Limited Liability Partnership (LLP)
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Limited Liability Partnership
What is Limited Liability Partnership?
Limited Liability Partnership (LLP), after its introduction in 2008, quickly diverted the attention of business owners from General Partnership to LLP. While General Partnership is the easier, cheaper option, it also poses a big risk as it imposes unlimited liability on the members of the partnership. LLP, on the other hand, as the name suggests, limits each member’s accountability in the liabilities of the business. It protects the members from the incompetency, misdeed or negligence of other members that may cause loss. All they are liable for is the initial amount they had put in for the business. In a General Partnership, the members would have to sell their personal properties to repay the losses/debts. However, in LLP, all a member would need to pay is the initial amount that they had invested to start the business. All their personal properties will thus be saved. There are many factors that make LLP a viable business structure option. It is cheaper than a Private Limited Company, has tax benefits and lesser compliance requirements than the same. However, if you are looking to raise venture capital or attract talent with employee stock options, you should think about switching to a private limited company. An LLP cannot accommodate the requirements of such business goals. Hence, they are mostly used by businesses that provide professional services (for example: interior designers, web developers, etc.) that don’t need to raise capital through equity funding.)
Procedure for LLP application
Application for DPIN (Designated Partner Identification Number)
The two designated individuals proposing for partnership must apply for DPIN.
The documents required for the application for DPIN along with the completely filled form are as follows:
Application for DSC (Digital Signature Certificate)
For DPIN, you would also need a DSC. The documents that you’d need are the same along with the e-form.
Name availability search, application and approval
The proposed name of the LLP first undergoes name search to check for availability and to rule out the possibility of the name being already registered and to verify whether it has been applied for registration. E-form 1 needs to be filled out to reserve the name for the LLP. The name must be unique and without a trademark of another business. They check the availability of the name through the portal and after the name is approved, the process for LLP is initiated.
Document verification and approval of LLP
After document verification, if the name is approved, you can proceed with the incorporation documents and subscription statement in the e-form 2 within 60 days after name approval. After this is accepted, you’ll be given a certificate of incorporation. Within the next 30 days, you’ll need to file the Agreement Form – 3. This will undergo verification by the government and will be approved, if it is satisfactory.
Other documents required:
Advantages of LLP
As explained above, limited liability is endowed on all partners and all their personal assets are safe.
Audited annual returns need to be file only if the company has had a turnover of greater than Rs. 40 Lakh or capital contribution of over Rs. 25 Lakh. It also has lesser structural changes than a private limited company.
Share of partners is not liable to tax and so is the dividend distribution. Thus, the dividend distribution is not tax payable and tax surcharge, too, isn’t applicable. Loans given to partners are also not taxable as income.