What Is a Limited Liability Partnership?
An LLP, or Limited Liability Partnership, is a kind of business setup. Partners in an LLP have limited liability, meaning their personal things are safe from debts. It’s a mix of a company and a partnership. LLPs are created under the LLP Act 2008 and go on indefinitely in every state. In an LLP, partners manage daily tasks based on agreements. They’re responsible for business debts only to a certain extent. The company deals with financial losses or debts in an LLP, not the partners individually.
Features of a Limited Liability Partnership
Here’s a breakdown of what a Limited Liability Partnership (LLP) can do:
Separate Legal Entity
LLP has its legal entity. It is separate from its partners. It can handle tasks like signing contracts, owning property, and taking legal action independently.
Limited Liability
Having an LLP means, having limited personal liabilities. This means your personal assets are safe. You are not personally responsible for the partnership’s debts.
Tax Treatment
LLPs are taxed similarly to partnerships. This means they don’t pay taxes at the business level, but instead, profits are taxed as personal income for the partners.
Flexible Organization
LLPs offer flexibility in how they’re managed and decisions are made, much like partnerships.
Checklist for registering a Limited Liability Partnership (LLP)
Here’s a checklist for registering a LLP, along with the required documents:
Name Reservation
Pick a special name for your LLP and save it using the MCA portal. List up to six name options in order of your preference.
DPIN (Designated Partner Identification Number)
Get a DPIN for all potential partners. DPIN is essential for identifying partners.
LLP Agreement
Create an LLP agreement that explains the rights, duties, and responsibilities of partners. This agreement is crucial for how the LLP operates.
Digital Signature Certificate (DSC)
Get a DSC for all intended partners. DSC ensures secure online filing and authentication.
Non-Conflictory Company Name
Make sure the chosen name doesn’t clash with existing trademarks or companies. Confirm its availability through a name search.
Capital Contribution
State the capital contribution from each partner. This decides the ownership setup.
Proof of Registered Office
Submit documents to the registered office address. These could include an electricity bill (not older than 2 months), a notarized rental agreement (for rented property), or a sale deed/property deed (for owned property).
Compliances for Limited Liability Partnerships (LLPs)
Here’s a breakdown of the compliances for Limited Liability Partnerships (LLPs):
Annual Return of LLP (Form 11)
Under Section 35(1) of the LLP Act, 2008, every LLP needs to submit Form 11 to the Registrar of Companies within 60 days after the end of the financial year, which is by May 30th. Form 11 contains information about partners, designated partners, and their contributions to the LLP. If not filed, it can lead to a penalty of Rs. 100 per day.
Statement of Account and Solvency (Form 8):
According to Section 34(2) of the LLP Act, 2008, every LLP has to submit Form 8, concerning the statement of account and solvency. Form 8 must be submitted within 30 days from the end of six months after the financial year finishes, by October 30th. It shows details about the assets, debts, money coming in, and spending of the LLP. If you don’t do this, you might get fined Rs. 100 each day.
Filing of Income Tax Return (ITR-5):
Every registered LLP needs to submit its Income Tax Return using ITR-5 within the given time. For LLPs with an annual turnover below Rs. 40 lakhs or partner contributions less than Rs. 25 lakhs, the deadline follows the usual tax filing schedule.
Process of Registering Limited Liability Partnerships (LLPs)
Registering an LLP in India has a few steps. Let’s break it down
Step 1: Obtain a Digital Signature Certificate (DSC):
Each LLP partner must obtain a Digital Signature Certificate (DSC). It’s important for online tasks and confirming their identity.
Step 2: Get Director’s Identification Number (DIN):
Each partner needs to apply for a Designated Partner Identification Number (DPIN). You must fill out Form 7 for this.
Step 3: Name Approval and Availability:
Use Form 1 or RUN-LLP to apply for your LLP’s name approval. Make sure the name you suggest follows the rules and is unique.
Step 4: Incorporate the LLP:
Submit Form 2 (also known as FiLLiP) for incorporating the LLP. Send this form to the Registrar who has authority over the state where the LLP’s registered office is located.
FAQ on Limited Liability Partnership
Is LLP better than Pvt Ltd?
So, if you run a business with a lot of sales and want to get money from investors, you might choose a Private Limited Company. On the other hand, LLPs are good for small businesses or startups because they’re flexible and have fewer rules to follow, which means they cost less to set up.
Why use a Limited Liability Partnership?
Usually, LLP partners only risk the money they put into the business (their capital) and aren’t personally responsible for the mistakes of other partners.
What is a common example of a Limited Liability Partnership?
Law firms, accounting firms, and doctor’s offices often choose to become LLPs because they have multiple partners working together in the business.
What is the disadvantage of an LLP?
Some downsides of an LLP include higher costs to start and keep it running, some partners having unlimited liability, not being able to get a lot of money easily, and not being right for every type of business.
What is the minimum turnover for LLP?
Limited Liability Partnerships don’t need to audit their accounts unless their annual turnover is over Rs. 40 lakhs or their contribution is over Rs. 25 lakhs.
Which is better OPC or LLP?
In OPCs, the costs for meeting legal requirements are higher. They have to follow rules from the Income Tax Act and the Companies Act. LLPs have lower costs for meeting legal requirements. Auditing is necessary for one-person companies, no matter how much share capital they have.