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A Limited Liability Partnership or LLP is a form of business Registration which offers the benefits of limited liability to the partners at low compliance costs.
LLP provides features of a partnership and the company are combined together.
A limited liability partnership is a legal entity, liable for the full extent of its assets
LLP or Limited Liability Partnership is an alternative business form that provides the advantages of a limited liability company and the flexibility like that of a partnership firm.
An LLP, therefore, exhibits elements of both partnerships and corporations. This innovative and most awaited form of company was introduced into the Indian corporate world in 2009 by the Limited Liability Partnership act of 2008.
This unique hybrid combination of a limited and partnership company is thus suitable for small, medium-sized businesses or professionals.
Being one of the easiest types of businesses to incorporate and manage there are over one lakh registrations received in India since the introduction. Minimum two partners can incorporate an LLP, there is no upper limit as such.
In an LLP one partner is not responsible for the other partner's misconduct or negligence. The mutual rights and the duties of the partners with an LLP are governed by an agreement that is signed between the partners.
As LLPs, are not capable of issuing equity shares LLPs should not be chosen for any business that plans for raising equity funds Angels investors, Venture Capitalists or Private Equity.
After deciding on your business model, it's important to choose between the Private limited company registration and LLP, by understanding their differences and advantages they provide, so as to choose what’s best for your business model.
The most vital reason for registering as LLP is the limited liability. The members of the firm are only liable for a small amount of debt incurred by it. This is entirely different from proprietorship and partnership where the personal assets of directors and partners are not protected if the business becomes bankrupt.
LLP is a separate legal entity from the partners. Each partner can sue the other in case a situation arises.
It has an uninterrupted existence that follows perpetual succession, i.e., the partners might leave, but the business remains. A term of dissolution has to be mutually agreed on for the firm to dissolve.
Transferring the ownership of LLP is also simple. A person can quickly be inducted in as a designated partner and the ownership switches to them.
LLPs having a capital amount less than 25 lakhs and turnover below 40 lakhs per year do not require any formal audits. It makes registering as LLP beneficial for small businesses and startups.
An LLP can own or acquire property because it is recognized as a juristic person. Partners of LLP cannot claim the property as theirs.
An LLP has partners, who own and manage the business. This is different from a private limited company, whose directors may be different from shareholders. For this reason, VCs do not invest in the LLP structure.
The first step is to obtain DSC of the desired partners of the Limited Liability Partnership. The reason for this is that all the forms need to be submitted online and require the directors' digital signatures.
The law also requires that all directors file for a DIN number. The application has to be made in Form DIR- 3.
This process involves registering the LLP. Before you do this, you would need to see if the name is already taken. You can check on the free search facility on the MCA portal. The registrar only approves LLP names that are not taken before.
The approval of the name will be made by the Registrar only if the Central Government does not deem it undesirable. The name should also not hold any resemblance to any of the existing partnership firms, LLPs, trademarks, or body corporates.
LLP agreement is very crucial in a limited liability partnership as it determines the mutual rights and duties amongst the partners, and between the LLP and the partners. The partners enter into the LLP agreement upon the LLP registration by filing form 3 online on the MCA portal. This procedure has to be done within 30 days of the date of incorporation.
Once the registrar approves your MOA and AOA, you’re steps closer to getting your LLP registered. The next step is to get the LLP Incorporation Certificate. You can do by submitting all documents to the registrar. The time frame is between 2- 12 days. Once you get your LLP Incorporation Certificate, you’re ready to go.
As soon as you get the incorporation certificate, you need to apply for your company PAN & TAN with the NSDL.
For the registration of an LLP in India following documents are required.
The main purpose of introducing LLP is to introduce a form of business that provides limited liability to the owners and is comparatively easy to manage and hassle-free. It is an alternative to Partnership firms. Here, we take a look at the major differences between an LLP and a partnership firm.
In an LLP the partners are not responsible to the creditors externally. Hence, the partners are liable to the extent of their contribution to the LLP. On the contrary, in the case of a partnership firm the partners are personally responsible to the creditors. Because of this entrepreneurs may deny being partners in the partnership firm. In an LLP the partners enjoy limited liability protection.
LLP and partnership firms both must have a minimum of 2 partners. However, there is no upper limit in the number of partners in an LLP. Just in case if the number of partners reduces below 2 in a partnership firm due to any reason the firm would stand dissolved. Whereas in the case of LLPs if the number of partners reduces below 2, the sole partner can find a new partner without actually dissolving the LLP.
An LLP can shift their registered office and open a bank account anywhere in India as it is registered under the Ministry of Corporate Affairs of India.
The Registrar of firms that registers the partnership firms are controlled by the state government. Hence, it is more tedious to operate or move across India with Partnership firms.
The subsistence of LLP does not depend on its partners. The partners of the LLP can change from time to time, but that will not affect the existence, continuity, or operations of the LLP. In the case of a Partnership firm, the resignation or death of any partner would have huge consequences and the Partnership would have to be reconstituted.
Members can be added to LLP during incorporation or post incorporation. The following persons can be partners in LLP
The LLP agreement must be executed and filed within 30 days of incorporation of an LLP. If the LLP fails to file the agreement, then there is no agreement and the First Schedule of the LLP Act will administrate the relationship between the Partners and LLP. In case there is written agreement and no detailed declaration about any of the matters dealt with in the first schedule, such matters will be administered by the first schedule.
Entrepreneurs starting a new business are always curious about the difference between a Private Limited Company and an LLP, as both of them offer similar features. Here's the comparison between a Private Limited Company and an LLP from an entrepreneur's perspective for starting a new business.
Following are the steps involved for the incorporation of a Private Limited Company as well as an LLP.
Both LLP and Private Limited company are registered with the Ministry of Corporate affairs under Central Government. The processing time for incorporation of both Private and public limited company takes around 15-20 working days.