Limited Liability Partnership (LLP)

LLP stands for Limited Liability Partnership. It is an alternative corporate business form which offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal entity, liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership.

But it should not be confused with limited liability company.

Difference between LLP & Partnership

Cost: The cost for registration of LLP is normally higher than the cost for registration of a partnership firm.

Authority: LLPs are registered in India under the Ministry of Corporate Affairs, Central Government. Partnership firms are registered with the Registrar of Firms, Controlled by the respective State Government in which the firm is registered.

Limited Liability Protection: The main advantage of a Limited Liability Partnership over a traditional partnership firm is that in a LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. A LLP also provides limited liability protection for the owners from the debts of the LLP. However, unlike private limited company shareholder, the partners of an LLP have the right to manage the business directly.

Number of Partners: LLPs and Partnership Firms must have a minimum of two partners to be registered. Post incorporation, a LLP can have unlimited partners. In case of a Partnership Firm, if the number of partners at any time reduces below the mandatory minimum of 2 due to death, incapacitation or resignation of a Partner, the partnership firm would stand dissolved. On the other hand, in case of a LLP, if the number of Partners reduces below 2, the sole Partner can still find a new Partner to fill the position without dissolution of the LLP.

Difference between LLP & Private Limited Company

Private limited company registration process and the LLP registration process are very similar with some differences in the documents and forms filed for incorporation.

Cost: The cost for registration of LLP is normally lower than the cost for registration of a private limited company.

Flexibility: LLP will have more flexibility as compared to a company.

Compliance: LLP will have lesser compliance requirements as compared to a company

LLP Registration

The average time taken to complete an LLP registration is about 15 – 20 working days, subject to government processing time and client document submission.

LLP Agreement

It is compulsory to make and execute LLP agreement within 30 days of the incorporation of LLP. It defines the roles, responsibilities, rights, and powers of the partners to LLP and to each other. Hence, it creates the foundation for the smooth running of LLP.

Documents/Details Required for formation LLP

  1. PAN Card of the partners
  2. Address Proof of partners
  3. Address proof of principal place of business (Ownership document in case of owned/rent agreement in case rented/NOC in case consented premises)
  4. Capital contribution by partners
  5. Profit Sharing ratio
  6. Name of LLP
  7. Business activity that firm will carry

Key Registrations

The following key registration which LLP should obtain at the time of start of business:-

  1. Trade License/Gumasta
    Trade license/Gumasta is a registration required for doing any kind business. This registration is obtains from the state government. This license is basic requirement for opening bank account and obtaining other registration.
  2. MSME Registration
    MSME or Udyog Aadhaar registration can be obtained in the name of the business to establish that the LLP is registered with the Ministry of Micro, Small and Medium Enterprises.
  3. TAN Registration
    TAN registration must be obtained for the proprietor from the income tax department if the LLP is making salary payments and any other payments on which TDS deduction is required.
  4. GST Registration
    GST Registration must be obtained if the partnership firm engages in manufacturing of goods, trading of goods or providing services to its clients.
    The threshold limit for registration is decided by central government from time to time. In most states, GST registration is required for service providers having annual revenue of more than Rs.20 lakhs and in case of traders – annual revenue of more than Rs.40 lakhs.
  5. Import Export code
    Import Export Code or IE code can be obtained from the DGFT in the name of the business – in case of a LLP undertaking export and/or import of goods into India.
  6. FSSAI Registration
    In case the partnership firm is involved in the selling of food products or handling of food products, FSSAI registration must be obtained from the Food Safety and Standard Authority of India in the name of the LLP.

Legal Compliance requirement for LLP

Direct Tax

The LLP will have to file income tax return with income tax department. Also quarterly TDS return needs to be filled if TDS has been deducted on specified payment 

Indirect Tax

The LLP will have to file GST returns with GST department on monthly.

Audit

It is necessary for LLP to prepare audited financial statements under LLP Act each year if the turnover exceeds INR 40 Lakhs for the year. However, a tax audit may be necessary based on turnover and other criteria.

MCA Compliances

LLP Form 11 is due on or before 30th of May each year. Form 11 contains details of the number of partners, total number of partners, total contribution received by all partners, details of body corporate as partners and summary of partners. In addition to LLP Form 11, Form 8 must be filed within 30 days from the end of 6 months of the financial year along with some prescribed fee.

Hence, LLP Form 8 would be due on or before 30th October of each financial year.

How we can help you?

We will help you to register the LLP, obtain key registration and also to comply with various legal requirements.