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A limited liability partnership (LLP) is a type of business structure that combines the liability protection of a corporation with the flexibility and tax benefits of a partnership. In an LLP, partners have limited personal liability for the debts and obligations of the business, meaning their personal assets are typically protected from creditors. However, each partner still has the ability to participate in management and share in the profits of the business. LLPs are commonly used in professional services such as law firms and accounting practices.
The benefits of LLP registration include:
Easy to start and manage:
Starting and managing an LLP can be relatively easy compared to other business structures. The flexibility of the partnership structure and the limited liability protection offered to partners make it a popular choice among businesses. However, it's important to note that there are still certain formalities and legal requirements that must be fulfilled, such as registering the LLP and preparing and filing annual returns.
Limited liability protection:
Limited liability protection refers to a legal concept that protects business owners from being held personally liable for the debts and obligations of the LLP. This means that, in the event of business bankruptcy or other financial difficulties, the personal assets of the owners are typically protected and cannot be seized to pay off creditors. This type of protection is often offered through specific business structures, such as a company or a limited liability partnership (LLP).
Separate Legal Entity:
LLP is considered a separate legal entity from its partners, meaning that it can enter into contracts, own property, sue or be sued, and incur debts and obligations separate from its partners. This distinction can increase trust for stakeholders, as they can rely on the LLP as a single, stable entity with its own assets, liabilities, and responsibilities.
Low Cost and Less Compliance:
Compared to other business structures, limited liability partnerships (LLPs) can often have lower start-up and ongoing costs, as well as lower compliance requirements.
There is no requirement for a mandatory audit:
Limited liability partnerships (LLPs) are not required to undergo a mandatory annual audit. Yes, that's correct. Limited Liability Partnerships (LLPs) in India are required to get their accounts audited if certain thresholds are met. As per the Limited Liability Partnership Act, 2008, if the annual turnover of an LLP in any financial year exceeds Rs. 40 lakhs or if its contribution exceeds Rs. 25 lakhs, it is mandatory for the LLP to get its accounts audited by a practising Chartered Accountant (CA).
Minimum capital contribution not required:
Limited liability partnerships (LLPs) do not have a minimum capital requirement, meaning that partners can contribute any amount of capital they agree upon. However, it's important to note that the amount of capital contributed by each partner may have implications for their profit and loss sharing ratio and control over the business.
Flexibility in management:
Limited liability partnerships (LLPs) offer a high degree of flexibility in management. The partnership structure allows partners to make decisions collectively and provides for a degree of autonomy in the day-to-day running of the business. Additionally, the profit and loss sharing arrangements can be tailored to suit the specific needs of the partners.
Increased Ability to Raise Capital:
Limited liability partnerships (LLPs) can have an increased ability to raise capital compared to sole proprietorships and traditional partnerships. This is because LLPs offer limited liability protection to partners, which can make the business more attractive to investors and lenders. Additionally, the structure of an LLP allows for the admission of new partners, who can bring additional capital and expertise to the business.
Perpetual existence:
Limited liability partnerships (LLPs) have a perpetual existence, meaning that the partnership continues to exist even if one or more partners leave the business or pass away. The continuation of the partnership is not dependent on the life or actions of any individual partner, which provides stability and continuity for the business.
Partners : An LLP must have at least two partners, with no maximum limit on the number of partners.
Name: The LLP must have a unique name that is not already being used by another business entity.
Registered Office : An LLP must have a registered office address in the country where it is established.
Partnership Agreement : An LLP must have a partnership agreement that outlines the rights and obligations of the partners as well as the management structure of the LLP.
Filing Requirements : An LLP must be registered with the Ministry of Corporate Affairs. This usually involves filing incorporation documents, and obtaining a certificate of incorporation.
Statutory Compliance: The LLP must comply with all applicable laws and regulations, including tax laws, labour laws, and business registration requirements.
LLP has certain benefits. Still, it has some demerits.
Limited Funding Alternatives:
A limited liability partnership (LLP) may have limited funding alternatives. Unlike companies, LLPs are not typically able to issue stocks or other securities, which can limit their ability to raise capital. This can make it more challenging for an LLP to secure funding from investors or lenders, especially if the business is in a highly competitive industry or if the economic climate is unfavorable. Additionally, the limited liability protection offered to partners in an LLP may make the business less attractive to certain investors and lenders.
Non-Compliance is Expensive
Although the compliance requirements for limited liability partnerships (LLPs) are minimal, it's important to adhere to them to avoid costly penalties. Even if an LLP does not have any activity, Forms 8 and 11 must be filed annually. The additional fee of INR 100 per day, per form, can quickly add up, especially if the LLP has not filed for several years. Non-compliance with regulatory requirements can also have other negative consequences, such as damage to the business's reputation and legal consequences.
There is no option for equity investment.
Limited Liability Partnerships (LLPs) do not have the concept of equity investment, unlike companies. The partners of an LLP provide the capital required for the business to operate and grow, which means that scaling up the business becomes challenging as the partners may not have sufficient resources to invest.
Photographs of partners
A PAN card for all partners is required
Government-issued ID proofs of all partners, such as an Aadhaar card, a voter card, a driving license, or a passport.
Residence proof for all partners, such as the latest utility bill or bank statement
Address proof for the registered office address of the LLP
NOC for using the address as proof of registered office
LLP Agreement: A document that outlines the terms and conditions of the LLP, including the rights and responsibilities of the partners
The procedure to form a Limited Liability Partnership (LLP) typically involves the following steps
The first step to incorporate an LLP is to obtain a digital signature certificate. For obtaining DSC, the following documents are required:
The second step is to choose a unique name for the registration of the LLP. The name must be unique, and it should not be identical to or resemble the name of any existing entity. The form LLP RUN is used for reserving the name of the LLP.
After reservation of the name, the incorporation form is filed. Form FiLLiP [Form for Incorporation of Limited Liability Partnership] is used for registration along with a specific fee and with the documents as mentioned below
Following the completion of all documents ROC will verify the documents, and after verification, he will issue the incorporation certificate in electronic form.
| Basis | LLP | Private Company |
|---|---|---|
| Registered under | Limited Liability Partnership Act 2008 | The Companies Act of 2013 |
| Name | The name should end with "LLP," or "limited liability partnership." | The name should conclude with Private Limited. |
| Directors/Partners Required | Minimum designated partner 2: Maximum number of designated partners—No Limit |
Minimum -2 Maximum-15 |
| Members required | Minimum -2 Maximum-no limit | Minimum -2 Maximum-200 |
| Minimum share capital requirement | In an LLP, there is no requirement for minimum share capital. | There is no minimum share capital requirement in private companies as well. |
| Meetings | As per law, partner meetings are not required. | Companies are required to hold a minimum of four board meetings in a financial year, with a gap of not more than 120 days between two consecutive meetings. Also required is to conduct a general meeting of shareholders once in a financial year, which is commonly referred to as the Annual General Meeting (AGM). |
| Statutory audit | Unless the partners' contributions exceed Rs. 25 lakhs and the annual turnover exceeds Rs. 40 lakhs, this is not required. | Mandatory |
| Compliances | Less compliances | High Compliances |
| Transparency | In comparison with a private company, the transparency of operations is lower. | Transparency in the operations is higher compared to LLP. |
| Creditability | When compared to a private company, the creditability is low. | Higher |
LLP stands for "Limited Liability Partnership. It is a form of business organisation that combines the features of a partnership and a corporation. In an LLP, the partners have limited liability for the debts and obligations of the partnership, similar to a corporation. This means that each partner's personal assets are protected in the event that the LLP is unable to pay its debts. Additionally, LLPs offer the flexibility and tax benefits of a partnership, such as pass-through taxation, while still providing a separate legal entity for the business.
The formation and regulation of limited liability partnerships (LLPs) in India are governed by the Limited Liability Partnership Act, 2008. The act outlines the rules and regulations for the formation, operation, and dissolution of LLPs in India. It defines the rights, duties, and responsibilities of partners, provides for the management of the LLP, and sets out the legal framework for resolving disputes among partners.
Any individual who is a resident of India and at least 18 years old can be a designated partner in a limited liability partnership (LLP). Foreign nationals, foreign companies, and other corporate bodies can also be designated partners, subject to compliance with the Foreign Exchange Management Act (FEMA) and other applicable laws.
As per the Limited Liability Partnership Act, 2008, every Limited Liability Partnership (LLP) is required to have at least two designated partners, who are authorised to represent the LLP in all its dealings and to enter into contracts on its behalf.
Designated partners are responsible for the compliance of the LLP with various statutory and regulatory requirements and are accountable for the actions of the LLP. They play a critical role in the management and operation of the LLP, and it is important that they have the necessary knowledge, skills, and experience to fulfill their responsibilities effectively.
Limited liability partnerships (LLP) are exempt from the Indian Partnership Act of 1932.In India, limited liability partnerships are governed by the Limited Liability Partnership Act, 2008.
In a limited liability partnership, the liability of the partners is limited to their capital contributions, while in a conventional partnership, the partners are personally liable for the debts and obligations of the partnership firm. This means that in an LLP, the partners' personal assets are not at risk in the event of business debts or liabilities, whereas in a conventional partnership, the partners' personal assets can be used to fulfil the obligations of the partnership firm.
Yes, an existing partnership firm can be converted into an LLP by complying with the provisions of the LLP Act, 2008.
Yes, an existing company can be converted into an LLP by complying with the relevant provisions.
No, the name of a Limited Liability Partnership (LLP) in India cannot end with the words "Limited" or "Private Limited." According to the Limited Liability Partnership Act of 2008, the name of an LLP must end with the words "Limited Liability Partnership" or its abbreviation "LLP." The use of other words, such as "limited" or "private limited," is not permitted for LLPs in India.
Yes, it is mandatory to execute an LLP agreement and get it registered with the Registrar of Companies.
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