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What is an LLP?
A Limited Liability Partnership is a form of business entity governed by the Limited Liability Partnership Act, 2008. It is a body corporate with a legal existence separate from its partners. In a traditional partnership, partners are personally liable for business debts. In an LLP, each partner’s liability is limited to their agreed contribution. Partners are also not responsible for the misconduct or negligence of other partners.
Who should consider an LLP?
An LLP suits professionals such as CAs, lawyers, architects, and consultants. It also works well for small and medium businesses, family businesses, and startups that want limited liability without the heavier compliance of a private limited company. It may be less suitable for businesses planning to raise equity funding from investors, since a private limited company is generally preferred for that.
Key features of an LLP
- Separate legal entity: The LLP can own property, enter contracts, and sue or be sued in its own name.
- Limited liability: Partners’ personal assets are protected from business liabilities.
- Perpetual succession: The LLP continues to exist even if partners change, retire, or pass away.
- No minimum capital: Partners can start with any amount of contribution.
- Flexible internal management: Rights, duties, and profit sharing are governed by the LLP Agreement.
- Lower compliance: Fewer statutory requirements than a company, and a mandatory audit applies only above prescribed turnover or contribution limits.
Minimum requirements
- At least two partners, which can be individuals or body corporates
- At least two designated partners who are individuals, with at least one resident in India
- A registered office address in India
- A unique name that is not identical or similar to an existing LLP, company, or trademark
Incorporation process
- Digital Signature Certificate (DSC): Designated partners obtain a DSC to sign forms electronically.
- Name reservation: The proposed name is applied for and approved through the MCA portal.
- Incorporation filing: The incorporation form (FiLLiP) is filed with partner details, the registered office, and contributions. A Designated Partner Identification Number (DPIN) is allotted if partners don’t already have one.
- Certificate of Incorporation: Once approved, the Registrar issues the certificate with a unique LLP Identification Number (LLPIN). PAN and TAN are generally allotted along with it.
- LLP Agreement: The partners execute the agreement and file it with the MCA within 30 days of incorporation.
Documents generally required
- Partners: PAN, Aadhaar or another identity proof, an address proof, and a photograph.
- Registered office: A recent utility bill, plus a rent agreement or ownership proof.
- Owner’s consent: A No Objection Certificate (NOC) from the property owner.
Importance of the LLP Agreement
The LLP Agreement is the core governing document of the LLP. It defines each partner’s capital contribution, profit-sharing ratio, roles and powers, admission and exit of partners, and dispute resolution. If no agreement is filed, the default provisions of the LLP Act apply, which may not reflect the partners’ intentions.
Post-incorporation compliance
- Opening a current bank account in the LLP’s name
- Form 11 (Annual Return): Filed every year.
- Form 8 (Statement of Account & Solvency): Filed every year.
- Income Tax Return: Filed every year.
- GST registration: Required if applicable to the business.
- Changes to the LLP: Changes in partners, address, or the LLP Agreement must be reported to the MCA within the prescribed time.
Things to keep in mind
- An LLP is taxed as a firm, and the income-tax rate is applied to its profits.
- Non-compliance with annual filings attracts daily late fees with no upper cap, so timely filing is essential.
- An LLP cannot raise funds from the public and has limited options for equity investment.
LLP Incorporation
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Verification Documents Required
- PAN Card of Partners (PAN Card of Individual Partners)
- Aadhaar Card of Partners (Aadhaar Of Individual partners)
- Address Proof of Partners (Rental Agreement / NOC from the owner/ Sale Deed of the Property Of Individual Partners)
- Utility Bills of Premises (Electricity Bill / Municipal Tax Bill / Property Tax Bill of Entity)
- Passport Size Photo of Partners (Recent PhotoGraphs of individual Partners)
- Email ID of Partners (Email of Individual Partners)
- Phone Number of Partners (Contact of Individual Partners)
- Consent to act as designated partner (Consent to act as designated partner)
- DSC of Partners (DSC (If any))
- Address Proof of Entity (Rental Agreement / NOC from the owner/ Sale Deed of the Property of Entity)
- Proposed Name (2 Option) (Any Specific Names)
- Description of Business Activities (Nature and Description of business)
- Capital contribution of each partner (Contributions from each partner)
- profit-sharing ratio (Ratios in which Profits are shared)
- Email ID of Entity (Email of Entity)
- Phone Number of Entity (Contact of Entity)
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