By way of the Limited Liability Partnership Act, 2008 the worldwide recognized form of a business organization named Limited Liability Partnership entities was introduced in India. A Limited Liability Partnership combines the advantages of both the Company and Partnership in a single form of organization. The important difference from that of traditional partnership is that a partner in LLP is not responsible for the misconduct or negligence of another partner. All partners will have limited liability for the protection of each individual within the partnership which is similar to that of the shareholders of a corporation. In LLP the partners have the right to manage the business directly, unlike corporate shareholders. The personal liability of the partners for any errors, incompetence, negligence, or omissions of the employees in LLP or other agents is also limited.
Earlier there were only two forms of entities in India:
- Limited Liability Entities (Partnership/Proprietorship)
- Unlimited Liability Entities(Company)
In About Limited Liability Partnership, While Unlimited Liability Entities such as partnerships were easy to register but they suffered the disadvantage of unlimited liability. Therefore, there was a need for a single entity that could combine the advantages offered by both these forms of organizations. LLP in India came into existence in the year 2008 with the LLP Act. Since then it has become a preferred form of business.
LLP registration is easier with post-registration compliance less in comparison to a body corporate and unlike partnership where liability is unlimited LLPs limit the liability of partners to the extent of their capital contribution.
Advantages of LLP
- LLPs are considered Internationally as a preferred vehicle of business, particularly for the service industry and activities involving professionals.
- It provides a lot of flexibility as compared to other company types, without imposing a detailed legal and procedural requirements, which enables the professional expertise and initiative to combine with financial risk-taking capacity innovatively and efficiently.
- The liability of a partner is limited to his stake and no partner will be liable on account of independent or unauthorized acts of other partners.
- Under the Limited Liability Partnership model, chartered accountants, company secretaries, or even advocates can set up multi-disciplinary firms that will act as a “one-stop” shop for people to avail of various professional services.
- The framework of LLP is not restricted to professional services alone and several business activities can be undertaken through the structure.
- The advantage of the LLP form would be that it will not impose detailed legal and procedural requirements intended for large widely held companies on such enterprises. In this way, it will also be useful for small enterprises.
Steps To register LLP
As you are already aware of the process of working of an LLP in India as well as globally. Now here are some steps that are to be followed while registering for LLP, these steps are:
Following is the step by step procedure to incorporate Limited Liability Partnership:
Step 1: Digital Signature Certificate (DSC)- Since all the documents for LLP registration are filed online, DSC is necessary for all the designated partners.
Step 2: Director Identification Number- It is necessary to apply for the DIN of all the designated partners or those intending to be designated partners of the proposed LLP.
Step 3: Reservation of Name- MCA Portal system provides the list of closely resembling names of existing companies/LLPs based on the search criteria filled up. It is necessary to file for the reservation of the name of the proposed LLP in Form 1.
Step 4: Incorporation of LLP- Form 2 is the application form for the incorporation of the LLP.
Step 5: File Limited Liability Partnership Agreement– LLP agreement is filed in Form 3 on the MCA Portal, within 30 days of incorporation.
Compliances of LLP
Book of Accounts
It is mandatory to keep a Book of Account relating to its affairs each year, and it must be kept according to the double-entry system of accounting at the registered office. If the turnover is more than Rs. 40 lakhs or capital is over 25 lakhs, the accounts must be audited by a Chartered Accountant.
Annual Return Filing
An LLP will have to file 2 types of MCA annual returns each financial year, namely Form 8 & Form 11.
Part A in Form 8 consists of Statement of Solvency and Part B consists of Statement of Accounts, Statement of Income & Expenditure. This form is filed within 30 days from the end of 6 months of the financial year along with some prescribed fee, digitally signed by 2 designated partners and certified by a chartered accountant/company secretary/cost accountant.
To be filed within 60 days from the closure of the financial year with the prescribed fee, i.e. 30th of May each year. Form 11 contains information about the number of partners, the total number of partners, total contribution received by all partners, details of body corporate as partners, and a summary of partners.
Income Tax Return
Filing of income tax return each year is mandatory irrespective of revenue or profits.
Maintenance of Documents
All LLPs are required to maintain its incorporation document, names of partners and changes made, proof of fee payment, statement of account & solvency & annual return filed by LLP with the Registrar at its registered office.