LIMITED LIABILITY PARTNERSHIP (LLP) REGISTRATION
Limited Liability Partnership (LLP) was introduced in India by way of the Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business entity that is simple to maintain while providing limited liability to the owners.
LLP is one of the easiest types of business to incorporate and manage in India. With an easy incorporation process and simple compliance formalities, LLPs are preferred by Professionals, Micro and Small businesses that are family-owned or closely-held. Since LLPs are not capable of issuing equity shares, LLP should NOT be chosen for any business that has plans for raising equity funds from Angel Investors, Venture Capitalist or Private Equity Funds.
DIFFERENCE BETWEEN LLP & PARTNERSHIP
Cost: The cost for registration of LLP is normally higher than the cost for registration of a partnership firm. LLP registration can be completed online.
Authority: LLPs are registered in India under the Ministry of Corporate Affairs, Central Government. Partnership firms are registered with the Registrar of Firms, Controlled by the respective State Government in which the firm is registered.
Limited Liability Protection: The main advantage of a Limited Liability Partnership over a traditional partnership firm is that in a LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. A LLP also provides limited liability protection for the owners from the debts of the LLP. However, unlike private limited company shareholder, the partners of an LLP have the right to manage the business directly.
Number of Partners: LLPs and Partnership Firms must have a minimum of two partners to be registered. Post incorporation, a LLP can have unlimited partners. In case of a Partnership Firm, if the number of partners at any time reduces below the mandatory minimum of 2 due to death, incapacitation or resignation of a Partner, the partnership firm would stand dissolved. On the other hand, in case of a LLP, if the number of Partners reduces below 2, the sole Partner can still find a new Partner to fill the position without dissolution of the LLP.
DIFFERENCE BETWEEN LLP & COMPANY
Private limited company registration process and the LLP registration process are very similar with some differences in the documents and forms filed for incorporation.
Cost: The cost for the incorporation of a private limited company or an LLP is the same.
Features: Both LLP and Private Limited Company offer many of the same features. LLP and Private Limited Company are both separate legal entities and have assets and liabilities that are separate from that of the promoters. LLP and Private Limited Company are both transferable, though a Private Limited Company offers more flexibility when it comes to transferring or sharing of ownership. LLP and Private Limited Company both have perennial life, unless and otherwise closed by the promoters or competent authority.
Fundraising: A private limited company can raise funds from Angel Investors, Private Equity Funds, Venture Capitalists, banks and NBFCs. An LLP can raise funds from Partners, Banks and NBFCs.
NON-RESIDENT INDIAN (NRI) & FOREIGN OWNERSHIP OF LLP
Post changes to FDI regulations on 10th, November 2015, 100% FDI in LLP is permitted under the FEMA Act . 100% FDI are allowed in LLP is through FEMA approval and there is no FDI-linked performance conditions. In addition, LLPs will also be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route. Therefore, FDI in LLP is now permitted, and NRIs or Foreign Nationals can start or invest in an LLP.
DOCUMENTS REQUIRED FOR LLP INCORPORATION
The following are the documents are required for registration of LLP in India:
For the Partners
- PAN Card or Passport for Foreigners.
- Drivers license or Aadhar card, residence card or election identity card or any other identity proof issued by the Government.
- Less than 3 months old bank statement or telephone bill.
Registered Office Proof
- The authorization from the Landlord (Name mentioned in the Electricity Bill or Gas Bill or Water Bill or Property Tax Receipt or Sale Deed) to use the premises by the company as its registered office. This is usually referred to as NOC from Landlord; AND
- Proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.
POST-INCORPORATION LLP COMPLIANCES
Income Tax Return: LLPs must file income tax return using Form ITR 5. Form ITR 5 can be filed online through the income tax website using the digital signature of the designated partner.
MCA Annual Return: LLP Form 11 is due on or before 30th of May each year. Form 11 contains details of the number of partners, total number of partners, total contribution received by all partners, details of body corporate as partners and summary of partners.
In addition to LLP Form 11, Form 8 must be filed within 30 days from the end of 6 months of the financial year along with some prescribed fee. Hence, LLP Form 8 would be due on or before 30th October of each financial year.
In addition to the above, GST registration, GST return filing and TDS return filing would be required for the LLP – based on the sales turnover and various other criterias.