What is Limited Liability Partnerships (LLP)?
- It is the form of corporate business which incorporates professional expertise and entrepreneurial initiative for combining and operating in flexible, innovative and efficient manner, providing benefits of limited liability while giving flexibility to its members for organizing their internal structure as a partnership.
- LLP is a legal entity partnership act. The Parliament of India has enacted The Limited Liability Partnership Act, 2008 and legally sanctions the concept of LLP in India.
- LLP is defined as body corporate and legal entity distinct from its partners having perpetual succession and any change in the partners shall not affect the existence, rights or liabilities of the LLP.
What is the difference between LLP & “traditional partnership firm”?
| Traditional partnership firm | Limited Liability Partnership |
| Every partner is liable, jointly with all other partners and also severally for all acts of the firm done while he’s a partner. | Liability of the partner is restricted to his agreed contribution. All partners aren’t liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct. |
What is the Difference between LLP & a Company?
- A normal difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 2013) whereas for an LLP it might be by a contractual agreement between partners.
- LLP is more flexibility and has lesser compliance requirements as compared to a company.
What are the features of Limited Liability Partnership?
- Minimum Two Person
We can register LLP in India, by at least two persons, who shall act as the designated partners of the LLP. There is no limitation on the maximum number of partners in an LLP form of business.
- Resident Partner
A designated partner of the LLP must be resident in India and person is said to be resident if he or she stays in India for at least 182 days during the preceding financial year irrespective of their citizenship. The days of stay can be in phases.
- No Minimum Capital
As per your business requirements the LLP can be incorporated with any amount of capital, there is no maximum limit on the capital which can be invested in the LLP. However, the minimum capital cannot be less than Rs. 10,000/-.
- Unique Name of LLP
LLP proposed name should not resemble any existing company or LLP Name. And you must check the trademark registry to ensure that the name does not match with any registered or applied trademark in India.
What is the LLP Registration Process?
- DIGITAL SIGNATURE
As the application for LLP Registration is filed online, the process starts with the issuance of the digital signature of class-2 for the partners.
- LLP NAME APPROVAL
To reserve the name of LLP, an online application is made in Form RUN-LLP. The process of name reservation for LLP takes around 2-6 days.
- LLP INCORPORATION
After LLP name approval, an application for incorporation is filed in Form FILL LLP to the ROC with partner’s documents & the registered address.
- LLP AGREEMENT
After registration of the LLP, the partners need to enter into a valid agreement on stamp paper of appropriate value as per respective state.
What are the Advantages of a Limited Liability Partnership?
- Alternative corporate business form
It is an alternative corporate business form that gives the benefits of Limited Liability Company and the flexibility of a partnership.
- Capable of entering into contracts
Existence of LLP can continue irrespective of changes in partners. LLP may enter into contracts and can hold property in its own name.
- Separate legal entity
Being a separate legal entity it is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
- Limited Liability
Any partner is not liable on behalf of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
- Mutual Rights and Duties
Rights and duties are made through an agreement between the partners or between the partners and the LLP as the case may be. It is not relieved of the liability for its other obligations as a separate entity.
LLP is called a hybrid between a company and a partnership as it contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’.
What are the disadvantages of a Limited Liability Partnership?
- Rights of partners:
It can be structured in a manner that one partner has more rights than another. So it’s not one vote per share system. Some partners may feel compromised if higher shareholders choose to move the business in a direction that affects their interests.
- Greater penalties:
Compliances of LLP are minimal, but if you don’t complete them, you could end up paying more in fines than you would with a private limited company.
- Restricted Access to Capital Markets:
These are small type of business and can’t get its shares listed in any stock exchange through initial public offerings. Limited liability partnerships may find it difficult to attract outside investors to buy the shares due to restrictions.
- Public Disclosure of LLP Information:
To the Registrar of LLPs annually Annual Returns, Financial Statements etc. must be filed, which become public document once filed with Registrar of LLPs and inspected by general public including competitors by paying some fees to the Registrar of LLPs.
Information disclosure can make an entity competitively disadvantaged. Other competing business that does not required disclosing any documents can access that information and use it to improve their own business.
- Restrictions in Formation of LLP:
LLP cannot be formed by a single person. A non – resident India and a Foreign National willing to form a LLP in India must have one person resident in India to act as Designated Partner.
FDI in LLP is allowed only by government route and only in those sectors where 100% FDI is allowed under automatic route under the FDI Policy. This restriction makes LLP an unattractive form of business.
Can a foreigner be a partner or designated partner in an LLP?
Yes, a foreigner can be a partner or even a designated partner in a Limited Liability Partnership and this includes foreign companies as well. A person resident outside India or an entity incorporated outside India shall be an eligible investor for the purpose of foreign investment LLP.
Can NRIs and foreign nationals invest in LLP?
Yes, to allow NRIs and Foreign Nationals to freely invest in businesses in India and improve foreign investment, the Government has now allowed 100% FDI in LLP under the automatic route.
Is it necessary for the foreign director to be present in India at the time of incorporation of LLP?
If foreign national is residing outside at the time of incorporation, the all the incorporation documents with ID and address proof of foreign national must be notarized before the notary of the country of their origin and duly apostillised.
Documents for foreign nationals:
Proof of address- Any utility bill not older than 6 months duly
Proof of identity- Copy of passport
Two photographs
What are the list of LLP Annual Compliances?
- Filing of Annual accounts and solvency statement with Registrar of Companies in Form 8 before 30th October every year
- Filing of Annual Return in Form 11 before 30th May every year.
- Statutory audit if turnover crosses Rs 40 lakh or contribution exceeds Rs 25 lakh
- If turnover exceeds Rs 100 crore in case of business and Gross receipts exceed Rs 25 lakh in case of profession, Due date for Tax audit is before September 30
- Due date for income tax return is July 31, but if your LLP is covered under tax audit additional three months’ time is given and due date in this case is September 30.
- First general meeting to be conducted within 30 days of incorporation of LLP
- Minimum one general meeting is conducted during the financial year of LLP
- In case of Executive committee, at least 2 executive meetings is conducted in case of LLP.
What is the difference between LLP and Private Limited Company?
| BASIS | LLP | Pvt. Ltd. Co. | One Person Company | Partnership Firm | Sole Proprietorship |
| Suitable for | Firms such as accountancy, legal and architecture | Business with projected growth which requires additional funding for expansion | Sole owner who wants to run corporate business | Traditional business | Individual person with minimum risk factor |
| Liability | Limited | Limited | Limited | Unlimited liability | Unlimited liability |
| Continuity of business | Yes | Yes | Yes | No | No |
| Tax benefits | Most efficient | High benefits | High Benefits | Minimal | Minimal |
| Cost of Registration | Lower rate of government fees | Cost is higher than LLP | Comparatively less | Comparatively less | Comparatively less |
| Ownership Status | Corporate Entity | Corporate Entity | Single Person Corporate Entity | Partner Based | Individual Base |
| Compliance | Less compliances | Requires more compliance | Minimal | Minimal | Minimal |
| Foreign Ownership | Allowed with approval of RBI & FIPB | Allowed under Automatic Approval route | Not allowed | No FDI is allowed | Not allowed |
| Number of Directors | 2- unlimited | 2-15 | 1-15 | Not applicable | Not applicable |
| Number of Members | 2- unlimited | 2-200 | 1 | 2-20 | 1 |
| Transfer for Ownership | Transferable with consent of all partners | Easily Transferable | Easily transferable | Not possible | Not applicable |