LLP was introduced to provide a form of business that is easy to maintain and to help owners by providing them with limited liability. LLP is also a form of partnership, where the liability of partners is limited as well as any partner will not be held liable for the acts of other partners. General Partnership, on the other hand, brings unlimited liabilities to the partners concerned and so they are jointly or severally liable for the debts.
The LLP structure is available in countries like the United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
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.
Foreign Direct Investment (FDI) is permitted in LLPs operating in sectors/activities where 100% FDI is allowed through the automatic route with the approval of Foreign Investment Promotion Board (FIPB). FDI in LLPs will not be allowed in sectors such as agricultural/plantation activity, print media or real estate business.
LLP has a unique feature that offers reduced personal responsibility for business debts. In other words, a partner is not responsible or liable for another partner's misconduct or negligence. Instead, the liability is limited to only their acts of commission or omission. An LLP while its formation, should execute and maintain a "Deed of Partnership" which is a legally binding agreement between members. This deed lays out the rights and responsibilities of each party to the agreement.
Any individual planning to become the partner of a LLP has to submit an application for DIN. According to the notification of MCA regarding LLP rule, 2009, any partner who will be appointed as the designated partner of a company will have to apply for DIN instead of DPIN. If Partners already have approved DPIN then that will be used and if Partners do not have approved DPIN then DPIN will be approved simultaneously with Registration of LLP.
Register your Digital Signature Certificate (DSC). A partner who is going to be registered as the designated partner needs to get class 2 and class 3 DSC. Register on the Ministry of Corporate Affairs (MCA) website, fill up the registration form, and upload the DSC. After successful registration, you will get an acknowledgment message.
A free name search facility is available on the MCA portal. The system will provide the list of similar/closely resembling names of existing companies/LLPs based on the search criteria filled up. Download and fill Form-1 for reservation of name and fill in the details. Select the name of the proposed.
Mention the number of their partners along with details. Enter the monetary value of the partner’s share. Select the office of the registrar to fill the application. Pay the prescribed fees.
After DSC, Name approval or LLP_FiLLiP (eForm-2) incorporation documents are submitted to MCA for registration of LLP, the Registrar issue the certificate of incorporation after his/her satisfaction.
After incorporation of LLP, the partners of the LLP must enter into a LLP Agreement and file it with the ROC within 30 days of Incorporation. Non submission of LLP Agreement incurs a penalty of Rs. 100 for each day of delay. It is not mandatory to file an LLP agreement at the time of registration and it takes 30 days. Designated partners are responsible for doing all acts, matters, and things that are required to be done for complying with the provisions of the LLP act. They are liable to all penalties imposed on the LLP. So it is very important to draft an LLP agreement with professional help.
The LLP agreement needs to be uploaded. Once it gets approved all the formalities for registration gets completed.
LLPs shall be registered with the Registrar of Companies (ROC) (appointed under the Companies Act, 1956) after following the provisions specified in the LLP Act. Every LLP shall have a registered office. An Incorporation Document subscribed by at least two partners shall have to be filed with the Registrar in a prescribed form. Contents of LLP Agreement, as may be prescribed, shall also be required to be filed with Registrar, online. Contents of LLP Agreement or any changes made therein, if any, may be filed in Form 3 and details of partners/designated partners may be filed in Form 4 in accordance with LLP Rules, 2009.
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.