Apart from doing business in form of company, there are other ways of doing business also like partnership which is most preferred. However, there are some demerits of partnership when business start going down.
That is why a concept was introduced having the benefits of company as well as partnership and which is called Limited Liability partnership (LLP).
A Limited Liability Partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Unlike corporate shareholders, the partners have the right to manage the business directly. Lets us discuss its concept, incorporation and related provisions in depth.
What law/ regulations/statues govern Limited Liability Partnership (LLP)?
The Limited Liability Partnership Act 2008 was published in the official Gazette of India on 9 January 2009 and has been in effect since 31 March 2009. The first LLP was incorporated on 2nd April 2009.
In India as in many other jurisdictions, an LLP is different from a Limited Partnership. An LLP operates like a limited partnership, but in an LLP, each member is protected from personal liability, except to the extent of their capital contribution in the LLP.
As per Limited Liability Partnership Act, 2008, a Limited Liability Partnership means an partnership formed and registered under this Act.
What is Limited Liability Partnership (LLP)?
As per Limited Liability Partnership Act, 2008, a Limited Liability Partnership means an partnership formed and registered under this Act.
What are Characteristics of Limited Liability Partnership (LLP)?
The following are Characteristics of Limited Liability Partnership (LLP):-
1. Separate legal entity: Like a company, LLP also has a separate legal entity. So the partners and the LLP in are distinct from each other. This is like a company where directors are different from the company.
2. No requirement of minimum capital: In the case of companies there should be a minimum amount of capital that should be brought by the members or owners who want to form it. But to start an LLP there is no requirement of minimum capital.
3. Minimum number of members: To start a limited liability partnership at least two members are required initially. However, there is no limit on the maximum number of partners.
4. No requirement of compulsory audit: All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. A limited liability partnership is required to get the audit done only if:
- the contributions of the LLP exceeds ₹ 25 lakhs or
- the annual turnover of the LLP exceeds ₹ 40 lakhs
What are features of Limited Liability Partnership (LLP)?
1. In India, for all purposes of taxation (service tax or any other stipulated tax payment), an LLP is treated like any other Partnership firm.
2. Liability is limited to each partners agreed upon contribution to the LLP.
3. No partner is liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
4. An LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners can not exceed 20.
5. The LLP Act has a mandatory requirement that one of the partners in the LLP must be an Indian.
6. Provisions have been made for corporate actions like mergers and acquisitions.
7. While enabling provisions in respect of winding up and dissolutions of LLPs have been made, detailed provisions in this regard would be provided by way of rules under the Act.
8. The Act also provides rules for Limited Partnerships.
9. The Registrar of Companies (RoC) shall register and control LLPs too.
What are benefits of Limited Liability Partnership (LLP)?
1. It is more flexible to organize the internal structure of LLP. Comparatively, it is complex to organize the internal structure of a company.
2. There is no maximum limit for the number of partners in LLP. In the private limited company, shareholders are limited to the extent of 200 shareholders.
3. Raising and utilization of funds depends on the partners will. Funds can be bought and utilized only as per the norms listed under the Companies Act, 2013.
4. LLP is exempt from Dividend Distribution Tax (DDT). In contrast, a company has to pay DDT on dividend distribution.
5. Professionals like Chartered accountant, Cost Accountant(CMA), Advocates, engineers, and doctors may prefer to register as LLPs.
6. No requirement of compulsory audit: All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement as discussed above in character’s section.
How to incorporate Limited Liability Partnership (LLP)?
- Obtain digital signature from the partners.
- Apply for the DIN (Director Identification Number) which is necessary to become a partner in the LLP or directly apply at the time of filling the incorporation E-Form.
- Decide the Capital contribution by each partner for LLP.
- Apply for the name approval for the LLP registration.
- India Registrar of Companies issues the Certificate of Incorporation which is the proof for the registration.
- File for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
- Execute a LLP agreement and file with the registrar within thirty (30) days of the incorporation of the LLP.
- Company details can be checked on the Ministry of Corporate Affairs, Companies Master Data Website.
What are forms required to incorporate a Limited Liability Partnership (LLP)?
The following forms are required to be filled:-
1) RUN -LLP
2) E-form DIR-3
3) E-form FiLLiP
4) E-form Form-3
What are documents required to incorporate Limited Liability Partnership (LLP)?
The following documents are required:-
1) Passport size photo of all partners
2) Email Id and Phone number of all partners
3) PAN and Aadhar of all partners (self-certified)
4) Any of Identity proof Driving License/ Passport/ Voter ID of all subscriber and Directors (self-certified)
5) Any of Residence Proof Electricity bill/ Mobile Bill/ Telephone Bill/ Bank statement of all subscriber and Directors (self-certified and not more than two (2) months old)
6) Registered office utility bill proof attach any of bill Gas Bill, Electricity bill, water bill (not more than two (2) months old).
7) Rent or lease agreement if not owned along with Non Objection Certificate (NOC) from Owner.
What are post incorporation compliances for Limited Liability Partnership (LLP)?
- Opening Bank Account in LLP Name:- After incorporation of the LLP, it is necessary to open a Current Account in the name of the LLP with any Bank in India. All the transactions in the name of the LLP should be transacted through the LLP Bank Account only.
- Books and Accounts of LLP:- Every business is required to under Income Tax Compliances such as Tax Deduction at Source (TDS) and Advance Tax Payments from time to time.
Every LLP has to prepare and keep the books of account in double entry system of accounting on accrual basis. The LLP has to maintain the Books of Accounts of all receipts payments and to comply legal requirements under Companies Act and other various laws. The books of accounts and financial statements shall give a true and fair view of the state of the affairs of the LLP, including its branch office or offices.
- Shop and Establishment Registration:- Every Business Establishments are required to obtain Shop and Establishment Registration under respective State Shop and Establishment Act and Rules within 30 days of registration.
This is a state specific mandatory registration for all the business and establishments. The LLP has to obtain the Shop and Establishment Registration in every state wherever they have offices and establishments.
- Professional Tax Registration – Employer & Employee:- Every LLP is required to obtain Professional Tax – Employer Registration (Enrolment Certificate) within 30 days of incorporation. This again is a state specific labour registration mandatory for all registered business whether you have any employees or not. This registration is subject to renewal every year after payment of prescribed fee. Delay in obtaining the registration will attract penalty to business on yearly basis.
What are regular compliances for Limited Liability Partnership (LLP)?
The annual compliances for Limited Liability Partnership (LLP) are:-
1) Filing of Annual Return – LLP Form-11
2) Filing Statement of Account & Solvency – LLP Form-8
3) Income tax Returns.
Rest are event based like addition or resignation of any partner, etc.
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Disclaimer: The above article is prepared keeping in mind all the important and basic question relating to Limited Liability Partnership (LLP). The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.
(My name is Tripti Shakya, Practicing Company Secretary at M/s Tripti Shakya and Company, and is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can contact me through email id:- triptishakyacs2017@gmail.com and Contact Number: 91-8178515005)
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