LLP (Limited liability partnership) was introduced in India through the Limited Liability Partnership Act, 2008. The main reason behind the introduction of LLP (Limited Liability partnership) is to provide a form of business entity that means easy and simple to maintain while providing limited liability to the owners. Since its introduction LLP (Limited liability partnership) has received with over 1 lakh of registrations so far until September 2014. Limited liability is the only difference between the normal partner and the LLP (limited Liability partnership) as the name suggests. This has gained a lot of popularity because of the fact that the personal assets of partners cannot be attached to pay the firm’s liability.
The main advantage of LLP (Limited liability partnership) over the traditional partnership firm is that one person is not responsible for another’s partner negligence or misconduct. LLP lags behind in the category of small businesses like One person company, private limited company, sole proprietorship, general partnership not because it will not be successful in the future, the reason is it is a new form of enterprise and hence is just explored by the entrepreneurs in the market.
In LLP all partners enjoy a form of limited liability protection for the protection of each individual within the partnership similar to that of the shareholders of a private limited company. But they have the right to manage the business directly which is not there in private limited company. It is gaining popularity in metro cities like Delhi, Mumbai, Kolkata, and Chennai. Entrepreneurs in these cities are establishing LLP (Limited liability partnership) to develop their business.
Apart from the advantages LLP has certain disadvantages too like decision made by one partner cannot deny the decision made by the other partner and the major advantage of LLP is that they cannot raise the money from the public by issue of shares and there is no democratic decision as we have mentioned above decision made by one person binds other people. It is a necessity that one must check the objective of the business and only he can proceed to register their entity because it is quite possible to get the entity without being clear about the objectives.
LLP (Limited liability Partnership) took shape in India after January 2009, making it an instant success with the professional services and startups. LLP registration offers features of both private limited company and a partnership firm and that too in a single entity that is LLP (Limited liability partnership). It is most preferred by owners who are starting a small business and not for those who are not willing to do huge funding in a business.
LLP (Limited liability partnership) can be registered with minimum of two partners and if in case one partner does any misconduct the other partner would not be responsible for it. Each partner in LLP has its own liability towards the business. The annual maintenance of the LLP firm is much more cost efficient as compared to the private limited company registration which is why LLP company registration has more trust than a general partnership.
1. Ease of formation
A cleared structure process is provided by state laws for forming LLP's that is why they are easy to form. Generally, a partner is required to fill out a registration form and file it with the local secretary of state. Nevertheless, The registration process requires a partner to write their roles, responsibilities, debts contribution and financial contribution.
2. Limited liability
One of the biggest advantages of LLP(Limited liability partnership) registration is a limited liability and flexible management roles. Unlike the general partners in LLP if any partner does any misconduct that leads to the loss then the other partner will not be liable to pay that amount. Their liability will be limited to the amount that they have contributed to the LLP (Limited liability registration) for its formation. However, this legal liability shield will break if the partner does any intentional act.
3. No requirement of Minimum contribution
There is no minimum capital required in LLP registration rather can be formed with the least possible capital. As compared to the other companies, there should a minimum amount of capital that should be brought by the members and owners who want to form it. The minimum contribution required for the private limited company is Rs. 1 lakh and a limited company requires a capital of Rs. 5 lakhs.
4. Lower registration cost
As compared to a private limited company or public limited company cost of registering LLP is very low. However, The difference between the cost of registering the private limited company and LLP has come down in the recent years.
5. No minimum numbers of members
An LLP requires a minimum of 2 partners and there is no limit in the number of members. On the contrary in a private limited company, there is a restriction of not having more than 200 members.
6. No compulsory audit requirement
All the companies whether a private limited company or a public limited company irrespective of their share capital are required to get their accounts audited but in case of LLP (Limited liability partnership), there is no such need of an audit.
LLP (Limited liability partnership) is only required to get the tax audit done only in such conditions.
1. When the contribution of LLP exceeds Rs. 25 lakhs
2. When the annual turnover of the LLP exceeds Rs. 40 lakhs
1. Higher penalty
LLP is required to file income tax and MCA annual return each year even if it does not have any activity. If in case LLP fails to file LLP Annual filling (Form 8 or Form 11), a penalty of Rs.100 per day perform will be applied. It can also run into lakhs is an LLP has not filed its annual return for the few years.
If a company has not paid an annual return for up to 270 days then a penalty of Rs.4800 will be applicable. However, the penalty for the company is increased and matched with that of LLP. Whereas, In the case of proprietorship or partnership firm, there is no need for filing an annual return only the penalty under the income tax act would be applicable.
2. The income tax rate is higher
The income tax rate for a company with the turnover of Rs.250 crore is 25% In contrast LLP’s are taxed at a 30% rate irrespective of the turnover.
3. No Equity investment
Unlike other companies, LLP does not have the concept of shareholding or equity. Therefore, Investors, HNIs, private equity funds, and venture capital cannot invest in LLP as shareholders. This is the reason why LLPs would have to be dependent on funding from promoters and debt funding.
Step 1: Obtain DSC and DIN
The first step in the process of LLP registration is to obtain DSC (Digital signature certificate) of the desired partners of LLP (Limited liability partnership). The reason for obtaining a DSC is that all the form need to be submitted online and requires the director’s signature. The law also requires that all the directors file for DIN number too.
Step 2: Name Approval
Minimum one and a maximum of 6 name choices must be submitted to MCA. The registrar only approves the LLP name which is not taken before. Approval for the name can be obtained within 5-7 working days.
Step 3: LLP agreement
It is very crucial in LLP (Limited liability partnership) as it determines the mutual rights and duties among the partners and also between the LLP and the partners. LLP agreement is made by filling form 3 online on the MCA portal. This procedure of the LLP agreement has to be done within 30 days of the date of incorporation.
Step 4: LLP certification of Incorporation
The next step in the process of LLP registration gets the LLP incorporation certificate. You have to submit all the documents to the registrar and the time frame is between 10-12 days. Once you are done with this you're ready to go.
Step 5: Apply for TAN, PAN & Bank account
As soon as you get the incorporation certificate, you need to apply for the companies PAN, TAN & NSDL. It takes around 3 weeks to get done and the cost of this procedure is less than Rs.200.
Address proof of partners
PAN Card of all partners
Address proof of business premises
Utility bill of the proposed registered office
Passport size photograph of all partners