafoportal/showCheckCompanyName.do
Also, the proposed company name should NOT be already Trademarked by anyone else. You can check the Trademark availability here https://ipindiaonline.gov.in/tmrpublicsearch/frmmain.aspx
Step 3: Incorporation of LLP – FILLIP form
The form used for incorporation or registration of the LLP is FiLLiP (Form for Incorporation of Limited Liability Partnership). It shall be filed with the respective Registrar of Companies (RoC) in which the registered office of the LLP is situated. This form also provides for applying for allotment of DPIN (if the proposed designated partner does not have a DPIN or DIN).
Step 4: Filing of LLP Agreement via form-3
The Agreement (LLP Partnership Deed) covers the rights and obligations amongst the partners and also between the LLP and its Partners.
An LLP Agreement should at the minimum, cover the following matters:
- Name of the Business
- Registered Office of the firm
- Nature of Business to be carried on the LLP
- The Name and Details of the Partners, including those of the ‘Designated Partners’
- The Capital Contribution of each Partner
- Profit and Loss sharing ratio
- Conditions for Admission of a New Partner
- The manner in which a Partner may retire
- The rights and duties of Designated Partners
LLP agreement should be printed on a Stamp Paper. The value of the stamp paper depends on the place of registration and the contribution. LLP agreement should be filed within thirty (30) days from the date of incorporation via form 3 on the MCA portal (http://mca.gov.in).
List of Documents Required for the Registration of a Limited Liability Partnership
Documents relating to Designated Partners:
PAN Card of the Designated Partners / General Partners
ID Proof – Voter’s ID / Passport / Driving License / Aadhaar
Address Proof – Latest Bank statement with transactions / Telephone bill / Mobile Bill not older than 60 days
Passport Size Photograph
Documents relating to Registered Office:
Address Proof of the Premises:
Rental agreement or Lease agreement if the premise is rented / leased.
Latest Property Tax payment receipt / Sale Deed if the premise is owned.
Latest Electricity bill / Telephone bill / Gas bill
NOC from the owner of the premise
Timeline – Time Taken to Register a Limited Liability Partnership in India
Normally, if everything is in order, it may take anywhere between 18 to 20 business days for registering an LLP. Below, breakup depicts the approximate timeline required for registering a Limited Liability Partnership in India:
This timeline is further subject to Government processing, approval time, public holidays, etc.
Limited Liability Partnership / LLP Incorporation or Registration Fees and Cost
FAQs for Private Limited Company Registration in India
How many partners are required to form an LLP?
An LLP must have a minimum of two partners. There is no upper limit on the number of partners.
Is there any restriction on the type of partners in an LLP?
Partners in an LLP can be individuals, corporations, or other LLPs. There is no requirement for a designated ‘active’ partner, but at least one partner should be a resident of India.
What is the liability of partners in an LLP?
The liability of partners in an LLP is limited to their agreed contribution to the LLP. This means their personal assets are protected from business liabilities.
What is the process of incorporating an LLP?
Incorporation involves selecting a suitable name for the LLP, obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for partners, preparing the LLP Agreement, and filing the required forms with the Registrar of Companies (ROC).
What is an LLP Agreement?
An LLP Agreement is a legal document that outlines the terms and conditions of the partnership among the partners. It covers areas such as profit sharing, roles and responsibilities, decision-making, etc.
Can an LLP be converted into a private or public company?
Yes, an LLP can be converted into a private or public company if desired. However, the process involves compliance with certain rules and regulations.
What are the advantages of an LLP?
Advantages include limited liability, separate legal entity status, flexibility in management and operations, ease of maintenance, and less stringent compliance requirements compared to companies.
What are the compliance requirements for an LLP?
LLPs must file annual returns with the Registrar of Companies, maintain proper accounting records, conduct annual meetings, and adhere to tax-related compliance.
Can a partner’s liability be unlimited in an LLP?
No, the fundamental principle of an LLP is limited liability for partners. Their liability is limited to the extent of their capital contribution.
Can an LLP conduct any type of business activity?
While LLPs can engage in various business activities, there are certain prohibited activities, such as banking and financial services.
Is an LLP taxed differently from other business structures?
LLPs are taxed as partnerships, with partners being individually taxed on their share of profits.
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