LLP Registration in India and how it is different from company?

A Limited Liability Partnership is nowadays advantageous structure for starting a business, making liability of partners limited and governed by Ministry of Corporate affairs building more trust in society, limited liability means partners will bear loss restricted to their capital contributed, not affecting their personal assets unlike normal partnership. It helps entrepreneurs to collaborate with each other and innovate confidently.

What is an LLP?

A Limited Liability Partnership or LLP is a unique business type that helps an entrepreneur enjoy benefits of both partnership firm and a private limited company. Like, in LLP, partners enjoy limited liability, as I discussed before, this benefit is similar as shareholders in a company, while also benefiting from the flexibility and simplicity of a partnership with less compliances than a private limited company which also grant LLP a separate legal identity, allowing it to sue or we can say take legal actions and be subject to legal actions separately from its partners, or can be sued as LLP.

This form of doing business (LLP) is becoming more popular among businessmen in various industries, this is because of limited liability feature of LLP which means LLP shield their partners assets and have more simple regulatory requirements than company or traditional form of businesses. In India, the concept of LLP was introduced in the year 2008 and is governed by Limited Liability partnership Act, 2008, offering a adaptable and dependable option for every business.

What are the Prerequisites of LLP Registration and it’s Eligibility Conditions?

There is a simple criterion to get qualified as a registered LLP in India, like there must be minimum of Two Partners, unlike partnership firm having upper limit of 50 partners, LLP doesn’t have any upper threshold limit for number of partners, but there is an obligation that at least two partners must be natural individuals, and shall be given a title of designated partners with a valid DPIN or Designated partner identification number and at least one of these designated partners must also maintain residency in India. 

Can a Body Corporate Nominated as a Partner in LLP?

In case a body corporate wish to become a partner in LLP, then the designation of a natural person must act as its representative, here natural person is one who we can feel and touch.

Each partner including non-designated partners are obligated to contribute the capital of the LLP which shall be divided as per the agreement of partnership or deed which is submitted by filing form 3 and their profit-sharing ratio, The LLP is mandated to possess an authorized capital of at least Rs.1 lakh, with at least one designated partner of the LLP holding a resident status in India.

By satisfying these prerequisites, one can progress with the registration of an LLP in India and enjoy above advantages which we discussed above.

What are the characteristics of LLP?

In India, starting an LLP is less costly than setting up a private limited or public limited company, with amazing benefits making it a great option for smaller businesses and MSME’s.

The main characteristic of LLP is it is a separate legal identity, which means just like the big companies, an LLP have the separate legal identity, which means it’s seen similar to an individual or a person with regards to the rights and responsibilities, which are separate from those who own it.

Even unlike a normal partnership firm, the partners are agents of LLP but not the agents of other partners of the firm, which don’t make them liable for individual acts of other partners. Hence there is a limited Responsibility of partners which means if something goes wrong, each partner is only responsible for what they put in as a contribution, Hence, personal assets are safe from business problems.

In LLP there should be at least two partners to start it which helps in setting up the business and work together by bringing people with common mindset. Even there is no upper limit for number of partners an LLP can have. This makes it easier to expand and helps in growth by bringing in more partners, as per LLP Act, 2008, there shall be at least two main or designated partners. They shall be the real individuals, and at least one should be resident of India which means they shall stay in India for more than 182 days in the relevant financial year.

There are comparatively less compliances, which means there are less rules to follow i.e. LLPs don’t have to follow as many rules and regulations as a company which means there is less paperwork and less to worry about, making it easy to start a business, with no specified minimum capital contribution or need of money, hence partners may invest what they can afford.

Are there any disadvantages of LLP?

Certainly, Limited Liability Partnerships have few inherent disadvantages like One may get into trouble for not following rules, as they are exposed of big fines and penalties if they don’t follow them on time. Even if an LLP doesn’t do any business in the year, it still needs to inform the Ministry of corporate affairs by filing prescribed forms or exposed to huge fines.

An LLP needs at least two partners, It must stop functioning if at any time it has fewer than two partners and no other partner is appointed within the period of six months of retirement or death of partner, making total count to one.

Also, it might have to close or terminate the operations, if it fails to pay its debts, hence LLPs may not work like big companies or corporates, where people invest money and become owners of the business just like shareholders. This makes it tough to get a lot of money from investors.

What is the Name Structure of LLP? 

First step of incorporation of LLP is to choose a unique name which is not used by any other businesses which include LLP or company. This makes approval easier and establishes a distinct identity, it include words which clearly describe what your business actually does. This helps people understand the products or services.

Name of LLP shall end with either “LLP” or “Limited Liability Partnership.” It is necessary to show your business structure as per LLP act, 2008.

What are the documents that are required for LLP Registration?

To initiate the registration process for an LLP, partners or designated partners are required to furnish  their PAN Card/ID Proof, Valid address proof of partners, Partners may submit Voter’s ID, Passport, Driver’s License, or Aadhar Card for address proof.

Next is the Proof of Residence of Partners in which they need to provide recent documents like latest bank statement, telephone bill, mobile bill, electricity bill, or gas bill of last two months.

Next is the passport-size Photograph of partners with a white background, for Foreign Nationals and NRIs intending to partner in an Indian LLP must submit their passport, Additionally, proof of address, such as a driving license, bank statement, residence card, or any government-issued identity proof containing the address, is required.

A proof of registered office address, mostly form of LLP is reverted for resubmission by MCA due-to this reason, Proof includes the landlord’s rent agreement and a no-objection certificate in case the office space is rented, A recent utility bill (gas, electricity, or telephone) with the complete address and owner’s name (not older than last two months) shall also be submitted.

A digital signature certificate (DSC) which shall be made for at least one designated partner must have a DSC for digitally signing documents, it is advisable to get it made through a professional due to highly confidential documents.

What is the procedure for LLP Registration?

The process of incorporating an LLP involves many steps, like Obtaining a Digital Signature Certificate (DSC), it is advisable that all proposed partners of the LLP must obtain a Digital Signature Certificate (DSC) since all government filings require digital signatures, next is obtaining a director identification Number (DIN) i.e. partners without a DIN or DPIN(same thing) must apply for it.

The Director Identification Number (DIN) is a unique identification number assigned to individuals aspiring to become directors or designated partners in LLPs, when LLP is incorporated, it automatically apply for DIN for all the partners.

Next step is to choose a name for the LLP, which is done by selecting a unique and suitable name for the LLP, following the guidelines of Ministry of Corporate Affairs.

Next step is to file the Form for Incorporation of LLP (FiLLiP) which collects the essential information about the proposed LLP firm, it’s partners, LLP agreement or deed, and registered address of office. It also includes a declaration from partners which are specified as designated partners and shall comply with LLP regulations, which shall be signed by a Chartered Accountant or Company Secretory or Cost management accountant in practice.

Next step is to Draft LLP Deed which shall contain the rights, duties, and obligations of partners. This agreement must also be stamped, notarized and filed with the Ministry of Corporate Affairs within 30 days of incorporation.

Last step is obtaining a Certificate of Incorporation, Once forms and documents are satisfactorily filed and verified by Registrar of Companies (RoC), then it will issue the Certificate of Incorporation, officially recognizing the existence of LLP.

After getting the Certificate of Incorporation one must apply for the Permanent Account Number (PAN) and TAN for the LLP and start their business.

Why to choose LLP over private Limited Company? 

If the owners want to raise funds or investments through external sources like venture capitalists, private Equity, or even Shark tank India, then they should go for choose a private limited company over LLP, A business should choose an LLP form of business if it has limited or negligible investment needs, this is because LLPs cannot raise funds through these sources, LLP on the other hand is suitable for smaller businesses due to fewer compliances, though there is option to convert a Limited liability partnership into company easily through the MCA portal.

The operations, management and decision-making in both the strictures are generally governed by the respective Incorporation documents i.e. AOA and MOA for company and deed for LLP. MOA and AOA are constitution of company which is public in nature. Any third party by making prescribed payment of fees, currently it is Rs. 100 per document to MCA may get the soft copy of main object and other details.

Any third party interested in tracking the activities of a Private Limited Company can obtain the information by paying above fees. Here, the public documents also inter-alia includes Financial Statements of the Company. These documents do provide with very useful information to the investors or any other contracting party regarding the business and operations of the company.

In the case of LLP, the constitutional document is the LLP Deed or LLP Agreement, which is entered between the Partners of the LLP. Here, in this case the LLP Deed is registered with the Ministry of Corporate Affairs, but it is not a public document, hence confidential in nature. This also ensures the Privacy of operations of the LLP.

In the case of LLP, working Partners of LLP draw remuneration, which is allowable up to a certain limit as per the Income Tax Act i.e. for the first Rs. 3,00,000, higher of Rs. 1,50,000 or 90% of income up to 3 lac, and for the remaining income 60% of the profit made could be given as renumeration, b ut it should be clearly mentioned in the deed.

Further, profit sharing is based on the ratio that has been decided as per the LLP Deed along with the interest which shall be applied on the capital invested in the LLP by the partners.

There are Several restrictions on company as per companies act, 2013, such as Related Party Transactions, Accepting Deposits, Loans to Directors, making loans & investments, Corporate Social Responsibility etc, whereas the Limited Liability Partnership have more flexibility like a normal partnership firm in this case.

In the case of Private Limited Company, one require to appoint statutory auditor within 30 days after the incorporation. Whereas in the case of LLP, Statutory Audit is mandatory only if the annual turnover exceeds rupees 40 lakh or the contribution of Partners exceeds rupees 25 lakh.

Any charge that is created or modified over assets of the Private limited Company is required to be registered with the Registrar of companies, this requirement is not present in the case of LLP.

What are the provisions of taxability?

LLPs is required pay tax at a flat rate of 30% of their total income, along with surcharge of 12% if it’s total income exceeds rupees one crore, on the other hand, if a Private Limited company earns less than rupees 400 crores in the previous year, then a 25% tax is payable and in case the annual revenue exceeds rupees 400 crores, the company must pay a 30% tax. Companies are also given the option to choose between the new rates of 22 per cent (for existing companies) and 15 per cent (for new companies) if they fulfil prescribed conditions, we will discuss the same in future articles. As doing so will restrict the company from claiming some deductions and exemptions

Conclusion 

To conclude, a Limited Liability Partnership is a flexible and beneficial business structure for small and medium-sized businesses due to its mix of limited liability, operating flexibility, and simpler legal requirements as compared to those of private limited companies. It does have some disadvantages in the sense that being non-operational does not relieve it from mandatory compliance but these are outweighed by its advantages such as protecting personal assets and having separate juridical standing which makes it more popular among entrepreneurs in different fields.