The Government of India introduced major amendments under the Companies Act 1956 on 29th August 2013, better known as “The Companies Act 2013” for objective “Ease of doing business” and inculcating “Corporate Governance” among businesses in India. Accordingly, one of the major changes introduced is the concept of “Limited Liability Partnerships “or commonly known as Limited Liability Partnership Firm. An LLP is a body corporate having perpetual succession and an alternate form of business with mixed benefits of a partnership firm business and a body corporate and eliminating the drawbacks of the same.
Therefore, a Limited Liability Partnership provides a balanced framework for business operations to hold the benefits of a conventional partnership and allowing the flexibility to companies such as limited liability & perpetual succession. The rights & obligations of the partners are set out in the LLP Agreement, which is in the nature of a contractual agreement between parties under the Limited Liability Partnership Act, 2008.
Owing to the benefits such as simple process of incorporation, lesser capital contribution requirements and fewer compliances it has become a popular business choice for professional firms such as Chartered Accountants, Company Secretaries, lawyers and other businesses engaged in recruitment, accounting, consultation etc.
Limited Liability Partnership Firm Registration with Legalmart
The process of registration of an LLP is a simple and quick procedures and requires minimal documentation. However, it is necessary to take forward the process of registration wisely and precariously, because any mistake during the filling process may cause rejection of application or even debarring from form filling for a certain time, which shall delay the process of registration unnecessarily. Therefore, refer to Legalmart, an expert platform which will complete the process of incorporation within a period of 10-20 days without any hassle.
Benefits of Limited Liability Partnership Firm
- Limited Liability- One of the greatest benefits offered by an LLP is the fact that there is limited liability of each partner is limited to the extent of capital contribution made by it and cannot go beyond such limit in the event of payment towards any debt/liability. Similarly, at the time of winding-up of the business, no partner could be forced to repay debts out of his/her personal assets. This benefit allows partners to undertake business operations without any worries and increases their confidence.
- No upper limit for the partners – The LLP Act 2008, mandates at least 2 partners at the time of registration, out of which one shall be the designated partner and shall reside in India. Thus, there is no upper limit for the maximum number of partners a business could have, which means an LLP can have any number of partners who can bring greater capital for the business and can participate in the business growth.
- Lower costs and fewer compliances – Costs of registration and further undertaking business operations of an LLP are comparatively lower against other business entities such as a private limited company. Unlike a private company, there is no requirement innumerable fillings for events like Annual general meetings, board meetings etc. and audits up to a certain limit of turnover and/or capital contribution in the business. Unlike a private limited or a public company, an LLP is required to only file two statements in Form 8 & Form 11 on an annual basis.
- Separate Legal Entity – Similar to companies, an LLP is also a body corporate and holds separate legal existence part form its partners, which means such LLP can sue and could be sued in its own name. It can own property, enter agreements and contracts could be entered in its own name. Thus, it is more likely that the stakeholders will have more trust on LLPs unlike entities such as a sole proprietorship or a partnership firm.
- Modest structure for profit sharing among partners– In a LLP, the profits of the business are only subject to taxation only once and are not taxed once profits are shared in the hands of the partners.
- Taxation & Non- Applicability of DDT– For the purpose of assessment of tax, an LLP has a similar tax rates as that of a partnership firms, which has the benefit of taxing business revenues only once and not in the hands of partners unlike in the case of company, if the owners to withdraw profits from the company, additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by the company. However, the case is not same in case of LLP, as the concept of Dividend distribution tax is not applicable for LLPs.
Further, LLP businesses are allowed tax deductions under Section 40(b) of the Income-tax Act 1961, which includes payment of interest to partners, any other payment by way of salary, bonus, commission or remuneration to partners is allowed deduction.
- Easy to transfer ownership- As compared to a partnership firm, it is easier to transfer ownership rights in an LLP by making changes in the LLP Agreement.
- No specific limit for minimum capital contribution in the business- An LLP could be incorporated without any specific limits towards the capital contribution at the time of registration .Further, there is no requirement specified for the minimum paid up capital before incorporation, which makes it most preferred choice for prospective business owners.
- No requirement of valuation of interests before transferring business ownership- The process of transferring business interests in an LLP are easier and simpler as compared to a private/public limited company, who are required to do valuation of the business shares under the provisions of Income –Tax Act 1961, by a Chartered Accountant in practice, which requires incurring expenditure for his professional fees. However, there is no such requirements in case of an LLP.
Disadvantages of Limited Liability Partnership Firm
- Non-compliance could be risky for LLPs- Though there are fewer compliances when it comes about LLPs, but it is mandatory for an LLP file an income tax returns and MCA annual returns (Form 11) and Form 8 every year, even if there has been no business activity in the whole year, failing to fulfil which could lead to a daily fine of Rs.100 per/day for each form with no maximum limit which is not in the case of a proprietorship business of a partnership form. Further, the LLP and its designated partner can be required to pay penalty up to Rs. 5 lakhs for non-compliance. In the case of a proprietorship or traditional partnership firm, there is no requirement for filing annual forms and business need not bear non-compliance expenses.
- Transfer of Ownership – For incorporation of an LLP, there must be at least two partners, out of which at least one of them should be a designated partner. However, if there are only two partners in an LLP, and one wishes to leave, either he obtains the consent of the other partner/s or may have to dissolve the LLP.
- Inability to retain profits- A company can retain profits for business purposes in future by making provisions in the accounts of the company. But, an LLP cannot retain profits for business purposes and requires the same to be shared between partners and cannot be held with the LLP for holding for future tax purposes.
- Lack of confidentiality- Unlike entities like a partnership firm or a proprietorship firm, an LLP cannot maintain confidentiality of the business affairs as it needs to file Form 8(Statement of Account & insolvency) and Form 11(Annual returns) every year, which may contain details which LLP doesn’t wish to make public or has the potential to harm its business reputation.
- Lesser recognition as compared to other entities- The provisions related to incorporation and further mannerisms is regulated by state regulations which makes them lesser recognized within every state as compared to other businesses.
- Different rates of taxation- LLPs are subject to taxation under different rates as compared to entities like companies. For instance, a company holding turnover up to Rs.250 crores is 25% and has been further reduced for new manufacturing companies to 15% in 2019. Still, the rate of taxation is unique in case of LLPs, as despite the turnover or it being a newer or an older entity, they are taxed at a rate of 30%.
- Difficulty to raise capital – Unlike a public/private company, an LLP cannot raise capital by issuing securities such as shares or debentures. Similarly, angel investors and venture capitalists are not allowed to make investments in the LLP business. Anyone who wishes to invest his capital in the business needs to become a partner in the LLP, which makes them subject to rights and obligations. Therefore, investors like angel investors and venture capitalists are reluctant to make investments in LLP, and prefer companies.
Eligibility criteria of Limited Liability Partnership Firm
Following is the basic criteria for the purpose of registering a LLP-
- There must be at least two partners at the time of registration, out of which one should be nominated as the designated partner who shall be resident in India.
- If a body corporate wishes to become partner in the LLP, such body corporate must nominate an authorized officer to represent itself in the LLP.
- Each partner must have an agreed contribution towards the shared capital.
- Holds a minimum authorized capital of Rs. 1 Lakh.
Documents required for Limited Liability Partnership Firm Registration
Following documents should be available in scanned format to be attached with the form of registration of LLP-
- A scanned copy of PAN card or passport of the partners (for foreign national/NRIs).
- Scanned copy of identity proof Aadhaar card/ voter Id/driving license.
- Utility bill such as telephone bill/ mobile bill/ electricity bill/ gas bill etc.
- Scanned Passport-size photograph of each partner.
- A Blank document containing specimen signature of each partner.
- Scanned copy of rental agreement in case the property is rented.
- NOC from the owner(in case the property is rented).
- If property is purchased then sale/purchase deed.
- In case a partner is NRI, then all the documents related to such partner shall be notarized or apostilled as the case may be.
Limited Liability Partnership Firm Registration Online
The step-by-step process of registering an LLP online is a simple process that is provided for your information below-
STEP 1- MAKE APPLICATION FOR DPIN (Designated Partner Identification Number) ALLOTMENT
For the purpose of registration of an LLP, it is necessary to apply for a DPIN number, which is a unique identification number given to all designated partners of the proposed LLP for facilitation of the registration process.
STEP 2- ACQUIRE A DIGITAL SIGNATURE CERTIFCATE (DSC)
After allotment of DPIN, you may be required to obtain a digital signature certificate which is mandatory for the purpose of filling e-forms electronically and ensuring safety and authenticity of information submitted on the MCA portal.
STEP 3- NEW USER REGISTRATION ON THE PORTAL
For the purpose of filing any new form or for getting any paid service on the MCA portal, it is necessary to create a user id and password by clicking “New user” registration.
STEP 4- APPLICATION FOR NAME RESERVATION AND INCORPORATION OF LLP
Before initiating the process of incorporation of the proposed LLP, it is necessary to choose a suitable name defining the proposed business products or services after ensuring the same is not already taken, the applicant needs to file form RUN to check the availability of name and ensure the same is not taken by other applicant for a period of sixty days. Such name shall be approved only if the same is not undesirable and doesn’t resemble any existing business in the view of the Central Government.
After reservation of name, the LLP so proposed shall be required to submit a request for LLP registration by submitting documents and required information in the e-form name FiLLiP.
STEP 5- PREPARE AND SUBMIT LLP DEED
Similar to a partnership deed in case of a partnership firm, an LLP agreement is required to be drafted and filed that sets out the rights and obligations of the LLP partners mutually in relation to such LLP. Such LLP Agreement contains object clause, shares in profits & losses, interest on loans, dispute resolution in case of conflicts etc.
LLP Deed is required to be filed in e-form no. Form 3, which is to be filed within a period of 30 days from the date of incorporation.
STEP 6- APPLY FOR YOUR PAN, TAN, & BANK ACCOUNT
Once the process of incorporation of LLP registration is completed along with filling of LLP Deed. You will be required to file PAN, TAN, and bank account for the LLP.
Why you Choose Legalmart
Thus, the process of incorporation of LLP is a simple five- steps process, which requires preparation of LLP deed, collection of documents of identity proof of the partners and the proof of registered address of the LLP proposed for registration. For ensuring there is no mistake resulting in the rejection of application leading to unnecessary worries and costs. Refer to Legalmart in a quick, affordable and highly reliable services.