What is an LLP (?)
A Limited Liability Partnership (LLP) is an alternative corporate structure that offers the benefits of limited liability to the partners. Limited Liability Partnerships (LLP) are emerging ever since the introduction of the Companies Act, 2013 as the compliances and disclosures for a Company have increased. The compliances and disclosures in the LLP form of business are simple and less complex compared to the Company.
An LLP is a body corporate and legal entity formed and incorporated under “THE LIMITED LIABILITY PARTNERSHIP ACT, 2008 (‘Act’)”. The provisions of the Indian Partnership Act, 1932 shall not apply to LLP.
What are the basic features of an LLP?
- Body Corporate:
As per section 3 of the Act, an LLP is a body corporate formed and registered under the Act.
- Separate Legal Entity:
LLP is a legal entity separate from that of its partners. The Liability of the partners is limited to their contribution in the LLP. One partner is not responsible or liable for another partner’s, misconduct or negligence. No exposure of personal assets of the partner, except in cases of fraud.
- Perpetual Succession:
LLP has perpetual succession and any change in the partners of an LLP shall not affect the existence, rights or liabilities of the LLP and can own assets in its name, sue and be sued.
- LLP Agreement:
As per section 23 of the LLP Act, 2008, the mutual rights and duties of all partners of LLP and their rights and duties in relation to the LLP shall be governed by an agreement between the partners or between the LLP and its partners. The partners have the flexibility to devise the agreement as per their choice.
- Number of Partners and Designated Partners:
Every LLP shall have at least 2 partners and shall also have at least 2 individuals as Designated Partners of whom at least 1 shall be resident of India. Any Individual or Body Corporate may be a partner in an LLP.
How to Register or Incorporate an LLP (?)
The Procedure for Registration or Incorporation of an LLP is as under:
Obtain a DSC (Digital Signature Certificate):
The Designated Partner (DP) must apply for class 2 or class 3 digital signature certificates (DSC) because all the documents for LLP registration are filed online on the MCA portal (www.mca.gov.in) and are required to be digitally signed.
RUN-LLP (Reserve Unique Name - Limited Liability Partnership) is filed for the reservation of the name of proposed LLP which shall be processed by the Central Registration Centre (CRC). RUN-LLP can be accessed after login to MCA portal (Section 16 of the Limited Liability Partnership Act, 2008 and Rule 18(5) of Limited Liability Partnership Rules, 2009)
- You can fill 2 proposed names of LLP in the RUN-LLP. The registrar will approve the name only if the name is not undesirable in the opinion of the Central Government and does not resemble any existing partnership firm or an LLP or a Company or an existing trademark.
- The form RUN-LLP has to be accompanied with fees as per Annexure ‘A’ which may be either approved/rejected by the registrar. A re-submission of the form shall be allowed to be made within 15 days for rectifying the defects.
Incorporation of LLP:
Form FiLLiP (form for the incorporation of LLP) is an integrated form offering multiple services viz. allotment of DIN, Reservation of Name and Incorporation of LLP. It shall be processed by the Registrar, Central Registration Centre (CRC) for and on behalf of the jurisdictional Registrar.
If an individual required to be appointed as a designated partner does not have a DPIN (Designated Partner Identification Number) or DIN (Director Identification Number), application for allotment of DPIN shall be made in Form FiLLiP. Application for allotment of DIN/DPIN shall not be made by more than two individuals in Form FiLLiP.
Note: An application for reservation of name may be made through Form FiLLiP. In the case where an applicant had applied for the reservation of name in Form RUN-LLP and which has been approved, he may fill the reserved name as the proposed name of LLP.
Attachments to Form FiLLiP:
- Subscribers Sheet and Consent
- PAN Card and Aadhar Card of Partners and Designated Partners
- Proof of Registered Office like Sale Deed or Rent Agreement etc
- Utility Bill like Electricity/Gas/Telephone Bill (Not older than 2 months as on the date of application)
- NOC of the owner to use premises as Registered office of Company
- Details of LLP (s) and / or Company (s) in which partner/designated partner is a Director or Partner
- In-principle approval of regulatory authority, if required
- Where the appointed partner is a body corporate, copy of resolution on the letterhead of such body corporate to become a partner in the proposed LLP and a copy of resolution/ authorization of such body corporate also on a letterhead mentioning the name and address of an individual nominated to act as nominee/designated partner on its behalf
- Approval of the owner of the trademark or the applicant of such application for registration of Trademark [ If the proposed name is based on a registered trademark or is a subject matter of an application pending for registration under the Trade Marks Act, then it is mandatory to attach the copy of the approval of the owner. ]
- Copy of approval in case the proposed name contains any word(s) or expression(s) which requires approval from the central government (In case the proposed name consists of any ‘Prohibited words under The Emblems and Names (Prevention of Improper Use) Act, 1950’.
- If the proposed name contains any word which implies collaboration and/or connection with a foreign country or place, then it is mandatory to attach a copy of the approval of such competent authority.
- In case the proposed name is identical to any existing company or existing LLP, proof of no objection shall be mandatory to be attached.
Filing of LLP Agreement:
- LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners.
- LLP agreement must be filed in Form 3 online on MCA Portal within 30 days of the date of incorporation.
- The LLP Agreement has to be printed on Non-judicial Stamp Paper [or] franking has to be done of the value specified in the respective states.
The time involved in the Registration Process:
LLP formation starting from obtaining DSC to filing Form 3 takes approximately 15 days subject to availability of all the documents.
What is the Annual Compliance to be undertaken by an LLP?
Every LLP registered under the provisions of the LLP Act, 2008 is required to file the following forms on MCA Portal:
Form 11 – Annual Return of LLP
Every LLP is required to file an Annual Return in Form 11 (Section 35(1) of the LLP Act, 2008 and Rule 25(1) of Limited Liability Partnership Rules, 2009) with the Registrar of Companies.
Form 11 is required to be filed within 60 days of the closing of the Financial Year i.e. by 30th May on the MCA portal.
Details of Companies or LLPs in which the Designated Partner or Partners is a Director or partner
As per Rule 25(2) of Limited Liability Partnership Rules, 2009
- The annual return of an LLP having -
- turnover up to five crore rupees during the corresponding financial year or
- contribution up to fifty lakh rupees
shall be accompanied with a certificate from a DP (Designated Partner), other than the signatory to the annual return, to the effect that annual return contains true and correct information.
- In all other cases, the annual return shall be accompanied by a certificate from a Company Secretary in practice (PCS) to the effect that he has verified the particulars from the books and records of the LLP and found them to be true and correct.
Filing of Income Tax Return and Audit requirement:
An LLP whose turnover does not exceed, in any financial year Rs. 40 Lakhs (Forty Lakh Rupees) or whose contribution does not exceed Rs. 25 Lakhs (Twenty-five Lakh Rupees) shall not be required to get its accounts audited but in any case, are required to file their Income Tax.
- Due date of filing a tax return for an LLP where tax audit is not required is 31st July of every year.
- Due date of filing a tax return for an LLP which is required to get his books audited is 30th September of every year.
- LLP can file its return of income in ITR 5
- LLPs which have entered into any international transactions with associated enterprises or have undertaken specified Domestic Transactions, need to file Form 3CEB. This form should be certified by a practicing Chartered Accountant.
The due date for filing of tax returns for such LLP is 30th November of every year.
Form 8 – Statement of Account & Solvency
The Limited Liability Partnership (LLP) must maintain proper books of account of its affairs. The accounts may be on a cash basis or accrual basis and according to the double-entry system of accounting.
Every LLP shall within six (6) months from the end of each financial year, prepare a Statement of Account and Solvency for the said financial year as on the last day of said financial year and such statement shall be signed by the designated partners of the LLP.
Every LLP is required to file a Statement of Account & Solvency in LLP Form 8 (Section 34(3) of the LLP Act, 2008 and Rule 24 of Limited Liability Partnership Rules, 2009) with the Registrar of Companies on or before 30th October every year on the MCA portal.
- Disclosures under Micro, Small and Medium Enterprises Development Act, 2006
- Statement of contingent liabilities not provided for, if any
Penalty, fine and penal provisions (Consequences) on the LLP and/or Designated Partner in case of delay or non-filing of LLP Form 11 and LLP Form 8:
- The penalty of 100/- per day in case of non-filing of form 8 / form 11 by the due date.
- Any LLP which fails to comply with the provisions of this section shall be punishable with fine which shall not be less than Rupees twenty-five thousand but which may extend to Rupees Five Lakhs and the designated partner of such LLP shall be punishable with the fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
What are the event-based compliances to be undertaken by an LLP?
Every LLP registered under the provisions of the LLP Act, 2008 is required to file the following forms on MCA Portal when any particular event has occurred, such compliances are known as event-based compliances:
- Form 3 and Form 4 (Linked Forms): Appointment or Resignation of a Designated partner or Partner
- Form 3: Changes in LLP Agreement, if any
- Form 5: Notice for Change of name of LLPForm 24: Strike off name of the LLP
- Form 15: Change of Registered office of LLP
What are the advantages or benefits of an LLP?
Partnership business is the most common and preferred form of doing business compared to the other forms. But after the introduction of the Limited Liability Partnership Act, 2008, LLP is a newly growing business structure and has many advantages compared to other forms of business.
As LLP has ingredients of both Partnership and Company, few benefits or advantages of LLP are:
- Registration cost is less: The cost of registration of LLP is low as compared to any other Company (Public or Private)
- Compliance requirements: There are very few compliances specified under the LLP Act, 2008 read with LLP Rules, 2009 compared to Companies Act, 2013.
- Flexible and Convenient: LLP form of business is more flexible and convenient as management of its affairs and rights and duties of partners is governed by LLP Agreement and the partners have the flexibility to devise the agreement as per their choice.
- Taxation: LLP is not liable to pay the tax on the income and share of its partner. Moreover, LLP is also not subject to Dividend Distribution Tax as compared to the company, so there will not be any tax while you distribute profit to your partners.
- Savings: As there are fewer compliances, low registration cost and less tax it results in savings.
Comparison between LLP (Limited Liability Partnership) & Private Limited Company
Minimum Directors / Designated Partners – 2
Minimum Members – 2, Minimum Partners – not mandatory
Authorized Capital / Total Contribution – no restriction
|The Limited Liability Partnership Act, 2008 and various Rules made thereunder||Companies Act, 2013 and various Rules made thereunder|
|Separate Legal Entity||It is a separate legal entity, separate from its partners' \ designated partners||It is a separate legal entity, separate from its members, directors.|
|Purchase of Property||LLP can also purchase movable /immovable property in its name||A company can purchase movable/immovable property in its name.|
|It will take approx. 20 days to
incorporate ( inclusive of time
taken to obtain DPIN)
|It will take approx. 15 days to incorporate ( inclusive of time taken to obtain DIN)|
|Name||Suffix ‘LLP’ or Limited Liability Partnership has to be added to the name.||Suffix ‘Limited’ or ‘Private Limited’
has to be added to the name
|The LLP has ownership of assets and Partners only have capital contribution in the LLP||The company has ownership of assets and members-only have shares in the company|
|Liability||The liability of partners is limited up to their capital contribution however in case a partner acts intending to conduct fraud, they are personally liable.||The liability of members is only limited to the shares held by them.|
|Limited Compliance Requirements as per the Act thereby resulting in a lesser financial burden towards compliances.||Stringent and exhaustive compliance requirements as per the Act resulting in increased cost of ongoing compliance.
|Agency Relationship||Partners are agents of LLP||The Directors act as an agent of the company|
|Contracts / Business
transaction by Member/
|A partner can enter into contract with the LLP||A director \ member can enter into contract with the company|
|Power of Member\ Partner\ Director||The power of partners/ designated partners to conduct
the day to day affairs is specified by the LLP agreement / LLP act.
|Directors have the power to conduct day to day affairs of the company, Member has voting rights on specific corporate actions|
|Transferability of interest||Rights/ interest of partners are
transferable as per the provisions of the LLP agreement.
|Shares of every company except private company are freely transferable.|
|Share Certificate||There are no provisions for
issuing of Share Certificate.
Rights/ Interest of the Partners in the LLP are evidenced by
|Right/ Interest of the members in the company is denoted by share certificate|
arrangements \merger \
|Provisions exist for compromise \arrangements \ merger \amalgamation for LLP in the act.||Provisions exist for Compromise \ arrangements \ merger \ amalgamation for companies in the act.|
|Manner of Keeping Books of
|Cash basis or accrual basis||Accrual basis|
|Filing of Annual
|Statement of accounts and solvency are required to be filed with ROC annually in the
|Balance Sheet and Profit and loss account are required to be filed with the ROC annually in the prescribed format|
|Audit of Accounts||As per the provisions of the LLP act, accounts to be audited annually except for LLP's having turnover less than Rs. 40 lacs or Rs. 25 lacs contribution in any financial year.||As per the provisions of Companies Act, 2013 accounts have to be audited annually|
|Annual Return||Annual Return is required to be filed with the ROC annually in the prescribed format||Annual Return is required to be filed with the ROC annually in the prescribed format|
|Remuneration can be paid to the Partners as per the clauses
in the LLP Agreement.
|Remuneration can be given to
the Executive / non-executive
directors as per the provisions of
Companies Act, 2013
Articles of Association \
|LLP Agreement is a charter of the LLP which denotes its scope of operation.||Memorandum and Articles of
Association is a charter of the Company which defines its scope of operation.
|Publication of name||Official correspondence /
Publication/letterhead/ invoices must mention the full name of the company and address of the registered office and a statement that it is registered with limited liability.
|Official correspondence /publication/ letterhead/ invoices must mention the full name of the company and address of the registered office.|
|Rights / Duties /obligation of
|Rights / Duties / obligation of
directors are governed by
|Rights / Duties /obligations of directors are governed by AOA and resolution passed by shareholders or directors.|
LLP is the world wide recognized form of business organization and possesses the flexibility of a partnership and the benefits of limited liability. Ever since the concept of Limited Liability Partnership was originated in India by way of the Limited Liability Partnership Act, 2008, it has gained immense popularity.
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The entire contents of this document have been developed based on relevant information. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.