LLP Registration – An Overview
LLP Registration in India has become an alternative form of business that provides the advantages of a Company and the flexibility of a Partnership firm into a single organization. The Concept of LLP in India was introduced back in 2008 by the Limited Liability Partnership Act of 2008. This unique hybrid is suitable for setting small, medium-sized businesses.
It is very easy to manage and incorporate a Limited Liability Partnership in India. To register an LLP minimum of two partners are required, there is no upper limit as such. The LLP agreement states the rights and the duties of the Partners. In an LLP one partner is not responsible for the misconduct and negligence of the other partner. The partners are responsible for the compliances and all the provisions that are specified in the LLP agreement.
Every LLP shall be required to have at least two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India. In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of such body corporate shall act as designated partners
- LLP is a body corporate: LLP is a body corporate formed and incorporated under this Act. It is a legal entity separate from its partners and shall have perpetual succession. Therefore, any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP.
- Perpetual Succession: The LLP can continue its existence irrespective of changes in partners. Death, insanity, retirement or insolvency of partners has no impact on the existence of LLP. It is capable of entering into contracts and holding property in its own name.
- Separate Legal Entity: The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. In other words, creditors of LLP shall be the creditors of LLP alone.
- Mutual Agency: Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct. In other words, all partners will be the agents of the LLP alone. No one partner can bind the other partner by his acts.
- Artificial Legal Person: A LLP is an artificial legal person because it is created by a legal process and is clothed with all rights of an individual. It can do everything which any natural person can do, except of course that, it cannot be sent to jail, cannot take an oath, cannot marry or get divorce nor can it practice a learned profession like CA or Medicine. A LLP is invisible, intangible, immortal (it can be dissolved by law alone) but not fictitious because it really exists.
- Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent of the LLP, but not of other partners (Section 26). The liability of the partners will be limited to their agreed contribution in the LLP. Such contribution may be of tangible or intangible nature or both.
- Minimum and Maximum number of Partners: Every LLP shall have least two partners and shall also have at least 2 individuals as designated partners. There is no maximum limit on the partners in LLP.
- Conversion into LLP: A firm, private company or an unlisted public company would be allowed to be converted into LLP in accordance with the provisions of LLP Act, 2008.
- No requirement of minimum contribution -As against company there is no minimum capital requirement in LLP. An LLP can be formed with least possible capital. Moreover, the contribution of a partner can consist of tangible, movable or immovable or intangible property or other benefit to the LLP.
- No limit on owners of business -An LLP requires a minimum 2 partners while there is no limit on the maximum number of partners. This is in contrast to a private limited company wherein there is a restriction of not having more than 200 members.
- Registration cost -The cost of registering LLP is low as compared to cost of incorporating a private limited or a public limited company. However, the difference in cost of registering a LLP as compared to Private Limited Company has come down in the recent days.
- No requirement of compulsory Audit -All companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. This is perceived to be a significant compliance benefit. A Limited Liability Partnership is required to get the audit done only in the case that:-The contributions of the LLP exceeds Rs. 25 Lakhs, or
The annual turnover of the LLP exceeds Rs. 40 Lakhs
- Taxation Aspect on LLP– For income tax purpose, LLP is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax and share of its partners in LLP is not liable to tax. Provision of ‘deemed dividend’ under income tax law, is not applicable to LLP. Section 40(b): Interest to partners, any payment of salary, bonus, commission or remuneration allowed as deduction.
- Flexibility-The operation of the partnership and distribution of profits is determined by written agreement between the members. This may allow for greater flexibility in the management of the business. The LLP is deemed to be a legal person. It can buy, rent, lease, own property, employ staff, enter into contracts, and be held accountable if necessary
- Corporate ownership– LLP’s can appoint two companies as members of the LLP. In an LTD company at least one director must be a real person.
- Designate and non-designate members– A person can operate the LLP with different levels of membership.
- Protecting the partnership name-By registering the LLP at Companies House you prevent another partnership or company form registering the same name