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Limited Liability Partnerships (LLP)

Limited Liability Partnership

Limited Liability Partnership (LLP) in India took shape after January 2009, making it an instant success with startups and professional services. Limited Liability Partnership Registration, governed by the Limited Liability Partnership Act, 2008, combines the benefits of a partnership with that of a limited liability company. LLP was introduced to provide a form of business that is easy to maintain and to help owners by providing them with limited liability.

Limited Liability Partnership (LLP) is a balanced structure, carrying benefits conventional partnership and still limiting personal liabilities of the partners. It is regulated as a contractual agreement between the partners under the Limited Liability Partnership Act, 2008. It has quickly become a popular choice for services and professional firms like Chartered Accountants, recruiting firms, consulting businesses, etc.

Limited Liability of Partners

Because an LLP can enter into a contractual relationship in its own capacity, it offers a great advantage to the partners for limiting their personal risk. Liability of financial contribution of any partner is restricted to the capital contribution as per the LLP agreement. Many new age businesses prefer LLP registration over partnership so that their personal assets remain safe in case of loss, or even insolvency. Further, one partner is not held responsible for the actions of negligence or misconduct of any other partner.

Operational Flexibility

LLP Agreement, deed among partners of an LLP, clarifies operating structure including rights and responsibilities of the partners. Typically, LLP would select a “Designated Member” who would control day-to-day operations. It can have individuals or existing businesses as members. Further, this structure allows to clearly define roles of the partners and their respective responsibilities. It could also help in protecting partner’s interest in case of loss because of an unlawful act of any other partner.

Separate Legal Existence

Registration of LLP creates a separate legal identity than its partners. Governed by the LLP Act of 2008, it allows the business to contract with other entities, take legal action, own assets and borrow funds in the name of an LLP itself. It is a major advantage that is not available to a regular partnership firm.

Lower Compliance Requirement

A key benefit of registering an LLP over a private company is lesser compliance requirement. It doesn’t have a mandatory audit requirement until a certain level of turnover or contribution. Unlike companies, compliances related to board meetings, statutory meetings, etc. do not apply to LLPs. Professional services for compliance are typically available at cheaper rates than that for companies, making it cost effective to maintain an LLP.
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LLP REGISTRATION

An LLP or Limited Liability Partnership is a business structure more preferred than a general partnership as it ensures limited liability of the partners. It was introduced in 2008 and is governed by The Limited Liability partnership Act, 2008.

PROS

  • Limited Liability secures the personal assets of partners.
  • An LLP is a separate legal entity with right to sue and be sued and own properties in its own name.
  • Limited compliance requirement in comparison with a Private Limited company.
  • Simple and hassle free to set up as well as wind up.
  • No need for compulsory audit unless contributions of LLP exceeds Rs.25 lakhs or the annual turnover of LLP exceeds Rs.40 lakhs.
  • The distribution of dividends or partners does not attract the same higher rate of tax as that of a company.

CONS

  • Inability to attract VC funding as the VC’s will have to become partners if they intend to fund the business as all shareholders in an LLP must be partners.
  • Higher penalties for non-compliance- If there is any failure to complete the compliances i.e. File income tax returns, MCA annual return in the Form 8 (Statement of Account and Solvency) and Form 11 (Annual Return) then severe penalty even up to the tune of Rs.5 Lakhs may be levied in a year.

PROCEDURE FOR LLP REGISTRATION

An LLP registration process is very similar to that of incorporating a private limited company but with minor differences.

Step 1- Applying for DSC (the digital signature certificate for designated partners for the purpose of signing the electronic documents while registering online. It is advisable to get a Class 2 or 3 DSC.)

Step 2- Apply for DIN (the Director Identification Number for the designated partners in Form DIR-3. After that eForm 1 is applied for reservation of name of LLP with the MCA (Ministry of Corporate Affairs). It is advised that you make a preliminary check for availability of the desired name at the dedicated search link on the MCA portal)

Step 3- Submitting the eform 2 with requisite fees for the incorporation

Step 4- the final step i.e. post incorporation which is filing the LLP agreement within 30 days from date of incorporation, (Apply for PAN/TAN with the NSDL (National Securities Depository Limited) and with that open bank accounts in your business name and operate your business.)

Documents required for LLP registration

The method of LLP registration in India does not require much legwork when it comes to documents.

To Be Submitted By Partners

  • Scanned copy of PAN Card or passport (Foreign Nationals & NRIs)
  • Scanned copy of Adhar Card/ Voter’s ID/Passport/Driver’s License
  • Scanned copy of Latest Bank Statement/Telephone or Mobile Bill/Electricity or Gas Bill
  • Scanned passport-sized photograph Specimen signature (blank document with signature [partners only])
  • Note: Any one of the partners must self-attest the first three documents. In the case of foreign nationals and NRIs, all the documents must be notarized (if currently in India or a non-Commonwealth country) or apostilled (if in a Commonwealth country).

For The Registered Office

  • Scanned copy of latest bank statement/telephone or mobile bill/electricity or gas Bill
  • Scanned copy of Notarised Rental Agreement in English
  • Scanned copy of No-objection Certificate from the property owner
  • Scanned copy of Sale Deed/Property Deed in English (in case of owned property)

Factors to consider while selecting a name for your LLP 

The Registrar of Companies (RoC) has issued naming guidelines for LLPs. It is essential that you follow the rules closely or your application may end up getting rejected, leading to a much longer process.

Unique Component:

In AlphaBeta Internet Private Limited, AlphaBeta is the unique component. Now, once taken, the name will not be given to any other business in categories related to the Internet.

Blacklist:

Abbreviations, adjectives and generic words are rejected. So XYZ would be rejected, as would Good Quality Biscuits. The words bank, exchange and stock exchange, unless approved by RBI or SEBI, would also be rejected.

No Common Trademark:

There should not be a registered trademark by the same name on the IP India website. If there is one, the name can only be approved if you are able to get a No-Objection Certificate from its owner authorising you to use it.

Descriptive Component:

In Biocon Research Private Limited, the word ‘Research’ describes the business the company is into. You cannot have ‘Research’ in your name if you’re, say, in the logistics or restaurant business.

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