The concept of the Limited Liability Partnership (LLP) come to India in the year 2008. An LLP has the characteristics of both the partnership firm and company. It is the most preferred form of organization among entrepreneurs as it incorporates the benefits of both partnership firm and company into a single form of organization. LLPs in India are regulates by the Limited liability Partnership Act, 2008.

The concept of the Limited Liability Partnership (LLP) come to India in the year 2008. An LLP has the characteristics of both the partnership firm and company. It is the most preferred form of organization among entrepreneurs as it incorporates the benefits of both partnership firm and company into a single form of organization. LLPs in India are regulates by the Limited liability Partnership Act, 2008.

 Features of LLP are –

1. LLP has a separate legal entity just like companies.

2. Low cost and Less compliances and regulations are applicable on LLP.

3. The liability of each partner is limited to the contribution made by the partner.

4. The cost of forming an LLP is low and Name Reservation is also for a longer period of time (3 months)

5. On LLP, under Income Tax Act, 1961, deemed dividend (Dividend Distribution Tax) is not applicable.

6. For LLP, under LLP Act, 2008, there is no provision like Rotation of partners, like in case of companies.

7. Stamp Duty on LLP Agreement is fixed as per the Capital Contribution by all the partners.

8. LLPs are required to have its accounts audited by a practicing Chartered Accountant only if its annual turnover, in any financial year exceeds Rs. 40 lakhs or its contribution exceeds Rs. 25 lakhs.

All About Limited Liability Partnership Act, 2008 (LLP Act, 2008)

“SMALL LIMITED LIABILITY PARTNERSHIP” means a limited liability partnership—

(i) the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, not exceeding five crore rupees, as may be prescribed; and

(ii) the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed; or

(iii) which meets such other requirements as may be prescribed, and fulfils such terms and conditions as may be prescribed;’;

HOW TO INCORPORATE A LLP –

The incorporation of LLP is to be done through e form FILLIP and the agreement for the same is filed through e form FORM 3.

NAME RESERVATION OF LLP is done through RUN and the name applied for LLP will be valid/ available of a period of 3 months in which the LLP is to be incorporated.

After incorporation of LLP, LLP AGREEMENT is to be file with the REGISTAR OF COMPANY (ROC) through FORM 3 within a period of 30 days.

For incorporation of LLP, the following information and documents are required –

  • Proposed name and objects of the LLP.
  • Minimum two partners are required to incorporate an LLP. However, there is no upper limit on the maximum number of partners of an LLP.
  • In LLP, there should be minimum of two designated partners who shall be individuals, and at least one of them should be resident in India.

** Explanation – Meaning of Resident of India for the purpose of Designated Partner the term resident in India means a person who has stayed in India for a period of not less than 120 days during the financial year.

  • The total capital contribution and ratio of capital contribution amongst the partners and designated partners.
  • DSC of any one the designated partners.
  • Identity proof and residential proof of all the partners.
  • Proposed Registered office of the LLP.
  • MAIL ID and Contact details of the proposed LLLP.
  • Board Resolution of the company, if any body corporate is the partner of the LLP.
  • Consent of existing LLP as a proof of no objection, if any LLP is a partner in an proposed LLP.
  • Consent of the partners.
  • Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/partner.
  • Approval of the owner of the trademark or the applicant of such application for registration of Trademark.

WHAT ARE THE QUALIFICATIONS FOR BECOMING A PARTNER IN LLP?

Any individual or body corporate may be a partner in a LLP. However an individual shall not be capable of becoming a partner of a LLP, if –

(a) he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;

(b) he is an undischarged insolvent; or

(c) he has applied to be adjudicated as an insolvent and his application is pending.

WHO CAN BE A “DESIGNATED PARTNER” IN LLP?

Every LLP shall be required to have atleast two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India. In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners.

Persons not permitted to be a designated partner –

  • Any individual who was declared bankrupt in the last five years.
  • he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;
  • If an individual has served a prison term for more than six months, then he is not eligible.
  • Any individual who has been involved in any fraud
  • Minors
  • Individuals who have a history of credit defaults over the last five years without reaching an agreement with the creditors

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.

FILING OF LLPs –

A Limited Liability Partnership has only few compliances to be followed every year, one of them is the returns which is to be filed periodically for maintaining compliance and escape of heavy penalty for non-compliance.

LLPs are required to file 2 forms –

➢ Form 11 (Annual Return of Limited Liability Partnership (LLP)) – is to be filed within 60 days of financial year end.

➢ Form 8 (Statement of Account & Solvency) – is to be filed before 30th of October every year.

Form 11 is to be file by every LLP before 30th may every year, whereas Form 8 is to be file before 30th October every year (extended date for the financial year 2020-2021 is 30th December, 2021)

PENALTY IN CASE OF DELAY OR DEFAULT IN FILING OF FORM 11 AND FORM 8 –

If LLP Form 11 (Annual Return) is not filed on or before the due date of 30th May, then a penalty of Rs.100 per day will be charged/ applicable, until the non-compliance continues.

Similarly, if LLP Form 8 (Statement of Account & Solvency) is not filed on or before the due date of 30th October, then a penalty of Rs.100 per day will be charged/ applicable, until the noncompliance continues.

WHO ALL ARE AUTHORISE TO SIGN FORM 8 –

Form 8 is to be signed digitally by a minimum of two Designated Partners of LLP and the same is also required to be signed digitally by a Chartered Accountant (CA), if the total turnover of the LLP exceeds Rs 40 lakhs or partner’s obligation of contribution exceeds Rs. 25 lakhs

1. LLP has a separate legal entity just like companies.

2. Low cost and Less compliances and regulations are applicable on LLP.

3. The liability of each partner is limited to the contribution made by the partner.

4. The cost of forming an LLP is low and Name Reservation is also for a longer period of time (3 months)

5. On LLP, under Income Tax Act, 1961, deemed dividend (Dividend Distribution Tax) is not applicable.

6. For LLP, under LLP Act, 2008, there is no provision like Rotation of partners, like in case of companies.

7. Stamp Duty on LLP Agreement is fixed as per the Capital Contribution by all the partners.

8. LLPs are required to have its accounts audited by a practicing Chartered Accountant only if its annual turnover, in any financial year exceeds Rs. 40 lakhs or its contribution exceeds Rs. 25 lakhs.

“SMALL LIMITED LIABILITY PARTNERSHIP” means a limited liability partnership—

(i) the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, not exceeding five crore rupees, as may be prescribed; and

(ii) the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed; or

(iii) which meets such other requirements as may be prescribed, and fulfils such terms and conditions as may be prescribed;’;

HOW TO INCORPORATE A LLP –

The incorporation of LLP is to be done through e form FILLIP and the agreement for the same is filed through e form FORM 3.

NAME RESERVATION OF LLP is done through RUN and the name applied for LLP will be valid/ available of a period of 3 months in which the LLP is to be incorporated.

After incorporation of LLP, LLP AGREEMENT is to be file with the REGISTAR OF COMPANY (ROC) through FORM 3 within a period of 30 days.

For incorporation of LLP, the following information and documents are required –

  • Proposed name and objects of the LLP.
  • Minimum two partners are required to incorporate an LLP. However, there is no upper limit on the maximum number of partners of an LLP.
  • In LLP, there should be minimum of two designated partners who shall be individuals, and at least one of them should be resident in India.

** Explanation – Meaning of Resident of India for the purpose of Designated Partner the term resident in India means a person who has stayed in India for a period of not less than 120 days during the financial year.

  • The total capital contribution and ratio of capital contribution amongst the partners and designated partners.
  • DSC of any one the designated partners.
  • Identity proof and residential proof of all the partners.
  • Proposed Registered office of the LLP.
  • MAIL ID and Contact details of the proposed LLLP.
  • Board Resolution of the company, if any body corporate is the partner of the LLP.
  • Consent of existing LLP as a proof of no objection, if any LLP is a partner in an proposed LLP.
  • Consent of the partners.
  • Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/partner.
  • Approval of the owner of the trademark or the applicant of such application for registration of Trademark.

WHAT ARE THE QUALIFICATIONS FOR BECOMING A PARTNER?

Any individual or body corporate may be a partner in a LLP. However an individual shall not be capable of becoming a partner of a LLP, if –

(a) he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;

(b) he is an undischarged insolvent; or

(c) he has applied to be adjudicated as an insolvent and his application is pending.

WHO CAN BE A “DESIGNATED PARTNER”?

Every LLP shall be required to have atleast two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India. In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners.

Persons not permitted to be a designated partner –

  • Any individual who was declared bankrupt in the last five years.
  • he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;
  • If an individual has served a prison term for more than six months, then he is not eligible.
  • Any individual who has been involved in any fraud
  • Minors
  • Individuals who have a history of credit defaults over the last five years without reaching an agreement with the creditors

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.

FILING OF LLPs –

A Limited Liability Partnership has only few compliances to be followed every year, one of them is the returns which is to be filed periodically for maintaining compliance and escape of heavy penalty for non-compliance.

LLPs are required to file 2 forms –

➢ Form 11 (Annual Return of Limited Liability Partnership (LLP)) – is to be filed within 60 days of financial year end.

➢ Form 8 (Statement of Account & Solvency) – is to be filed before 30th of October every year.

Form 11 is to be file by every LLP before 30th may every year, whereas Form 8 is to be file before 30th October every year (extended date for the financial year 2020-2021 is 30th December, 2021)

PENALTY IN CASE OF DELAY OR DEFAULT IN FILING OF FORM 11 AND FORM 8 –

If LLP Form 11 (Annual Return) is not filed on or before the due date of 30th May, then a penalty of Rs.100 per day will be charged/ applicable, until the non-compliance continues.

Similarly, if LLP Form 8 (Statement of Account & Solvency) is not filed on or before the due date of 30th October, then a penalty of Rs.100 per day will be charged/ applicable, until the noncompliance continues.

WHO ALL ARE AUTHORISE TO SIGN FORM 8 –

Form 8 is to be signed digitally by a minimum of two Designated Partners of LLP and the same is also required to be signed digitally by a Chartered Accountant (CA), if the total turnover of the LLP exceeds Rs 40 lakhs or partner’s obligation of contribution exceeds Rs. 25 lakhs

STRIKING OFF OF LLP –

The procedure for winding up an LLP used to be very long and cumbersome. But, after the introduction of LLP form 24 by the MCA (Limited Liability Partnership Rules, 2009), the whole process become very simple and easy.

So, now it is now it is possible to windup the LLP easily by just making an application to the Registrar for striking off the name of the LLP through LLP e form 24.

SUMMARIZED DIFFERENCE BETWEEN LLP AND COMPANY –

(i) A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 1956) whereas for an LLP it would be by a contractual agreement between partners.

(ii) The management-ownership divide inherent in a company is not there in a limited liability partnership.

(iii) LLP will have more flexibility as compared to a company.

(iv) LLP will have lesser compliance requirements as compared to a company.

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