WHAT IS LIMITED LIABILITY PARTNERSHIP (LLP)?
A limited liability partnership (LLP) is a body corporate formed and incorporated under LLP Act, 2008, which is a legal entity separate from that of its partners, and shall have perpetual succession. LLP has the following feature:
1. Body Corporate: An LLP has its own legal identity, separate from its partners.
2. Separate Legal Entity: An LLP can own assets, enter into contracts, and sue or be sued in its own name.
3. Perpetual Succession: An LLP continues to exist even if partners change or leave, ensuring continuity of business.
REQUIREMENTS:
1. Minimum 2 Partners: At least two partners are required to form an LLP.
2. Registered Office: An LLP must have a registered office in India.
3. Partnership Agreement: Partners must execute a partnership agreement defining their roles, rights, and responsibilities.
4. Registration: LLPs must register with the Ministry of Corporate Affairs (MCA) through the Registrar of Companies (ROC).
ADVANTAGES OF LIMITED LIABILITY PARTNERSHIP (LLP):
1. Limited Liability: Partners have limited liability, meaning their personal assets are protected in case of business debts or losses.
2. Flexibility: LLPs can have any number of partners, and partners can be individuals or companies.
3. Easy Transferability: Partners can easily transfer their ownership interests.
4. Less Compliance: Fewer regulatory requirements compared to companies.
DISADVANTAGES OF LIMITED LIABILITY PARTNERSHIP
1. Complexity in Registration: The registration process for LLPs can be more complex and time-consuming compared to sole proprietorships or partnerships.
2. Higher Compliance Requirements: LLPs must file annual statements and accounts with the ROC, which can be a burden for small businesses.
3. Limited Access to Capital: LLPs may face challenges in raising capital from investors, as they are not allowed to issue shares like companies.
4. Perception of Complexity: Some clients or partners may perceive LLPs as more complex or less transparent than other business structures.
5. No Separation of Management and Ownership: In LLPs, partners are typically involved in management, which can lead to conflicts and decision-making challenges.
6. Difficulty in Termination: Winding up an LLP can be a lengthy and costly process.
REGISTRATION PROCESS OF LLP
Step 1: Name Approval
- Check availability of the desired LLP name using the LLP Name Search tool.
- Apply for name approval through Form LLP-RUN (Reserve Unique Name).
Step 2: Digital Signature Certificate (DSC)
- Obtain a DSC for all designated partners from a certified authority.
- This certificate is required for online filing and authentication.
Step 3: Director Identification Number (DIN)
- Apply for a DIN for all designated partners.
- DIN is a unique identification number required for all directors/partners.
Step 4: Incorporation Documents
- Prepare and file the following documents:
- Form FiLLiP (Form for Incorporation of Limited Liability Partnership).
- LLP Agreement (optional but recommended).
- Proof of address and identity of partners.
Step 5: Filing with ROC
- Submit the incorporation documents to the Registrar of Companies (ROC).
- Pay the required registration fees.
Step 6: LLPIN
- Receive the LLP Identification Number (LLPIN) after successful registration.
Step 7: Certificate of Incorporation
- Receive the Certificate of Incorporation from the ROC.
- Allotment of PAN
- Allotment of TAN
LIMITED LIABILTY PARTNERSHIP’S ARE POPULAR AMONGST:
1. Startups
2. Small and Medium Enterprises (SMEs)
3. Professional Services (e.g., lawyers, accountants, architects)
FREQUENTLY ASKED QUESTION
Q1: What is the minimum number of partners required to form an LLP?
A1: At least 2 partners are required to form an LLP.
Q2: Can an individual be a partner in multiple LLPs?
A2: Yes, an individual can be a partner in multiple LLPs.
Q3: Can a company be a partner in an LLP?
A3: Yes, a company can be a partner in an LLP.
Q4: What is the minimum capital contribution required to form an LLP?
A4: There is no minimum capital contribution required to form an LLP.
Q5: Is audit required for an LLP?
A5: Audit is required for LLPs with a turnover exceeding ₹40 lakhs or contribution exceeding ₹25 lakhs.
Q6: Can an LLP be wound up?
A6: Yes, an LLP can be wound up voluntarily or by the Tribunal.
Q7: Is an LLP required to file annual returns?
A7: Yes, an LLP is required to file annual returns with the ROC.
Q8: Can a partner transfer their interest in an LLP?
A8: Yes, a partner can transfer their interest in an LLP with the consent of other partners.
Q9: Is an LLP required to have a registered office?
A9: Yes, an LLP is required to have a registered office.
Q10: Is an LLP required to file tax returns?
A10: Yes, an LLP is required to file tax returns with the Income Tax Department.
Q11: Can an LLP issue shares?
A11: No, an LLP cannot issue shares like a company.