The ABCs of LLP (Limited Liability Partnership)
As our technologies advanced, a successful business structure started seeking transition from conventional methodologies. Where we saw little flexibility in Pvt Ltd Companies and hindrance in opportunities for partnerships and proprietorships, we simultaneously witnessed the conclusive advantages of LLP as a business framework. LLPs were introduced under the LLP Act of 2008. With a blend of traditional partnerships and perks of a corporate independent entity with limited liability, LLP has garnered a full-fledged consumer base for SMEs ( Small and medium sized enterprises) in the business sector.
When was the LLP Act introduced?
Aren’t we all precise on our startup budget? Well, what would be a better alternative than LLP when you can cherish the functionalities of a corporate firm with limited liabilities and at the same time, have indefinite scope for partnerships. Totally flexible!
The dynamics of Limited Liability Partnership were first incorporated by Indian Companies when the Partnership Act was introduced in 2000. However, Rajya Sabha introduced the LLP Bill on 15th December 2006 to bring forth the refashioned model of corporate operational framework of partnership along with limited liability of partners.
Let us take you through the technicalities and functionalities of a LLP, basically the ABCs.
How to register an LLP
When we talk about an efficient business structure, the spotlight is on MCA compliances, legal formalities, corporate inventory, liability, audit and risk management, generated ROIs, strategic advisory and paid up capitals.
LLP registration is less complicated but definitely there is one. To begin a Limited Liability Partnership, one needs to adhere to the provisions of Limited Liability Partnership Act 2008. Since LLP is a separate legal entity, registration seeks documentation process for partners as well as LLP. According to the Section 11 of LLP Act 2008, partners need to provide with their ID proofs/PAN Cards, Residential and Address proof, photographs of the partners along with their passports (in case partners are foreign nationals). For LLP as a separate entity, the proof of office address where the LLP was registered along with the Digital Signature certificate.
A DSC (Digital Signature) is a must for all the partners as the MCA documentation is processed online. Moreover, it can only be accessed through a certified government agency with the cost requirements as per governing body’s convenience. DSL is granted under Section 24 included in Indian Income Tax Act, 2000.
After DSC, partners of the LLP have to apply for Digital Partner Identification Numbers (DPIN) via Form DIR-3.
This is followed by reservation of LLP Name filed through Form Reserve Unique Name-LLP which is further approved by CRC (Central Registration Centre) after the entire process of verifying the eligibility criteria for LLP’s reservation.
Eventually, Incorporation can be proceeded with. FiLLiP (Form for Incorporation of LLP) is filed through MCA portal with the designated fee along with Stamp duty.
The RoC (Registrar of Companies) issues a certificate of incorporation on successful registration in Form 16 under the Registrar’s seal.
Consequently, on receiving the approval of concerned authorities, LLP is granted with its unique name.
Filing an LLP Agreement is the next crucial step as it defines formal relations amongst partners and related rights and duties to be exercised.
LLP: A Modern Solution to Conventional Incorporation
Why was LLP introduced? The answer lies in its modern structure with absolute flexibility. The limited liability provides a legal assurance to others in case of any misconduct by one of the partners. LLP limits the liability to the share of the respective members.
Guarding personal assets of partners falling out of the business circle, LLP ensures perpetual succession.
As LLP holds its own legal identity, it is entitled to own/rent a property, hire employees, settle down contracts with other parties and can be sued in case of any fraudulent actions.
With a minimum of 2 partners required to register a LLP, there is no limit to the partnership extension. LLP should be assertively formed envisioning profits. The perks follow with the establishment of a LLP.
With prolonged partnership benefits unlike private companies, onboarding numerous partnerships for milking profits is an unsaid advantage.
When it comes to registration charges for forming a corporate entity, LLP can be government certified within nominal charges where it might take a considerable amount of money from private and public limited companies.
In accordance with MCA compliances, LLPs only have to file the Annual return & a Statement of Accounts and Solvency. Other corporate entities have to cope up with complicated procedures.
LLP also provides you the fair share of exit strategies without concerning the entire legal unit as compared to fellow business frameworks in the corporate sector.
There is no need for compulsory audits on an annual basis and unless paid up capital increases beyond 25 lakhs or if annual turnover exceeds 40 lakhs. LLPs provide a safe platform for partnerships that are conscious about liabilities.
Indian industries in the contemporary corporate setting seek to convert into LLPs to profusely exercise the advantages of flexible business structure. Meanwhile Pvt. Ltd. Companies need an elected board to execute important tasks, shareholders in LLP enjoy a handsome share of governance which directly influences the business growth. Apart from not falling into hefty fine pits, LLPs are exempted from various taxes which results in huge savings.
Limited Liability Partnerships have been far less recognized and adopted as a business model since 2008 which was the actual financial year for LLPs. Venture Capitalists find it risk-averse despite the highlighted benefits of LLP business structure. Although, Indian government has been driving the entire entrepreneurship sector towards new horizons providing much wider platforms for professional partnerships, SMEs (small to medium sized enterprises), service providers and other corporate entities altogether thus increasing visibility of Indian Business Model on a global platform.
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