Overview

Many business people have long favoured partnerships due to their ease and flexibility. However, the fact that partners are liable for the partnership’s debts individually worries many people. Limited Partnership (LP) and Limited Liability Partnership (LLP) are organizational forms for businesses intended to ease this worry. A general partnership’s flexibility and pass-through taxes are still available to some or all partners in LPs and LLPs while protecting them from personal liability.

What is a limited liability partnership?

The limited liability applies to all partners in an LLP, a type of partnership. It is permitted for all partners to participate in LLP management. The operational procedures are described in depth in the Limited Liability Partnership Agreement. Profit distribution is also open to change.

LLPs are frequently favoured by organizations that provide professional services, including legal firms, accounting firms, and financial service companies. It is so because LLP partners are exempt from responsibility for allegations of negligence or malpractice brought against other LLP partners. Some states specifically prohibit the formation of LLCs by certified professionals because of this. 

Even in places where this is permitted, some only let specific kinds of professionals choose the LLP structure. Without giving up too much control of the business to junior partners, founding partners can use the management flexibility offered by an LLP to keep control of the enterprise. An LLP could be charged state franchise tax, unlike a general partnership.

Benefits of limited liability partnership

Due to its flexibility in ownership and management, an LLP is the ideal company form for conducting business. The principal advantages of LLP are listed below.

• Effective business tax form – LLP is a “Firm” in the sense of the tax code, and as a result, LLP is subject to firm taxation. An LLP is not subject to some taxes assessed against corporations, such as the alternative minimum tax, dividend distribution tax, and surcharges. The LLP’s operating profit after taxes will affect the Partners’ income.
• Management – The Board of Directors of a company is in charge of management. They are in charge of managing a company’s operations daily. Limited authority is granted to shareholders over a company’s operations. In an LLP, management is exclusively the partners’ responsibility unless otherwise stated in the LLP agreement. Under the purview of Designated Partners, all management functions may be delegated by an LLP to a single individual, except those related to LLP Act compliance.
• Less strict compliance standards – An LLP is subject to fewer strict legal compliance standards than a corporation is. An LLP is optional to keep the many registers, minutes, etc., necessary for a corporation.
• Audit of accounts – Accounts must be audited; regardless of the company’s size or mode of operation, all companies must appoint chartered accountants as auditors. In the case of an LLP, the audit obligation only applies once the turnover or contribution reaches Rs. 40 lakhs or Rs. 25 lakhs, respectively.
• Less maintenance expense – An LLP must pay less in statutory filing fees than a business. Because operating costs are so low, even small firms can consider incorporating their business.
• Flexible ownership – As long as the LLP agreement’s conditions are followed, a partner in an LLP may resign. Usually, the partner can recover his contribution portion from the LLP after resignation.
• Flexibility in management – LLP is allowed to make any business decisions as long as they comply with the LLP agreement. It is allowed to form contracts with its partner or their family members and take out loans from and lend to third parties. However, with a corporate structure, many of these choices require either the shareholders or the government’s bureaucratic approval, which makes the process time-consuming.
• There are no limitations on ownership – A private business can only have 50 shareholders. Such a limitation is absent from an LLP. Any number of partners allows an LLP to raise more money for its activities.
• Greater credibility – Making your company an LLP will give you superior legitimacy and credibility when dealing with other businesses, banks, and possible business partners because you will be an officially recognized entity under the laws of your country.

Minimum requirements for LLP registration

• At least two individuals: The LLP must be registered by a minimum of two people, according to the minimum requirements. There is no upper restriction on the number of partners, though.
• No Minimum Capital: LLPs have no set minimum capital requirement; capital is determined by the company’s needs and the partners’ contributions. The quantity of money determines how much stamp duty is applied to the deed.
• Need for a Resident Person: One designated partner of an LLP must be an Indian national under the resident person criterion.
• Unique Name: The name of the LLP should be distinct, and it cannot be the same as or confusingly similar to the name of any other registered or pending company, LLP, or trademark.

Documents required for LLP registration

Partner-required documentation

PAN cards or other forms of ID proof from partners serve as the primary form of ID.

• Address proof of partners: Any document, including a voter ID, passport, driver’s licence, or Aadhar card, must be submitted. All foreign citizens who wish to register as a partner in an LLP must provide address proof, such as a driver’s licence, bank statement, residency card, or any government-issued identification card that contains the address.
• Residence Proof of Partners: A recent gas bill, phone bill, or bank statement must be presented as proof of residency.
• Photograph: Partners should also supply a passport-size photo with a white backdrop.
• For foreign nationals and NRIs, a passport is required.

The LLP must give the following documents: 

• Proof of the registered office address must be done either upon registration or within 30 days of incorporation. A rental agreement or landlord’s no-objection certificate must be provided if the registered office is rented.
• Digital Signature Certificate – A DSC is crucial since the authorized signature will digitally certify all applications and documents. 
• Limited liability partnership registration is also required.

Limited liability partnership registration procedure

Step 1: 

Obtain a Digital Signature Certificate (DSC) – Since the LLP registration procedure in India is completed online, obtaining a DSC for each selected partner is necessary. Before submission to MCA, all documents will be digitally signed using the DSC. To apply for DSC, each authorized partner must provide their PAN card, evidence of identity, residence, and passport-size photo.

Step 2: 

Obtain a Director Identification Number (DIN) – The LLP’s approved partners must obtain a DIN. The DIR-3 form is available for this procedure. The state’s ROC (Registrar of Companies) assigns each partner their DIN. Along with the self-attested copies of the Aadhaar and PAN cards, the DSC of the professional and the selected partners is also necessary.

Step 3: 

Name approval – It is necessary to apply for LLP registration. The name of the LLP must be original and distinct, and it cannot be the same as an already existing or proposed firm, LLP, or trademark. You can apply for name approval with an LLP registration in Form LLP FiLLiP (eForm-2).

Step 4: 

Certificate of LLP Registration – LLP FiLLiP (eForm-2) incorporation materials must be submitted to MCA for registration of LLP after receiving DSC, Name permission, or both. Upon receiving the Registrar’s approval, the LLP FiLLiP (eForm-2) incorporation documents are submitted. The DPIN will be used if the partners have already accepted it; otherwise, DPIN will be approved concurrently with LLP registration if the partners still need to do so.

Step 5:

Registrar filing of LLP Agreement – The LLP’s partners must sign an LLP Agreement following incorporation and have 30 days to register it with the ROC. There is a fine of Rs. 100 for every day the LLP Agreement is submitted on time.

Step 6:

Application for PAN and TAN of LLP – PAN and TAN are necessary for the efficient operation of the firm.

Step 7: 

Support for opening a bank account – A limited liability partnership (LLP) needs a current account in its business name to conduct business.

What are the annual compliances for limited liability partnerships?

1. LLP Annual Return Filing You can find a summary of an LLP’s Partners and a sign of management changes in the annual return or Form 11.

Each LLP must submit an Annual Return on Form 11 to the Registrar by May 30 of each year or within 60 days of the end of the financial year.

2. Submitting Annual Accounts, Statements of Accounts, Financial Statements, P&L, and Balance Sheets (also known as Statements of Accounts and Solvency)
3. a) The LLP must maintain proper financial records. You can utilize either cash-basis accounting or accrual accounting.
4. b) Up until March 31 each year, It must produce statements of Solvency (Accounts).
5. c) The LLP Form 8 must be submitted to the Registrar of Companies by October 30 each year.
6. d) It should be mentioned that LLPs and FLLPs must have their accounts audited by their respective auditors regularly if their annual turnover reaches Rs. 40 lakh or their partner contribution requirement exceeds Rs. 25 lahks.