Limited Liability Partnership
About Limited Liability Partnership Company
LLP was brought in India by way of the Limited Liability Partnership Act, 2008. The basic premise behind the introduction of LLP is to provide a form of business entity that is simple to maintain while providing limited liability to the owners. Since, LLPs have been well received with over 1 lakhs registration so far until September, 2014.
The main benefit of a Limited Liability Partnership over a traditional partnership firm is that in an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. It also provides limited liability safety for the owners from the debts of the LLP. Therefore, all partners in this company enjoy a form of limited liability protection for each individual’s protection within the partnership, similar to that of the shareholders of a private limited company. However, unlike private limited company stockholder, the partners of an LLP have the right to manage the business directly.
Limited Liability Partnership is one of the simplest forms of business to incorporate and manage in India. With a simple compliance formalities and easy incorporation process, LLP is preferred by Professionals, Micro and Small businesses that are family owned or closely-held. Since, LLPs are not adequate of issuing equity shares, it should be used for any business that has plans for raising equity funds during its lifecycle.
Choose the perfect plan
Rs. 7899
BASIC
-
2 DSC
2 DIN
NAME APPROVAL INCORPORATION CERTIFICATE
PAN & TAN
LLP DEED DRAFTING
GST REGISTRATION
LLP vs Partnership Firm in India
Partnerships certified under the Partnership Act, 1932 used to be a very popular form of Business Entity in India due to the simplicity of registration and ease of maintenance. In India through the Limited Liability Partnership Act, 2008, the prominence of Partnership’s has been replaced by the LLPs. It is easy to register, offer a range of benefits to the promoters and is easy to maintain, making it ideal for many small and medium sized business that would otherwise opt to begin as a Proprietorship or a Private Limited Company. In this article, we will cover the various aspects of LLP vs Partnership in India:
LLP vs Partnership: The Entity
Partnership
Partnerships are registered under the Partnership Act, 1932. The partners of a Partnership certified under the Partnership Act, 1932 are personally liable for an unlimited amount of Partnership liabilities. Hence, the Partners and the partnership firm are not considered separate legal entities, neither does the Partnership have perpetual existence.
Limite Liability Partneship
LLPs are registered under the Limited Liability Partnership Act, 2008. The Partners of it is not liable for the liabilities of the Partnership and the liability of a Partner is limited to the amount of his/her capital contribution to the LLP. Therefore, the LLP and the Partners of an LLP are treated to be separate legal entities and the it has a perpetual existence, until dissolved by the Promoters.
The share of an LLP can be moved. However, the Transferee is not allowed to become a Partner automatically. The share also can be moved to another person more easily. An LLP can be transformed into a Private Limited Company or a Limited Company easily.
Limited Liability Partnerships are registered with the Ministry of Corporate Affairs. LLP registration method is similar to that of a Private Limited Company Incorporation process, viz. obtaining Designated Partner Identification Number (DPIN) for the Partners, obtaining Digital Signature Certificate for the Partners, obtaining name approval from MCA, obtaining Incorporation Certificate and filing LLP Agreement.
LLP vs Partnership: Number of Partners & Requirement
Partnership
Any Indian National residing in India can be a Partner in a Partnership Firm including minors. A Partnership Firm should have at least 2 Partners and can only have a maximum of 20 Partners. The Partnership Deed defines such as Management of the Firm and one or more Partners can be designated to manage the Partnership Firm.
The share in a Partnership can be moved to another person after obtaining the permission of all the Partners in a Partnership. The transferability of a Partnership is cumbersome. Partnership may be converted into an LLP or a Private Limited Company, through a lengthy process.
Limited Liability Partnership
Any Indian National residing in India can be a Partner in LLP. Foreign Direct Investment is grant in it with prior RBI approval. Minors are not allowed to be part of a limited liability partnership. It should have at least 2 Partners and is allowed to have unlimited Partners. The Agreement governs form of management of an LLP and one or more partners can be designated to manage the activities of the LLP.
LLP vs Partnership: Compliance & Taxation
Partnership
The earnings of a Partnership firm are taxed at 30% + educational cess. There are no annual return filing conditions for a Partnership firm.
Limited Liability Partnership
The earnings of an LLP are taxed at 30% + educational cess. It should file annual return with the Ministry of Corporate Affairs (MCA).
LLP vs Partnership: Registration
Partnership
Partnership firms are certified with the Registrar of Firms. A Partnership Deed must be formulated for registering the Partnership firm with the Registrar of Firms.
LLP
Uninterrupted Existence
An LLP has ‘perpetual succession’, that is existence or continued until it is legally dissolved. An LLP being an independent legal person, is unaffected by the death or other departure of any Partner. Hence, it continues to be in presence irrespective of the changes in ownership.
Easy Transferability
The ownership of a Limited Liability Partnership can be easily transferred to another person by inducting them as a partner of the LLP. It is an independent legal entity separate from its Partners, so by changing the Partners, the ownership of the LLP can be changed.
Audit NOT Required
An LLP does not need audit if it has less than Rs. 40 lakhs of turnover and less than Rs. 25 lakhs of capital donation. Therefore, it is ideal for small businesses and startups that are just starting their operations and want to have minimal regulatory compliance related formalities.
Owning Property
An LLP being an artificial judicial human, can acquire, own, enjoy and sell, property in its name. No Partner can make any demand upon the property of it – so long as the LLP is a going concern.
Features of LLP
- It has an independent legal entity just like companies
- The liability of each partner is restricted to the contribution made by partner
- The cost of forming an LLP is low
- Less compliance and regulations
- No requirement of minimum capital contribution
The minimum number of partners to incorporate a Limited Liability Partnership is 2. There is no limit on the maximum number of partners in it. Among the partners, there should be at least two designated partners who shall be individuals, and at least one of them should be resident in India. The duties and rights of designated partners are governed by the LLP agreement. They are directly liable for the compliance of all the provisions of LLP Act 2008 and provisions specified in LLP agreement.