Concept of Limited Liability Partnership - An analysis

The concept of Limited Liability Partnership (LLP) was first introduced in India in 2008 by the Limited Liability Partnership Act, 2008

Limited Liability Partnership is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.

Since Limited Liability Partnership contains elements of both 'a corporate structure' as well as 'a partnership firm structure' Limited Liability Partnership is called a hybrid between a company and a partnership.

Recently Limited Liability Partnership is getting more popularity amongst new startups because of its less compliances and flexible nature.

DEFINITION UNDER THE ACT

'Limited Liability Partnership' means a partnership formed and registered under this Act.

NATURE OF LLP

A Limited Liability Partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.

WHO CAN BE THE PARTNERS OF LLP

The following persons can be partners in LLP:

1. Individuals
2. Limited Liability Partnership
3. Foreign Limited Liability Partnership
4. Companies
5. Foreign Companies

MINIMUM AND MAXIMUM NUMBER OF PARTNERS

A minimum of two partners will be required for formation of an LLP. There will not be any limit to the maximum number of partners.

DESIGNATED PARTNERS

Every LLP shall have at least two designated partners who are individuals and at least one of them shall be a resident in India.

LIABILITIES OF DESIGNATED PARTNERS

Designated partners shall be responsible for doing all the acts, matters and things as required to be done by LLP in respect of compliance of the provisions of this Act and LLP agreement. They shall be liable for all the penalties imposed on the LLP for any contravention of those provisions.

LLP AGREEMENT

LLP Agreement is the written agreement between the partners of the LLP or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP.

APPOINTMENT AND CESSATION OF PARTNERS

A new person can be appointed as a partner in LLP by filing Form 4 with ROC within 30 days of his appointment.

Any existing partner may resign as a partner in accordance with the agreement or in the absence of agreement, by giving 30 days notice to the other partners.

Notice is required to be given to ROC when a person becomes or ceases to be a partner or for any change in partners.

CONTRIBUTION

A contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefits to the LLP, including money, promissory notes, other agreements to contribute cash or property and contracts for services performed or to be performed.

PARTNERS OBLIGATION TO CONTRIBUTE

The obligation of a partner to contribute money or other property or other benefit or to perform services for LLP shall be as per the LLP agreement.

ADVANTAGES OF LLP

LLP is the best form of business entity for the new entrepreneurs who are starting their startups as they will get the same features like private limited companies but with a fewer compliance burden.

Let's take a look at some of the advantages of LLP:

1. Separate Legal Entity: LLP is the body corporate having separate existence other than its partners.
2. Low registration cost: The cost of registration of LLP is low as compared to cost private limited and public limited companies.
3. No limit of number of partners: In LLP there is no upper limit for maximum number of partners.
4. No requirement of minimum contribution: No such prescribed minimum capital required for LLP.
5. No compulsory audit required: For LLP audit is mandatory only when the contribution of LLP exceeds Rs. 25 Lacs or the annual turnover exceeds Rs. 40 Lacs.
6. Lesser annual compliances: As compared to private limited and public limited companies, LLP has lesser annual compliances.
7. Partners limited liability: In LLP partners liability will be limited to their agreed contribution in LLP.

DOCUMENTS REQUIRED FOR LLP REGISTRATION

Following documents shall be required for incorporation of LLP:

1. Pan Card of all partners (In case of foreign partner passport)
2. Driving license or Aadhar card or election card or bank pass book as a proof of Identity.
3. Telephone bill or latest bank account statement as a proof of residence (not older than 3 months)
4. Electricity bill as a proof of registered office address of proposed LLP (not older than 2 months)
5. NOC or rent agreement if the place is rented.
6. Consent Letters of all proposed partners including designated partners.

LLP REGISTRATION PROCEDURE

1. Get digital signature certificate (DSC) for designated partners.
2. Application shall be made in Form- FilLLiP, a single application for reservation of name, incorporation of LLP, application for allotment of DIN/DPIN.
3. Once this e-Form is processed and if ROC is satisfied, LLP gets registered and LLPIN is allocated.
4. Incorporation certificate will be issued by respective ROC.
5. Also DIN/DPINs gets issued to the proposed designated partners.
6. Once the LLP is incorporated LLP agreement needs to be filed with ROC in LLP Form-3 within 30 days from the date of registration.

ANNUAL COMPLIANCES FOR LLP

1. Filing of Annual Return in LLP Form-11

• Every LLP is required to file its annual return in Form-11 specifying details of number of partners, their contribution in LLP and changes in LLP in the prescribed format.
• This form shall be filed with ROC within 60 days from the closing of the financial year (i.e by 30^th May of each year)
• Annual Return must be signed by any one designated partner.
• If the total obligation of the partners of LLP exceeds Rs. 50 Lacs or turnover of LLP exceeds Rs. 5 Crores, then such annual return must be certified by the Practicing Company Secretary.

2. Filing Statement of Accounts and Solvency in LLP Form-8

• Every LLP is required to prepare its statement of accounts and solvency containing the details Assets, Liabilities, Income and Expenditure as on 31^st March of the year for which the statement is being filed.
• This form shall be filed with ROC within 30 days from the end of the 6 months of the closing of the financial year (i.e by 30^th October of each year)
• This form must be signed by any one designated partner and also certified by the Practicing Company Secretary or Chartered Accountant or Cost Accountant.
• In case of LLP having turnover of more than Rs. 40 Lacs or contribution of more than Rs. 25 Lacsneed to get its books of accounts audited by Chartered Accountant.

3. Filing of Income Tax Returns

• Every LLP is required to file Income Tax Return in Form ITR-5 every year.
• LLP who are not required to get its accounts audited shall file its Income Tax Return by 31^st July every year.
• LLP who are required to get its accounts audited shall file its Income Tax Return by 30^th September every year.

The author can also be reached at csneharedekar@gmail.com

Disclaimer: Please note that the above article is based on the interpretation of related laws, which may differ from person to person and is not legal advice.