LLP is form of Partnership which enables the professional expertise and entrepreneurial initiative for combining and operating in a flexible, innovative and efficient manner as hybrid mix up of companies and partnerships by providing benefit of the limited liability which allows the members the flexibility for organising the internal structure as Partnership. Here we get a look at LLP Company Registration.
LLP Company
LLP are business structure which came into being by passing the LLP Act,2008 and notification of LLP Rules,2009. Section 3 of LLP Act declares an LLP as body corporate formed and incorporated under the Act and is legal entity which is separated from the partners. A LLP is a business structure which came in force by passing the LLP Act,2008 and notification of LLP rules,2009. Section 3 of the LLP Act declares a LLP as body formed and incorporated by the Act and is a legal entity which is separate from the partners
LLPs are flexible legal tax entity which allows the partners to benefit from the economies of scale by working together which also reduces the liability for the action of other partners.
Limited Liability Partnership (LLPs) provide a partnership structure where all the partner’s liabilities are limited to the amount which they put in the business. As the business partner spread the risk, Leveraging the individuals skills and expertise. Limited Liability means that if partnership fails, the creditors cannot put a claim on the partner’s assets or the income. LLPs are common in the professional businesses like law firms, accounting firms and wealth managers.
Most of the LLPs are made and managed by group of professional who have a lot of experience and clients with them. By putting there resources , the partners lower the costs of doing business while enhancing the LLPs capacity to grow. They share office space, employees and other resources. Most importantly, reducing the costs which earns more profit from their activity than they can do individually.
- Continuing its existence regardless of changes in partners.
- LLP can enter in contracts and hold properties
- Limited Liability of Partners
Professionals and non-professionals (Businessmen), both can set up LLPs.
Foreign Limited Liability Partnership:
An LLP formed, incorporated, or registered outside India which establishes a place of business within India. A LLP is a new form of business entity with limited liability. It is a hybrid of companies and partnerships.
Partner:
It means any person who becomes a partner in LLP by LLP Agreement
Financial Year:
The period of 1st day of April of a year to 31st Day of March of following year. In an LLP which is incorporated after 30th day of september of a year, the financial year can end on the 31st day of march of following year.
Meaning:-
LLP are Limited Liability Partnership which provides the benefit of limited liability of company to its members and allows managing them through internal management which is based on mutual agreement as the case of a Partnership firm. Partners have less liabilities to any debt which can arise in future for running the business. It has elements of both a corporate structure and a partnership firm structure and is known as a hybrid between company and a partnership. The partners are required for contributing towards the LLP.
Their share could be in tangible or intangible, movable or immovable property, money and cash. In Liability terms under a Limited Liability Partnership the company is liable for any loss or debts incurred in conducting the business where individual members of LLP should not be liable for any loss or any debts.
LLP Agreement
A written agreement between the parties of LLP or between the LLP and its partner identifies the mutual rights and duties which concern that LLP. Its not necessary to enter in an LLP agreement as per LLP Act,2008. In absence of LLP Agreement, the mutual right of corporates, atleast two individuals who are partners in such limited liability partnership or nominees of such bodies should act as designated partners.
LLP which are registered in India will be resident only if a part of controlling and managing is in India. Profits distributed by LLP are exempted by the partners. According to the finance bill, 2009 the income of a LLP is taxed only in the hands of LLP and not the partners. The complete taxation of LLPs is similar as to the existing taxation applicable to partnership registered and formed under the Indian Partnership Act,1932.
Contents of LLP Agreement:
Name of LLP, Name and address of partners and designated partners, Business Motive, The place of Business and all the other essential detail of LLP are to be mentioned in the Agreement. The form of contributions and designated partners, Business Object, Place of the business and other details of the LLP.
Other clauses in the form of contribution and interest on contribution, Profit sharing ratio. Rights and Duties of partners in case of Admission, Resignation, Retirement, Cessation, Expulsion, Proposed Business and rules governing the LLP.
Other clauses will be in form of contribution and interest on the contribution, Profit sharing Ratio, Rights and duties of the Partners for admission, resignation, retirement, cessation, expulsion and the rules which govern the LLP. After this LLP agreement is reviewed and agree by the partners it will be executed by paying the stamp duty accordingly. After which the signature by partners and attestation by witnesses, the agreement will be executed.
Benefits of LLP Company Registration
Being a separate legislation the provisions of the Indian Partnership Act, 1932 do not apply to LLP and regulated by the contractual agreement between partners. Each Limited Liability Partnership should use the term ‘Limited Liability Partnership’ or LLP. Every LLP should have atleast two designated Partners being individuals and atleast one of them being a resident of India and all partners shall be agent of the LLP. This agreement is not mandatory but if there is not agreement in written then the mutual rights and liabilities of partners would be established as given in schedule I of the LLP Act.
Advantages of LLP Company Registration
- Its a form of business which operates on the basis of agreement.
- The Liability is limited to the agreed contribution in LLP and no other partner is liable on account of independent or unauthorised actions of other partners, so individual partners are protected from joint liability which occurs cause of another partner’s wrongful business decision or misconduct. LLP are much flexible and free compliance is required as compared to a company.
- Simple Registration, Not any minimum capital requirement, no restrictions on the maximum limit of partners. Its easy becoming a partner or leaving the LLP. Its also easy to transfer the ownership under the LLP Agreement
- An LLP can sue in its name and could be sued by others. Partners are not liable for get sued for any dues.
- There is no restriction on limit of remuneration which is to be paid to partners. But the remuneration must be authorised by LLP.
- The act provides for converting the existing partnership firms, private limited companies and Unlisted Public Companies into LLP by getting it registered in Registar of Companies (ROC)
Disadvantages of LLP Company Registration
1. Lack of Secrecy: Public Disclosure is the main disadvantage of LLP. Documents which are filed through the Ministry of Corporate Affairs portal are public documents. Any individual can pay a small fee of Rs.50 and have a copy of LLPs incorporation documents financial statements, etc. Its not an issue in case of sole proprietorship or traditional partnership firms. As, here documents and finances are not available for public inspection.
2. Limited Funding Alternatives: LLPs are limited to alternatives when it comes to raising funds. LLPs could either borrow the debt from the financial institutions or through loan from the partners. Also, Foreign Direct Investment (FDI) in LLP is much restrictive as compared to the companies. Neither a LLP can issue Employee Stock Options(ESOP)
3. Penalty for non-compliance: As the compliance requirement for an LLP will be minimal, its essential for adherence or it can lead to heavy fines and penalties. Even if an LLP does not have any activity. FORM 8 and FORM 11 are required to be filed annually. In case of non-compliance a fee of Rs. 100 per day and per form is applicable. No cap on additional fee and this fine can run into lakhs.
a. Penalty:- Penalty for improper use of words ‘Limited Liability Partnership’ which is punishable with fine not less than Rs.50,000 which can extend to Rs.5,00,000.
b. Penalty for filing false incorporation Document: Its punishable with imprisonment for term which extends to 2 years and fine which shall not be less than Rs.10,000 but extendable to Rs.5,00,000.
Procedure to Form LLP
LLP registration procedure is easy and most transparent process. It has benefits of company and partnership firm, limited liability features of company and flexibility of Partnership Firm. The procedure of LLP registration is lengthy as you could file an incorporation form. The LLP registration procedure saves a lot of time and energy.
The LLP registration process includes the following steps:
1. Get a digital signature (DSC)
2. Apply for Director Identification Number (DIN)
3. Get the name of the company approved
4. File ‘Limited Liability Partnership Agreement
Conclusion
Partnership Firm are governed by Partnership Act, 1932 whereas LLP is registered by LLP Company Registration. Partner in Partnership can sue based on a contract between partners whereas an LLP cannot sue on any such basis.
Partnership firm is governed under Partnership Act, 1932 whereas, LLP Company Registration is governed under Limited Liability Partnership Act,2008. Partner in partnership can sue based on contract between him and partners; whereas, LLP cannot sue on such basis.
