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Limited Liability Partnership (LLP) is a hybrid business entity, which combines the aspects of a partnership and a company having a separate identity from its partners. It can own properties in its own name and it alone is liable to its liabilities. Partners of LLP would have limited liability towards outside creditors to the extent of their capital contribution. The partners of LLP may keep changing according to their needs but it will not affect the continuity of LLP.
A partnership agreement is entered between partners at the time of incorporation of LLP. It contains various duties and rights mutually agreed by all partners. LLP must have at least two partners and two individuals as Designated Partners both can be same persons. One of the partners of the LLP must be an Indian Resident at the time of incorporation. Incorporation and maintenance of LLP are simpler than that of a company. There are numerous advantages of Incorporation of LLP instead of Partnership Firm. LLP can have any number of partners whereas Partnership Firm can have a maximum of 20 partners. Ordinary partnership firm does not enjoy limited liability like LLP, it’s partners have joint unlimited liability for obligations of the partnership firm. Similarly, in case of LLP one partner is not responsible for other partner’s misconduct or negligence whereas the same is not applicable with the Partnership Firm. LLP is more suitable for Professionals, Service Providers, and Small and Medium businesses.
Partnership Firm can be converted into LLP. If you are partner of any Partnership Firm and planning to form a LLP, then you have a choice of conversion of your existing partnership firm into LLP.
For business at a larger scale and easier fundraising, LLP can be converted into Private Limited Company.
LLP is similar to Partnership Firm in taxation. Income of LLP is taxable at 30% plus 4% Health and Education Cess. Tough it pays 5% higher tax than that of a company, it does not have to pay a dividend distribution tax like that of a company.
Remuneration and Interest from LLP is taxable in the hands of Partners. LLP can claim these as allowable expenditures within limit provided in Income Tax Law. Profit share from LLP is not taxable in the hands of partners.
This involves selecting desired name for the proposed LLP. It is important here to devise a unique name which does not resemble the name of any existing company/LLP or that of a trademark. This name must be pre-approved from the MCA (Ministry of Corporate Affairs) through an application. Name approved by MCA remains valid for 90 days. Objectives of the LLP are provided with this application. It’s very important to put carefully drafted objective since LLP incorporated cannot have different set of objectives than filed at the time of name application.
Obtain Digital Signature for Subscribers and Designated Partners. This is required for the application of DPIN and filing of the incorporation form.
Application for obtaining DPIN (Designated Partner Identification Number) must be made with digital signature. Prescribed ID and address proof of the applicant must be attached at this stage.
Having completed all prior procedure, application for incorporation and declaration by designated partners is submitted to Ministry. Proof of desired registered address of the LLP, ID and residential address proof of designated partners must be attached with the application. After verification by the concerned officer approves and issues Certificate of Incorporation mentioning name, address, and date of incorporation of the LLP.
After incorporation, LLP must file Limited Liability partnership agreement within 30 days from the date of incorporation to ROC.
Business commencement form is applicable only for company and not for LLP. After incorporation, LLP needs to receive capital mentioned at the time of incorporation.
For designated partners/partners:
(Mandatory For Indian Resident)
(Any one)
(Any one)
For Company in Registration:
Authorization from the owner or authorized occupant of the premises.
Utility Bill in owner’s name.
Following are the procedures to be performed post incorporation
As there is no such certificate of commencement. Company just have to file Business commencement form all these functionality is applicable for company and not for LLP.
(Any one)
(Any one)
(Any one)
This Agreement has to be made at the time of Incorporation. The agreement is between the partners and LLP to determine their rights and duties. If agreement is not entered, then the provisions of the First Schedule to the LLP Act will govern the relationship between partners and the LLP.
The LLP has to designate two individual partners as Designated Partners. They will be liable for filing returns, documents etc. with the Registrar.
No, the minimum requirement for incorporation of LLP is to have at least two partners.
Yes, LLP can register its business name through trade mark.
Yes, MCA has clarified that the LLP is eligible to carry manufacturing activities.
The following persons can be partners in a LLP:
a. Individuals
b. LLP
c. Companies
d. Foreign LLPs
e. Foreign Companies
Yes, since LLP is separate legal entity and can own property in its name therefore LLP can also make investment in other company by holding their shares.
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