While starting a business, the entrepreneurs have to face the dilemma of deciding the form of business they want to establish when there are more than two members. While forming a partnership firm, the business would be devoid of the separate legal entity and other characteristics which are present in a company. And if the entrepreneurs decide to incorporate a company then they would have to do away with the traits present in a partnership. This tussle resulted in a new form of business organisation known as “Limited Liability Partnership” (LLP). LLPs are governed under the Limited liability Partnership Act, 2008. It can be said that LLP is a hybrid of Partnership and Private Limited Company as it encompasses features of both.
Conditions For LLP Registration
There are specific compliance and procedural matters which are required to be taken care of for the smooth completion of the formation of a Limited Liability Partnership (LLP).
- Two or more persons associating to carry on a lawful business to earn profit must subscribe their names to the incorporation document. This incorporation document is to be filed in such a manner and with such fees as may be prescribed by the registrar of the state in which the registered office is located of the LLP. Further, a statement is to be filed by an advocate, company secretary or chartered accountant or a cost accountant who is engaged in the formation of the LLP concerning all the statutory requirements being complied with. In case of foreign direct investment (FDI) in LLP, permission is to be taken from the RBI.
- To start the Limited Liability Partnership registration procedure, a copy of the PAN card of the partners and their address proof is required. The documents about the registered office of the LLP can be submitted after obtaining the name approval from the registrar of companies. The name of every LLP shall have Limited liability partnership or LLP at the end of it, and it should not be undesirable or identical to the name of a Partnership firm, LLP, body corporate or similar to Trademark Registration.
- Every designated Partner is required to obtain a DIN from the Central Government. If a person already has a DIN, the same can be used for forming LLP. It acts as a unique identification for the designated Partner.
- All the designated Partners of the proposed Limited Liability Partnership need to have a Digital Signature Certificate (DSC) to sign all the forms like eForm 1, eForm 2, and eForm 3, etc., which are required to incorporate the LLP and filed electronically through the internet. The DSC will be useful in filing various forms which are required to be filed during subsistence of the LLP with the Registrar of LLP. There are certain benefits of registering LLP apart from the primary benefits like easy to form, perpetual succession, separate legal entity and limited
Benefits Of Limited Liability Partnership
- Flexible to Manage: The Partners of a Limited Liability Partnership have the utmost freedom in managing the affairs of their LLP. In the form of LLP Agreement, the Partners can decide the way they want to run and manage the LLP. The Act does not regulate the LLP to a large extent but allows partners the liberty to manage their LLP as per their will and fancies.
- Easy Transferable Ownership: One can quickly become a Partner or leave the LLP or otherwise, it is easier to transfer the ownership under the terms of the LLP Agreement.
- Taxation: Usually, LLPs are taxed at a lower rate as compared to a Private Limited Company. Furthermore, LLP is also not subject to Dividend Distribution Tax, so there will not be any tax while you distribute profit to your partners.
- Attract finance: An LLP can easily attract funding from PE Investors, financial institutions, etc. Unlike a sole proprietorship or partnership, seeking funds by an LLP is not difficult at all.
- No obligatory Audit Requirement: An LLP which has its annual turnover and contribution exceeds Rs. 40 Lakh and Rs. 25 Lakh, respectively, is required to get its account audited annually by a chartered accountant. It comes off as a great reinforcement to small businessmen.
- Limits Personal Liability: The personal liability of an individual partner is limited under the LLP. It means that a partner cannot be held liable for the errors, omissions, incompetence, or negligence of another Partner and employees or other agents of the LLP.
- Compliance: An LLP has a less burden of compliance as compared to a private limited company.