Limited Liability Partnership
A Limited Liability Partnership (LLP) combines partnership flexibility with limited liability protection. Partners of the LLP manage the business, share profits, and aren't personally liable for debts. It's easy to set up, and is a separate legal entity once registered.
The Advantages of Registering a Limited Liability Partnership
Limited Liability Protection
Personal assets of partners are protected from business debts and legal liabilities.
Separate Legal Entity
The Limited Liability Partnership can own assets, enter contracts, and take legal action in its own name.
Flexible Management Structure
Partners have the freedom to organize internal operations as they choose.
Fewer Compliance Requirements
LLPs face less regulatory burden than private limited companies, no need for annual general meetings, complex audits (below a certain threshold), or heavy reporting.
Tax Benefits
Profits are usually taxed only once, reducing the tax burden.
No Minimum Capital Requirement
Start the business with any amount of money there’s no mandatory minimum capital.
Perpetual Succession
The Limited Liability Partnership remains in existence regardless of changes in partnership.
Lower Registration Costs
Forming and maintaining an LLP is more cost-effective than incorporating a private limited company.
Unlimited Number of Partners
Unlike private companies with a cap, LLPs can have as many partners as needed.
Easy to Add or Remove Partners
Admission or exit of partners is easier compared to share transfer in a company.
Better Brand Image than Sole Proprietorship
Being a registered entity improves your business’s credibility with clients, banks, and vendors.
Ideal for Professionals and Service Firms
LLPs are especially suitable for lawyers, accountants, consultants, and other service providers who wish to work jointly with limited liability.
Minimum Requirements for Registering an LLP:
Partners : At least two partners needed, with at least one partner being an Indian resident.
Name: A unique name approved by the Registrar of Companies (RoC).
Registered Office : A valid registered office address in India.
Business Purpose: A clearly defined objective and business activity of the LLP must be provided.
Capital Contribution: No minimum capital requirement, but partners must declare their contribution, which can be in the form of cash, property, or services.
LLP Agreement: A formal LLP agreement outlining roles, rights, duties and profit sharing of partners.
LLP Name Suffix: The name must end with “LLP” or “Limited Liability Partnership.
Demerits of Limited Liability Partnership Registration
Limited Fundraising
LLPs cannot raise money by issuing shares like companies, so it’s harder to attract large investments or go public.
Ongoing Paperwork
Even though LLPs have fewer rules than companies, they still need to file annual returns and maintain records, which takes time and effort.
Less Attractive to Investors
Many investors prefer companies because they offer shares and easier exit options, making LLPs less appealing for raising funds.
Possible Higher Taxes
LLPs may face higher tax rates or miss out on some tax benefits that companies enjoy.
Restricted Business Types
LLPs are not permitted to operate in certain regulated sectors like banking, insurance, and finance, as per government policies and applicable laws.
Lower Credibility
Banks, clients, and suppliers sometimes view LLPs as less stable or credible compared to companies, which can affect business deals.
Growth Limitations
Because LLPs can’t issue shares or attract venture capital easily, expanding the business quickly can be challenging.
Profit Sharing Issues
Profits are typically shared based on the agreement, but sometimes partners who work more may feel unfairly treated if profit sharing is equal.
Complicated Partner Changes
Adding new partners or removing existing ones usually requires mutual consent and formal amendments to the LLP agreement, which can slow decisions.
Documents Required for Limited Liability Partnership Registration
Planning to register a Limited Liability Partnership (LLP) in India? Here's a complete list of documents you need to get started.
A. Documents Required from LLP Partners
PAN Card: All partners need to provide a copy of their PAN card. It acts as the main identity proof during LLP registration.
Identity Proof: Partners need to submit any one of the following as address proof:
- Voter ID
- Passport
- Driving License
- Aadhaar Card
Make sure the name and other details match as per the PAN card.
Address Proof:
- Utility bill (electricity, water, gas) not older than 2 Months
- Bank Statements not older than 2 Months
Passport Size Photo: A recent passport-size photograph (preferably on a white background) is required from all partners.
Passport for Foreign Nationals or NRIs: Foreign nationals and NRIs must submit a notarized or apostilled passport copy. If not available, documents can be attested by the Indian Embassy in their country.
They must also submit a proof of address, which can include:
- Driving License
- Bank Statement
- Residence Card
- Any government-issued ID with address
If any document is in a language other than English, a translated and notarized/apostilled copy is required.
B. Documents Required for the LLP
Registered Office Address Proof: You must submit the address proof either before registration of the LLP.
- If the office is rented, you need:
- Rent Agreement
- No Objection Certificate (NOC) from the landlord
- Also submit one utility bill (gas, electricity, or telephone), showing the complete address and owner’s name.
The Utility bill should not be older than 2 months.
Digital Signature Certificate (DSC): All designated partners must have Digital Signature Certificates (DSC). It’s used to digitally sign all LLP documents and forms.
Procedure to Incorporate Limited Liability Partnership
Registering a Limited Liability Partnership (LLP) in India involves a few essential steps.
Get a Digital Signature Certificate (DSC)
Before you begin the LLP registration process, you must obtain a Digital Signature Certificate (DSC) for the designated partners. This is because all registration documents are submitted online and must be digitally signed.
Key Points:
- DSC must be obtained from government-recognized certifying agencies.
- You need to apply for a Class 3 Digital Signature.
- The cost of DSC may vary depending on the agency.
Reserve the LLP Name (Name Approval)
You must reserve a name for your LLP using the RUN-LLP (Reserve Unique Name) service.
Steps:
- Use the MCA name search tool to check name availability before applying.
- You can propose two names in the application.
- The name must not be identical or too similar to an existing company, LLP, or trademark.
- If the application is sent for resubmission, necessary changes must be made, and it should be resubmitted within 15 days.
Once the LLP name is approved, it remains valid for a period of 3 months. During this time, you must complete the incorporation process; otherwise, the name approval will lapse and a fresh application will be required.
File the Incorporation Application (FiLLiP Form)
Use Form FiLLiP (Form for incorporation of LLP) to register your LLP officially.
Key Details:
- File FiLLiP with the Registrar of Companies, CRC, Manesar.
- The form allows you to:
- Incorporate the LLP
- Apply for DPIN (for up to 2 designated partners)
- Apply for name reservation (if not done separately)
- Pay the required registration fees.
Approval & Issuance of Incorporation Certificate:
If the Registrar finds the FiLLiP form and attached documents to be in order, they will issue a digitally signed Certificate of Incorporation (COI) for the LLP. The Certificate of Incorporation (COI) acts as official evidence of the LLP's legal formation and existence.
Submit LLP Agreement (Form 3):
The LLP Agreement outlines the rights and responsibilities of all partners and must be filed online.
Important Notes:
- Use Form 3 to submit the LLP Agreement on the MCA portal.
- It must be filed within 30 days of incorporation.
- The agreement must be printed on Stamp Paper, and the stamp duty depends on your state laws.
LLP vs Private Limited Company: Key Differences
| Feature | LLP (Limited Liability Partnership) | Private Limited Company |
|---|---|---|
| Legal Structure | Partnership with limited liability | Separate legal entity registered under Companies Act |
| Minimum Number of Members | 2 Designated Partner | 2 Shareholders and 2 Directors |
| Maximum Number of Members | No limit | 200 shareholders |
| Liability of Members | Limited to agreed contribution | Limited to the value of shares held |
| Taxation | Taxed as a partnership; no dividend distribution tax | Taxed as a company; dividend distribution tax applicable |
| Suitable for | Small businesses, professionals, family-run businesses | Startups, investors, businesses looking for funding |
| Registration Cost | Comparatively lower | Higher than LLP |
| Name Suffix | Must end with “LLP” or “Limited Liability Partnership" | It Must end with “Private Limited” or “Pvt Ltd” |
| Compliance Requirements | Moderate annual compliance; lesser than companies | Higher compliance, including annual filings, board meetings |
| Fundraising Ability | Limited fundraising options; no concept of shares | Can issue shares; easier to attract investors and raise capital |
| Credibility & Market Perception | Suitable for small setups; moderate market recognition | Higher credibility; preferred by investors and corporates |
Frequently ask question
What is an LLP?
An LLP (Limited Liability Partnership) is a legal business structure where partners have limited liability, and the LLP has a separate legal identity from its partners.
Who can register an LLP in India?
Any two or more individuals can register an LLP in India. At least one designated partner must be a resident of India. Companies and foreign nationals are also allowed to become partners in an LLP.
What is the minimum number of partners required to start an LLP?
A minimum of 2 designated partners is required to register an LLP. There is no upper limit on the number of partners.
Is LLP registration mandatory?
Yes, if you're forming an LLP, registration with the Ministry of Corporate Affairs (MCA) is mandatory. Without registration, the LLP does not have legal recognition.
What is the typical timeframe to complete LLP registration?
On average, LLP registration takes about 7 to 15 working days, depending on document readiness and MCA processing time.
What are the documents required for LLP registration?
Key documents include:
- PAN and Aadhaar of partners
- Bank statements of the partners
- Passport (for foreign nationals)
- Address proof (utility bills, rent agreement)
- Registered office proof
- Digital Signature Certificate (DSC)
- LLP Agreement (after incorporation)
What is DPIN and why is it required?
DPIN (Designated Partner Identification Number) is a unique number issued to each designated partner of the LLP. It’s required to legally act on behalf of the LLP and sign filings.
Is it mandatory to file an LLP agreement?
Yes, after incorporation, an LLP agreement must be filed within 30 days using Form 3. This agreement defines the rights and duties of the partners.
Do LLPs need to file annual returns?
Yes. Every LLP must file:
- Form 11 (Annual Return)
- Form 8 (Statement of Accounts & Solvency)
- Income tax Returns
Even if the LLP has no transactions, filing is still mandatory to avoid penalties.
Can an LLP be converted into a private limited company?
Yes, but it requires following a detailed legal process under the Companies Act. It's advisable to consult a legal expert for conversion.
What are the key advantages of forming an Limited Liability Partnership?
- Limited liability for partners
- Flexible management structure
- Low setup and compliance costs
- Separate legal identity
- No capital requirement
- Suitable for service-oriented businesses and professionals
Are there any disadvantages to registering an LLP?
Yes, including:
- Limited access to funding
- Less attractive to investors
- Higher tax rates compared to companies in some cases
- Restrictions in certain sectors like banking and finance
What suffix must be used in the LLP name?
The name of an LLP must end with “LLP” or “Limited Liability Partnership” to signify its legal structure.
Can two LLPs have the same name?
No. LLP names must be unique and not identical or too similar to any existing LLP, company, or trademark.
Can an LLP own property?
Yes. An LLP, being a separate legal entity, can own assets and property in its name-just like a company.
Can a partner be removed from an LLP?
Yes, a partner can be removed according to the terms laid out in the LLP Agreement.
What if an LLP is not carrying out any business?
If an LLP is inactive for a year or more, it can apply for strike-off. However, it must first file all pending compliance forms and clear liabilities before applying for closure.
Can an LLP be owned by a single person?
No. At least two partners are required. If you want a single-owner business, consider a One Person Company (OPC) instead.