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Limited Liability Partnership (LLP) firms
Though, Partnership firm was one of the most popular means of carrying out the business activity, however it had a major disadvantage i.e. the liability of the Partners was unlimited. Partners shall be personally liable for the act done in the name of the partnership firm. Thus, in order to overcome the said drawback, the concept of LLP was introduced. As per the LLP Act, 2008, an LLP is, “A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership”.
Following is the comparison between the Normal partnership firm, LLP and a Company:
|
Particulars |
Partnership firm |
LLP |
Company |
|
Governing law |
The Indian Partnership Act, 1932 |
The LLP Act, 2008 |
The Companies Act 2013 |
|
Registration |
Optional |
Compulsory |
Compulsory |
|
Status of the Entity |
Not a separate legal entity. |
Separate Legal Entity |
Separate Legal entity |
|
Minimum No of partners/ members |
2 |
2 |
Private company: 2 |
|
Liability of Partners |
Not limited |
Limited liability |
Limited to the extent of unpaid share capital |
|
Tax rates |
30% |
30% |
25% to 30% |
|
Minimum Capital Requirement |
No limit |
No limit |
Rs. 1,00,000 and Rs. 5,00,000 |
|
Audit of accounts |
No such requirement to get the accounts audited unless required under Tax Audit |
As per the provisions of 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. |
Audit of books of accounts is compulsory. |
|
Share in profits of firm/ company |
Exempt in the hands of partners |
Exempt in the hands of partners |
Dividend exempt upto Rs 10 lakhs. |
Advantages of LLP
-
Limited Liability:
Liability of the Partners is limited and they are not liable for the deeds of the other partners.
-
Better governance:
Since it is a legal requirement to have a written partnership deed and the same has to be registered, thus there is more clarity with regard to management roles and profit sharing ratios. This may allow for greater flexibility in the management of the business.
-
Separate legal entity:
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.
-
No requirement for Audit:
In contrast to a Company, an LLP is required to get its accounts audited only if its turnover is exceeding Rs 40 lakhs or the contribution is more than 25 lakhs for any financial year.
-
Less regulatory compliances:
In comparison to a Company, it shall need to abide by less tax and regulatory compliances, thus leading to decreased cost of compliances.
Procedure for Incorporation of the LLP:
Applying for Digital signatures and DIN/ DPIN
Checking the name availability and filing the form for reservation of name
Drafting and Preparation of the LLP agreement
Drafting and preparation of MOA and AOA of LLP
Registration of LLP and obtaining the certificate of incorporation of LLP.
Documents required:
- Self attested copy of PAN card of the Partners;
- DIN/ DPIN of the Partners;
- Self attested copy of address proof of the Partners;
- Copy of the bank statement/ electricity bill/ telephone bill;
- NOC from the landlord, in case of rented premises;
- Copy of telephone bill/ electricity bill/ gas bill, etc as proof of place of business;
- Subscriber sheet, duly attested by a CA/ CS/ lawyer/ CWA.
In case of foreign partners, following documents shall additionally be required:
- Notarized/ Apo stilled copy of the Passport;
- Notarized/ Apo stilled copy of the address proof i.e. driving license/ bank statement, etc;
- Notarized/ Apo stilled copy of the residence proof i.e. electricity bill/ mobile bill, etc
FAQ’s on LLP:
1) Who can be a “Designated Partner”?
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.
2) Is there any residency requirement for becoming partner?
No, there are no residency requirements but atleast one designated partner shall be resident in India.
3) Is there a need to for Minimum capital to setup an LLP?
No, there are no minimum capital requirement norms to setup an LLP.
4) Whether it is necessary for partners to contribute in the LLP?
As per the LLP Act 2008, the LLP Agreement will define the requirement related to contribution and therefore, the LLP Agreement may also provide for NIL contribution from the Partners. So, LLP can also be incorporated without any contribution from the partners.
5) Can I choose any name I want for my LLP?
No, you cannot choose any name for your LLP. The LLP Act prescribed guidelines for determining the name of your LLP. Under the said guidelines, any name of the LLP should not be identical with an already registered name and the name should not be prohibited. In case the name requires the consent of any regulatory authority, the consent has been obtained.
6) What is the current rate of tax on LLP’s?
The current rate of the tax on LLP’s is 30% as increased by surcharge and education cess.
7) Whether every LLP would be required to maintain and file accounts?
Every LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A Statement of Accounts and Solvency shall be filed by every LLP with the Registrar of LLP every year.
8) Can other form of entities be converted to LLP?
Yes. The relevant provisions of the LLP Act enable the entities to convert itself to entities. Further, conversion of a Company to LLP is exempt from Capital gains tax, subject to certain conditions.
However, there are no provisions for conversion of LLP to Company.
Other auxiliary services provided by us with regard to setting up of business:
- Obtaining DPIN for the Partners;
- Obtaining DSC for the Partners;
- Opening of the bank account for the firm;
- Applying PAN and TAN of the firm;
- Registration under GST/ service tax/ VAT/ Excise/ PF/ ESI;
- Review and maintenance of records as required under GST/ service tax/ VAT/ Excise/ PF/ ESI;
- Applying for Import/ export code;
- Assisting the clients in getting loans from the bank;
- Book-keeping services;
- Filing of TDS/ GST/Service tax/ VAT/ Excise returns;
- Computation of income tax and filing of Income tax returns;
- Filing of other forms as required by MCA;
- Maintenance of statutory registers/ minutes of the meetings;
- Filing of annual returns with MCA;
- Providing internal audit services;
- Assisting in finding CA’s/ lawyers/ CS and other solicitors for your work;
- Registration of Copyrights, trademarks and patents.