Limited Liability Partnership in India was introduced by the Limited Liability Partnership Act, 2008. The basic idea behind introducing the Limited Liability Partnership or LLP is to begin a form of business entity that is easy to be maintained. Micro and small businesses and professionals prefer LLP Registration in India. If you plan to start a business for raising equity funds from the Angel Investors, Private Equity Funds and Venture Capitalist then LLP is not the right choice for you.
An LLP offers limited liability protection to its owners from the debts of an LLP. Hence, all the partners in an LLP receive the benefit of limited liability within the partnership. An LLP is governed by the Limited Liability Partnership Act (LLP Act), 2008.
Features of an LLP Registration
The key features of LLP Registration are as follows:
- The Limited Liability Partnership Act, 2008 governs an LLP. It is applicable since April 1, 2009.
- An LLP is a separate legal entity and a body corporate. It is separate from its partners and has perpetual succession. LLP has the authority to sue and can also be be sued in its name.
- Unlike the corporate shareholders that partners can manage the business directly.
- No other partner is liable for another partner's negligence or misconduct.
- Minimum of two partners are required and there is no maximum limit.
- It is a business for profit.
- The partners in an LLP sign an LLP agreement that governs their rights and duties. They have the flexibility to revise the agreement as per their need and requirements. The obligations and duties of the designated partners are specified in the law.
- There is limited liability of the partners for their contributions in an LLP. The personal assets of the partners are not exposed except for any case of fraud.
- An LLP needs to maintain the annual accounts. However, the accounts need to be audited only if the contribution of the partners exceeds Rs. 25 lakh or an annual turnover exceeds the amount of Rs. 40 lakh. An LLP needs to file a statement of accounts and solvency with the Registrar of Companies every year.
Benefits of LLP Registration
The most crucial reason for LLP registration is the limited liability of its partners. The members of the firm are liable only for a small amount of debt that is incurred by it. The primary benefits of LLP registration are enumerated below:
Separate Legal Entity
An LLP is a Complete separate legal entity from the partners of the firm. All the partner can sue the other if there are any such circumstances. It also has an uninterrupted existence. By way of Perpetual succession, the business continues even if the partners separate from the business. For dissolving a firm a term of dissolution must be mutually agreed by the partners.
No Distinction Between Owner or Manager
The partners in an LLP manages and owns the business. This is very different from a private limited company where the directors are different from its shareholders.
Flexible Agreement
It is also simple to transfer the ownership of the LLP. A person can be appointed as a designated partner and the ownership transfers to them.
Suitable for Small Business
An LLP has a capital amount less than Rs. 25 lakhs and with a turnover below 40 lakhs per year do not need any formal audits. It makes LLP registration beneficial for small businesses as well as startups.
An LLP is recognized as a juristic person. Hence, it has the power to own and acquire a property. The partners of an LLP cannot claim that the firms' property as theirs.
What are the Documents Required for LLP Registration?
Documents of both partners, as well as the partnership firm, have to be submitted for registering the LLP.
Documents of Partners
- ID Proof of Partners
- Residence Proof of Partners
- Photograph
- Passport (in case of Foreign Nationals/ NRIs)
Documents of LLP
- Proof of Registered Office Address
- Digital Signature Certificate
Procedure for LLP Registration in India
The process for LLP Registration is explained below:
Step 1: Obtain the DSC and DIN
The desired partners in an LLP needs to obtain DSC. The primary reason for this is that all the forms are submitted online and there the digital signatures of the directors are needed.
The directors also need to file a DIN number as prescribed by the law. The application must be made in Form DIR-3.
Step 2: Name Approval Application
Before LLP registration process starts you need to check on MCA portal if the name you have chosen is not taken. The registrar will approve only the names that have not been taken before.
The name should not be similar to the names of any other existing company, LLP, trademarks or partnership firms.
Step 3: LLP Agreement
The LLP Agreement decides on the mutual rights and duties of the partners and also between an LLP and the partners. The partners get into an LLP agreement on the LLP registration by the filing of form 3 on the portal of MCA. This procedure needs to be completed within 30 days of its incorporation.
Step 4:Get Certificate of LLP Incorporation
After the MOA and AOA are approved by the registrar, the LLP registration process is almost complete. To get the certificate you must submit all the documents to the registrar.
Step 5: Apply for TAN, Bank Account and PAN
After receiving the incorporation certificate you must apply for PAN & TAN for your company with the NSDL.
FAQs
- Why must you choose an LLP?
- An LLP offers a dual benefit of both the partnership and a company.
- No partner will be held responsible for any type of misconduct of another partner.
- Its incorporation is cheaper than a Private Limited Company.
- The liabilities of the partners are limited.
- Can an NRI be part of an LLP?
Yes, non-resident Indians and foreign nationals who are willing to enter into an LLP can be its part.
- Is it possible to convert a partnership firm into an LLP?
Yes, it is possible to convert a partnership firm into an LLP.
- What is the minimum number of partners required to register an LLP?
The minimum number of partners to register an LLP is two.
- What do you mean by LLP Agreement?
An LLP agreement is made between the partners and the LLP with regard to its relationship between the partners in the LLP.
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