Benefits to form LLP in India for MSME's


Chosen LLP for running your business? But Don’t know what are the actual benefits of forming LLP In India.

Let’s first understand in detail important things about LLP.

LLP full form is Limited Liability Partnership. LLP is a type of legal entity where some or all partners have limited liability. There are many different types of business entities In India, the main difference between LLP and Traditional Partnership is that one partner is not responsible for another partner misconduct or negligence. LLP combines the limited liability of the company and the flexibility of the Partnership with limited compliance cost.

Confused whether your business is suited for LLP or not?

So, Which Type of business should choose LLP?

LLP is useful for small to large enterprises in general but particularly for service based Industry or sector involving professionals such as web designers, architects, for example, which doesn’t require equity funding.

LLP is one of the easiest forms of registration which can be formed easily as compared to Private Limited Companies which doesn’t require to hold board meetings or record minutes.

Since LLP is itself liable for the debts run up while running the business rather than individual partners in the firm, hence LLP is preferred only for profit-making business. However, keep in mind in case you need to raise the funds then registering for LLP is not a good option. Instead Forming Private Limited Company or OPC is preferred.

Minimum Requirements To Form LLP In India

Following are the Minimum Requirements to form LLP in India:

•  Minimum 2 Partners  (Individual or body corporate)
•  Minimum 2 Designated Partners who are individuals and at least one of them should be resident in India.
•  Digital Signature Certificate
•  LLP Name
•  LLP Agreement
•  Registered Office

Benefits of LLP Registration In India

•  Separate Legal Entity

As a separate entity, you have the power to take legal action against LLP but not on partners. LLP can sue and can be sued by others. And one partner is not responsible for misconduct or negligence of another partner.

•  Continuous Existence

Since LLP act as a separate legal person, in case of death of any partners, LLP existence remains unaffected. An LLP continues to remain unaffected even after changes in ownership.

• Minimal Compliance

An LLP requires minimal compliance. Compliance is only needed for companies having turnover less than Rs. 40 lakhs or capital contribution less than Rs.25 lakhs. Therefore LLPs are ideal for startups and small businesses that are just starting their operations and want to have minimal regulatory compliance related formalities.

• Easy Transfer of Ownership 

The ownership of an LLP can be easily transferred to another person by inducting them as a Partner of the LLP.

• Owning Property 

An LLP being an artificial judicial person, can acquire, own, enjoy and sell, property in its name. No Partner can make any claim upon the property of the LLP so long as the LLP is a going concern.

• Easy to Wind Up

You can easily Wind Up LLP as compared to a Private limited company. Winding up of  an LLP may take close to 2 – 3 month which is less compared to winding up of Private limited company.

FAQs On How to Form LLP In India

Q1. What is Directors Identification Number (DIN) for LLP?

It is a permanent number issued by the registrar of companies, as a unique identification number to the designated partners of the LLP. No person can hold an office of the designated partner unless he is issued a DIN. For allotment of DIN, an application to MCA is made with Photo, Attested ID and Address proof duly attested by CA, CS or CMA.

Q2. Who can become Designated Partner in an LLP?

Any individual, or even a company or an LLP, can become a partner. However, only an individual can become a ‘designated partner’ in an LLP.

Q3. Who can start an LLP?

Any group of persons who have or want to invest money in a business can start an LLP. A person or an investor becomes a partner, according to the LLP agreement, as provided in the Act of 2008. Also, the investors/partners are owners of the business started under the LLP.

Q4. What is LLP Agreement?

The partners of the LLP bind themselves concerning their mutual rights and obligation, capital contribution ratio, profit sharing ratio in a document which is known as LLP Agreement. After incorporation of LLP, the partners need to execute the same and file a copy with the registrar of companies within 30 days of Incorporation, failing which a penalty of Rs. 100 day is imposed for each day of delay. 

Conclusion

Forming LLP in India is very easy as compared to Private Limited Company. You just have to follow the above-mentioned steps. LLP is suitable for those types of business who are making profit and wants limited liability on them. For example web designing firms, professional services, architects i.e mostly service-based businesses. In case you want funding then it is recommended to choose Private Limited Company.

The author blogs at blog.incfo.in and can also be reached at subrato@incfo.in

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Subrato 
on 08 January 2019
Published in Corporate Law
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