Limited Liability Partnership
LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
It is a newly introduced corporate entity type in India aimed at entrepreneurs, small and medium sized businesses.
It was introduced in India in 2008 with the approval of the LLP Act, 2008.
LLP is a superior type of partnership. A normal partnership is often discouraged due to its unlimited liability feature, i.e. your personal assets may be seized in case all the dues are not cleared.
LLP is a separate legal entity, which can be formed in India by a minimum of two persons coming together with a motive of earning profit. Unlike a Private Ltd Company, an LLP is easy to manage and it is subjected to minimal post registration compliance.
Basic requirements for LLP Formation
- A minimum of 2 Partners are necessary.
- If a corporate body is a Partner, it has to nominate a natural person as its Nominee.
- No concept of share capital exists, but each Partner has to contribute towards LLP capital.
- DIN (Director Identification Number) mandatory for all the Designated Partners.
- DSC (Digital Signature Certificate) mandatory for all the Designated Partners.
- Address proof for office of LLP is required.
Benefits of Limited Liability Partnership
Easy to form
Compared to companies, it is very easy to set up an LLP as the process is quite simple and requires far lesser hassles.
One of the benefits of operating underneath an LLP is how you file taxes. The partnership doesn’t have to file taxes as a business, and this provides a great relief for the company. For example, Dividend Distribution Tax and tax surcharge don't apply and loans to partners are also not taxable as income.
Each partner in the business has the ability to decide how much they want to contribute and how much of a partner they truly want to be in the business. They are also not obligated to participate in business meetings or consultations with anyone that they do not feel the need to.
No requirement of minimum capital contribution
Where the minimum capital contribution in a private limited company is Rs.1,00,000 and in a public company is Rs.5,00,000, there is no such mandate in an LLP structure. Moreover, the contribution of a partner can include tangible or intangible, movable or immovable property to the Limited Liabilities Partnership.
As many owners as required
One of the best advantages of a limited liability partnership is that there is no limit to the number of owners that can be appointed in the business. This is a wonderful aspect as it evenly spreads out the amount of liability that each partner can have if something goes wrong with the business.
Much Less Liability
As the name implies, a limited liability partnership limits your liability. Since there are many owners involved in the business all the risks of the business are spread out and reduced significantly than if a single person was responsible for the business on his own. This usually is in reference to legal issues, like if the company was sued by anyone for any reason.
No mandate of Audit
All limited companies, private or public, are required to get their accounts audited. But there is no such mandatory requirement in case of an LLP. This is ascertained as a remarkable compliance benefit. However, a Limited Liability Partnership is required to get their books audited only in the case if :- The contributions of the LLP exceeds Rs. 25 Lakhs,? ?or The annual turnover of the LLP exceeds Rs. 40 Lakhs.
Documents required for LLP registration
- PAN Card: PAN card of each Partner.
- Identity Proof: Identity Proof of each Partner - Aadhaar Card/Voter ID Card/Driving License
- Address Proof: Residence proof of each Partner - Utility Bills such as Electricity/Telephone/Bank Statement (not older than 2 months).
- Registered Office Address Proof: Address proof of the Registered Address of Entity - Rent Agreement and Utility Bill of same address in name of landlord - NOC from the landlord/partner.