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Limited Liability Partnership-LLP in India

Limited Liability Partnership-LLP in India

LLP, a legal form available world-wide is now introduced in India and is governed by the Limited Liability Partnership Act 2008, with effect from April 1, 2009.

LLP combines the advantages of ease of running a Partnership and separate legal entity status and limited liability aspect of a Company.

Here are some of the main features of a LLP

  • LLP is a separate legal entity separate from its partners, can own assets in its name, sue and be sued.
  • Unlike corporate shareholders, the partners have the right to manage the business directly.
  • One partner is not responsible or liable for another partner’s misconduct or negligence.
  • Minimum of 2 partners and no maximum.
  • Should be ‘for profit’ business.
  • Perpetual succession.
  • The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided in the law.
  • Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud.
  • LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs.

A LLP is indeed advantageous because of comparatively lower cost of formation, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public.

The process for incorporating a LLP is pretty simple. The flow chart here depicts it clearly.

The Registrar of Companies (ROC) is the authority having jurisdiction over the incorporation. The steps required are:

  • Decide on the Partners and the Designated Partners.
  • Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate.
  • Decide on the name of the LLP and check whether it is available.
  • Draft the LLP agreement.
  • File the LLP Agreement, incorporation documents and obtain the Certificate of Incorporation.

In order to help you decide on which legal form to choose, here’s a feature comparison between the LLP, Partnership firm and a Company:

FeaturesCompanyPartnership firmLLP
RegistrationCompulsory registration required with the ROC. Certificate of Incorporation is conclusive evidence.Not compulsory. Unregistered Partnership Firm will not have the ability to sue.Compulsory registration required with the ROC
NameName of a public company to end with the word “limited” and a private company with the words “private limited”No guidelines.Name to end with “LLP”” Limited Liability Partnership”
Capital contributionPrivate company should have a minimum paid up capital of Rs. 1 lakh and Rs.5 lakhs for a public company.Not specifiedNot specified
Legal entity statusIs a separate legal entity.Not a separate legal entityIs a separate legal entity
LiabilityLimited to the extent of unpaid capital.Unlimited, can extend to the personal assets of the partnersLimited to the extent of the contribution to the LLP.
No. of shareholders / PartnersMinimum of 2. In a private company, maximum of 50 shareholders.2- 20 partnersMinimum of 2. No maximum.
Foreign Nationals as shareholder / PartnerForeign nationals can be shareholders.Foreign nationals cannot form partnership firm.Foreign nationals can be partners.
TaxabilityThe income is taxed at 30% + surcharge+cess.The income is taxed at 30% + surcharge+cessNot yet notified.
MeetingsQuarterly Board of Directors meeting, annual shareholding meeting is mandatory.Not requiredNot required.
Annual ReturnAnnual Accounts and Annual Return to be filed with ROCNo returns to be filed with the Registrar of FirmsAnnual statement of accounts and solvency & Annual Return has to be filed with ROC
AuditCompulsory, irrespective of share capital and turnoverCompulsoryRequired, if the contribution is above Rs.25 lakhs or if annual turnover is above Rs. 40 lakhs.
How do the bankers viewHigh creditworthiness, due to stringent compliances and disclosures requiredCreditworthiness depends on goodwill and credit worthiness of the partnersPerception is higher compared to that of a partnership but lesser than a company.
DissolutionVery procedural. Voluntary or by Order of National Company Law TribunalBy agreement of the partners, insolvency or by Court OrderLess procedural compared to company. Voluntary or by Order of National Company Law Tribunal
Whistle blowingNo such provisionNo such provisionProtection provided to employees and partners who provide useful information during the investigation process.

But, LLP might not be a choice due to certain extraneous reasons, for example, DOT would approve the application for a leased line only for a company; Angels / VCs would be comfortable investing in a company.

Limited Liability Partnership-LLP in India

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