Like a partnership firm, a Limited Liability Partnership (LLP) provides its members with the limited liability protection of a company while also enabling them to manage their own affairs in accordance with their mutual agreement.
In India, LLPs are regulated by the Limited Liability Partnership Act, 2008. LLP is used by professionals, micro and small businesses owned by families or closely held companies.
LLPs provide owners with “limited liability” benefits and relatively low maintenance requirements. A “Private limited company’s proprietors are only liable to a certain extent to creditors. The bank or creditor can only sell the company’s assets in the event of a default and not the directors’ assets.
Medical offices, dental offices, auditing firms, law firms, financial advising firms, business consultancies, and real estate agencies are all examples of LLPs. A state law, however, may restrict the types of enterprises that can participate in this type of arrangement.
As an example, consider Rohit and Akash, two doctors who decide to open their own small family practice. Each partner invested equally in the business and divided revenues based on the number of patients they saw regularly. While the two conduct business together, if Rohit is found guilty of malpractice, Ram will not be liable for his mistakes. Despite this, if Akash’s medical license is suspended or revoked for negligence, they would no longer be in a relationship.
What Are the Benefits of Registering As An LLP?
- Unlike companies, it has its own legal entity.
- Each partner’s obligation is restricted to the amount of his or her contribution.
- The cost of forming an LLP is relatively low.
- LLPs are subject to fewer rules and regulations.
- Minimum capital contributions are not required.
- An LLP must have at least two partners in order to be formed. An LLP can have an unlimited number of partners. A minimum of two partners are required to participate in the venture, with at least one of them living in India.
- An LLP agreement outlines the obligations and rights of each partner. The LLP Act 2008 requires them to ensure compliance with its provisions.
Benefits of a Limited Liability Partnership (LLP)
LLP Registration in India has the following advantages that make it a popular business structure:
Limitation of Liability
A limited liability company’s members are only responsible for a small portion of its debt. A business that goes bankrupt does not protect the personal assets of the directors and partners.
Legal Entity in Its Own Right
Legally, a limited liability partnership is separate from its partners. It has an unbroken existence characterized by a permanent succession, so while the partners may leave, the company remains intact. To dissolve a firm, its dissolution terms must be agreed upon jointly.
The adaptable agreement
It is also possible to transfer ownership of an LLP. You can easily add someone as a partner, and ownership of the company will be transferred to them.
For LLPs with a capital of less than 25 lakhs and a turnover of less than 40 lakhs per year, formal audits are not required. Small firms and start-ups can, therefore, benefit from forming an LLP.
Drawbacks Of LLP’s Firm
A penalty is imposed for non-compliance.
LLP is required to follow a minimal amount of compliance. In any case, if the LLP does not meet these compliances in a timely manner, it will suffer a heavy fine. LLPs are required to file annual returns with the Ministry of Corporate Affairs (MCA) even if they don’t engage in any activities. LLPs will be penalized if they do not file the returns.
Dissolution of an LLP
In order to form an LLP, two partners are required. An LLP will be dissolved if it has fewer than two partners for six months. If the LLP cannot pay its debts, it may be dissolved.
Raising finance is challenging.
LLPs do not have equity or shareholders, just like corporations. LLP shares cannot be owned by angel investors or venture capitalists. LLP shareholders are required to be LLP partners, which means they assume all of the responsibilities of a partner. Due to this, angel investors and venture capitalists prefer investing in firms to LLPs, which makes it difficult for LLPs to raise capital.
Who Can Become Partners In An LLP?
- An individual
- A Body Corporate that includes:
- Indian Company
- Foreign Companies: Companies incorporated outside India
- LLP registered in India
- Foreign LLP: LLP incorporated outside India
- An individual, if he has been adjudicated as an insolvent by a court of competent jurisdiction, or if he has applied to be adjudicated as an insolvent and his application is pending.
- A Minor Person
- sole proprietorship corporation
- A society based on cooperation
- The firm with a partnership
- A Trust
- Undivided Hindu family
- Unregistered business organizations in other forms.
Documents Required to Register an LLP
If you want to form an LLP, you will need scanned copies of the following documents:
- PAN card or passport (for foreign nationals or NRIs)
- Identity documents include Aadhar cards, voter’s IDs, passports, and driver’s licenses.
- Bank statements, phone bills, mobile phone bills, gas bills, and energy bills
- Passport Size Photograph
- Signing a blank document as a specimen.
At least one of the partners must self-attest the first three documents. It is necessary to notarize all documents (if you are in India or another Commonwealth country).
- Utilities bills.
- Notarized rental agreement in English
- No-objection certificate from the property owner
What Forms Are Needed To Register An LLP
Form 5: Notice of Name Change
RUN – LLP Reserve Unique Name – The LLP Reserve Unique Name form allows the LLP to reserve a name for itself.
Form 17- Application and statement for the conversion of a partnership to a limited liability partnership
FiLLiP – Limited Liability Partnership Incorporation Form
Form 18- Application and Statement for conversion of a Private Company or an Unlisted Public Company into an LLP.
Frequently Asked Questions
Does an LLP need to be registered?
LLPs are required to be registered with the Ministry of Corporate Affairs (MCA). A Limited Liability Partnership (LLP) must be registered under the Limited Liability Partnership (LLP) Act in order to be valid.
Are Directors Needed For LLPs?
An LLP does not have directors. There are no directors or a board of directors required for a limited liability partnership (LLP). The company is managed by the partners of an LLP. Partners make all decisions regarding the LLP’s work and business affairs. An LLP must therefore always have at least two partners.
DPIN – What Does It Mean Exactly?
The Designated Partner Identification Identifier (DPIN) is a unique number assigned by the MCA to each LLP’s designated partner. Similar to the DIN, the DPIN identifies the director of a corporation. DPINs can be obtained by anyone as part of the formation of an LLP, or they can apply for one afterward.
How Does An LLP Function If The Number Of Partners Falls To One?
A limited liability partnership’s business can be conducted by a single partner for six months if its number of partners falls to one at any moment. After six months, when the LLP has no more than one partner and that partner is still running the company, he or she will be individually liable for the company’s obligations.
As LLP registrations are gaining in popularity due to the ease of compliance and the freedom to do business in partnership firms, they are gaining in popularity. The number of LLPs registered in India has been significantly increasing in recent years, as a result of the exemption that LLPs are granted from statutory audit if they have a capital contribution of up to 25 lakhs and a turnover of up to 40 lakhs.
How Tax Creche Can help?
Tax Creche can help you register your limited liability partnership (LLP) quickly. Tax Creche is India’s fastest growing digital platform that allows entrepreneurs and SMEs to start, grow, protect, and exit their businesses while staying compliant with the rules and regulations of the business legal framework. Feel free to contact us at firstname.lastname@example.org or call/text us at +91 98880-61626 for LLP registration.