For a long time, there has been a desire to create a business structure that combines the versatility of a partnership with the benefits of limited liability of a corporation while maintaining a low compliance cost. The Limited Liability Partnership format is an alternative corporate business vehicle that offers the advantages of limited liability for a corporation while also allowing its participants to organise their internal management on the basis of mutual agreement, as in a partnership firm.
What is a Limited Liability Partnership in India?
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.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 a corporate body 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 are the Features of Limited Liability Partnership?
1. Minimum Two Person
One 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.
2. 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 as well.
3. 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/-.
4. Unique Name of LLP
The 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 are the advantages of a Limited Liability Partnership?
1. 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.
2. 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.
3. 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.
4. Limited Liability
Any partner is not liable on behalf of the independent or unauthorised actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
5. Mutual Rights andDuties
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 ?
1. 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.
2. 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.
3. Restricted Access to Capital Markets
These are small types of businesses 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.
4. Public Disclosure of LLP Information
To the Registrar of LLPs annuallyAnnual Returns, Financial Statements etc. must be filed, which become a 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 don't require disclosing any documents can access that information and use it to improve their own business.
5. 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.
What is the LLP Registration Process ?
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.
After LLP name approval, an application for incorporation is filed in Form FILL LLP to the ROC with partner’s documents & the registered address.
After registration of the LLP, the partners need to enter into a valid agreement on stamp paper of appropriate value as per respective state.
Steps for registration
1. Select Name
Choose the name and we will file for name approval of LLP.
2. Deed Drafting
Vireza Onfiling experts will draft your business deed as per your requirement.
Once the deed is finalised you need to share required documents as asked by the team.
Our team will file registration with ROC and certificates will be issued by the government.