LLP (Limited Liability Partnership)

Limited liability partnership is an alternative corporate business form that offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal body, liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership. It is not the same as limited liability company LLC.

Limited Liability Partnership (LLP) combines the benefits of a partnership with that of a limited liability company. In India, it took shape after January 2009 and was an instant success with startups and professional services. The idea behind LLP was to provide a form of business that is easy to maintain and benefit owners with limited liability.

• LLP is an alternative corporate business      form that gives the benefits of limited liability of a company and the      flexibility of a partnership.
• The      LLP can continue its existence irrespective of changes in partners. It is      capable of entering into contracts and holding property in its own name.
• The      LLP is a separate legal entity, is liable to the full extent of its assets      but liability of the partners is limited to their agreed contribution in      the LLP.
• Further,      no partner is liable on account of the independent or un-authorized      actions of other partners, thus individual partners are shielded from      joint liability created by another partner’s wrongful business decisions      or misconduct.
• Mutual      rights and duties of the partners within a LLP are governed by an      agreement between the partners or between the partners and the LLP as the      case may be. The LLP, however, is not relieved of the liability for its      other obligations as a separate entity.
• Since      LLP contains elements of both ‘a corporate structure’ as well as ‘a      partnership firm structure’ LLP is called a hybrid between a company and a      partnership.

Benefits of Limited Liability Partnership

Following are major benefits of LLP:

Limited Liability : The members of an LLP are only liable for a small amount of debt incurred by the firm. In case of bankruptcy, the personal assets of the partners will not be taken into account. On the other hand, for proprietorships and partnerships, the personal assets of directors and partners will be seized if the business goes bankrupt.

Separate Legal Entity : An LLP is a separate legal entity from the partners in it. It has an uninterrupted existence that follows perpetual succession, i.e., the partners might leave, but the business remains. The terms of dissolution have to be mutually agreed upon for the firm to dissolve.

Flexible Agreement : Transferring the ownership of an LLP is also simple. A person can easily be inducted as designated partner in LLP and the ownership is transferred 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. This makes registering as an LLP beneficial for small businesses and startups.

Disadvantages Of LLP

· Penalty on non-compliance: The compliance that is to be followed by LLP is minimal. But, if these compliances are not completed on time, then the LLP will have to pay a heavy penalty. Even if the LLP does not have any activity in the year, it is required to file returns with the Ministry of Corporate Affairs (MCA) annually. If it fails to file the returns, then a heavy penalty will be imposed on the LLP.

· Winding up and dissolution of LLP : A minimum of two partners is required to form an LLP. If the minimum number of partners is below two for six months, then the LLP will be dissolved. It may be dissolved if the LLP is unable to pay its debts. 

· Difficulty to raise capital : The LLP does not have the concept of equity or shareholders like a company. Angel investors and venture capitalists cannot invest in the LLP as shareholders. This is because the shareholders must be partners in the LLP and have to take up all the responsibilities of a partner. Thus, angel investors and venture capitalists prefer to invest in a company rather than an LLP making it difficult for the LLPs to raise capital.

Eligibility Criteria

To be eligible for LLP company registration in india, one should meet the following criteria:

· At least two partners are required to form an LLP (no upper limit)

· If a body corporate is a partner, a natural person must be nominated to represent it

· Each partner must have an agreed contribution towards the shared capital

· At least one designated partner should be an Indian resident.

Documents Required for LLP Registration

The following LLP registration requirements has to submitted while registering the firm

For partners:

· PAN card or passport (foreign nationals or NRIs)

· Aadhar card/ voter’s ID/ passport/ driving license

· Latest bank statement/ telephone bill/ mobile bill/ electricity bill/ gas bill

· Passport-size photograph

For the registered office:

· Utility bills

· No-objection certificate from the property owner

· Sale deed/property deed in English (in case of owned property).

LLP Registration Process

Step 1: Obtain Digital Signature Certificate (DSC): Before initiating the process of registration, you must apply for the digital signature of the designated partners of the proposed LLP. This is because all the documents for LLP are filed online and are required to be digitally signed. So, the designated partner must obtain their digital signature certificates from government recognized certifying agencies.

Step 2: Apply for Director Identification Number (DIN) : You have to apply for the DIN of all the designated partners or those intending to be designated partner of the proposed LLP. The application for allotment of DIN has to be made in Form DIR-3.

Step 3: Name Approval : LLP-RUN (Limited Liability Partnership-Reserve Unique Name) is filed for the reservation of the name of the proposed LLP which shall be processed by the Central Registration Centre under Non-STP. But before quoting the name in the form, it is recommended that you use the free name search facility on MCA portal.

Step 4: Incorporation of LLP : The form used for incorporation is FiLLiP(Form for incorporation of Limited Liability Partnership) which shall be filed with the Registrar who has jurisdiction over the state in which the registered office of the LLP is situated. The form will be an integrated form.

Fees as per Annexure ‘A’ shall be paid. This form also provides for applying for allotment of DPIN, if an individual who is to be appointed as a designated partner does not have a DPIN or DIN. The application for allotment shall be allowed to be made by two individuals only. The application for reservation may be made through FiLLiP too. If the name that is applied for is approved, then this approved and reserved name shall be filled as the proposed name of the LLP.

Step 5: File Limited Liability Partnership (LLP) Agreement: LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners. LLP agreement must be filed in form 3 online on MCA Portal. Form 3 for the LLP agreement has to be filed within 30 days of the date of incorporation. The LLP Agreement has to be printed on Stamp Paper. The value of Stamp Paper is different for every state.

Cost

Step 1 – DSC Around Rs. 1500-2000 for 2 partners(varies depending on the agency)

Step 2 – DIN Rs. 1000 for 2 partners

Step 3 – Name Reservation Rs. 200

Step 4 – Incorporation Depends on capital contribution. Contribution up to Rs. 1 lakhs – Rs. 500, Contribution between Rs. 1 and 5 lakhs – Rs. 2000

Step 5 – LLP Agreement Depends on capital contribution. Contribution up to Rs 1 lakhs – Rs 50 for filing Form 3 and stamp duty based on the state where LLP is formed

Time Involved for LLP Registration

LLP formation starting from obtaining DSC to Filing Form 3 takes approximately 10 days, subject to departmental approval and revert from the respective department.

Frequently Asked Questions

Is LLP registration mandatory?

Yes, an registration of an LLP on the Ministry of Corporate (MCA) portal is mandatory. An LLP must obtain registration under the Limited Liability Partnership (LLP) Act to be a legally valid entity.

What is the difference between LLP and a Partnership Firm?

An LLP must be registered under the LLP Act to operate its business. However, the registration of a partnership firm is voluntary under the Partnership Act, 1932. The liability of each partner is limited to the contribution made by the partner in an LLP. But in a partnership firm, all partners are personally liable for the loss/debts of the firm.

The LLP has a separate legal entity, i.e. it can buy property, sue and be sued in its name. Partnership firms cannot buy a property or sue anyone in the partnership firm’s name. It has to be in the name of the authorised partner as the partnership firm does not have a separate legal entity. 

Does LLP require MoA and AoA?

No, the Memorandum of Association (MOA) and the Articles of Association (AOA) are important documents of a company registered under the Companies Act, 2013. The LLP agreement governs the LLP and not the MOA and AOA. Thus, an LLP does not have to draft the MOA and AOA. It has to draft the LLP agreement.

Should directors be appointed to an LLP?

No, there are no directors in an LLP. An LLP does not have to appoint directors or have a board of directors. The partners govern the business of an LLP. The partners take decisions regarding the working and business of the LLP. Thus, an LLP needs to have a minimum of two partners at all times.

What is DPIN?

Designated Partner Identification Number (DPIN) is a unique number given by the MCA to the designated partner of an LLP. The DPIN is similar to the Director Identification Number (DIN) of a company director. DPIN can be obtained for any person when registering an LLP, or a person can later apply for a DPIN to become a designated partner of an existing LLP.

What is the eligibility to be appointed as a designated partner in an LLP?

Any individual partner can become a designated partner in an LLP by consenting to it and in accordance with the LLP agreement. A body corporate cannot be a designated partner. All partners can be designated partners in an LLP if such a provision is provided in the LLP agreement. 

Who can be partners in an LLP?

Any individual or body corporate can be a partner in an LLP. However, minors, persons of unsound mind and an undischarged insolvent cannot be partners in an LLP.

How many designated partners are required in an LLP?

Every LLP must have at least two designated partners, and at least one of them should be a resident in India. If all partners in an LLP are body corporates, then at least two individual nominees of such body corporates should act as designated partners. Any partner can be a designated partner in accordance with the LLP agreement.

What if the partner’s number in an LLP reduces to one?

If the number of partners of an LLP reduces to one at any time, the single partner can carry on the business of the LLP for six months. After six months, if the LLP still has only one partner and that partner carries on a business of the LLP, the single partner will be liable personally for the obligations of the LLP. The National Company Law Tribunal can also wind up the LLP when the number of partners of the LLP is reduced below two for more than six months.