In India, the Limited Liability Partnership (LLP) is a well-known and popular business structure.
The Limited Liability Partnership (LLP) concept was introduced in India by the Limited Liability Partnership Act of 2008.
The basic idea behind the creation of a Limited Liability Partnership (LLP) is to provide a type of business entity that is simple to manage while providing the owners with limited liability.
LLPs are preferred by professionals, micro and small businesses that are family-owned or closely held due to their simple incorporation process and simple compliance formalities. Because LLPs cannot issue equity shares, they should not be used for any business that intends to raise equity funds from Angel Investors, Venture Capitalists, or Private Equity Funds.
LLP is a separate legal entity that provides the benefits of a private limited company as well as the flexibility of a partnership firm, in which no partner is held liable for the misconduct of another partner and their rights and duties are governed by the LLP agreement. LLP can also become a member in another company.
Separate Legal Entity: A limited liability partnership (LLP) is a separate legal entity from its partners with perpetual succession. It has the ability to own assets, sue, and be sued.
No liability for negligence of other partner: The primary benefit of an LLP is that no partner can be held liable for the negligence or misconduct of other partners.
Limited Liability: Except in cases of fraud, a partner's liability is limited to the amount of agreed contribution (capital) in the LLP Agreement
Perpetual Succession: A limited liability partnership, unlike a general partnership, can continue its existence even after the retirement, insanity, insolvency, or even death of one or more partners.
Business for Profit Only: Limited Liability Partnerships are not permitted to be formed for charitable or non-profit purposes. It is critical that the entity be formed to conduct a legal business in order to make a profit.
Lower Compliance Requirement: In comparison to a private/public limited company, an LLP requires less compliance. Compliances related to board meetings, statutory meetings, and so on do not apply to LLPs. But, Limited Liability Partnerships are required to file the annual returns within 60 days from the end of the close of the financial year and account statement and solvency within 30 days from the end of six months of the closure of the financial year.
Audit of accounts from professionals: If the capital contribution or turnover exceeds Rs. 25 Lakhs or Rs. 40 Lakhs, the LLP must keep proper books of accounts, and an audit is required.
No requirement of compulsory Audit: All companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. This is perceived to be a significant compliance benefit.
A Limited Liability Partnership is required to get the tax audit done only in the case that: -
Lower registration cost: When compared to the expense of forming a private limited or public limited company, the cost of forming an LLP is lower. However, the price gap between forming an LLP and forming a private limited company has narrowed in recent days.
No requirement of minimum contribution: There is no minimum capital requirement in LLP. An LLP can be formed with the least possible capital. Moreover, the contribution of a partner can consist of tangible, movable or immovable or intangible property or other benefits to the LLP.
Taxation Aspect on LLP: For income tax purpose, LLP is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax and share of its partners in LLP is not liable to tax. Thus no dividend distribution tax is payable. Provision of "deemed dividend" under income tax law, is not applicable to LLP. Section 40(b): Interest to partners, any payment of salary, bonus, commission or remuneration allowed as deduction.
The act of creating or organizing a corporation under the laws of a specific jurisdiction.
A Memorandum of Association is a document that contains the basic information which is required for incorporating a company.
Articles of Association is a document that deals with the internal governance of a company.
The statutory address of a corporation. In states requiring the appointment of a registered agent, it is usually the address of the registered agent.
The DSC (Digital Signature Certificate) is an instrument issued by certifying authorities by which you can sign all the electronic documents.
Any existing partnership firm that is willing to get converted into LLP will need to apply through Form 17 (Application and statement for the conversion of a firm into LLP. Form 17 needs to be filed along with Form 2 (Incorporation document and Subscriber’s statement).
Foreign Direct Investment (FDI) is permitted in LLPs under automatic route subject to the sectoral cap regulations. FDI in LLPs will not be allowed in sectors such as agricultural/plantation activity, print media or real estate business.
A minimum two partners are required to start an LLP.
An individual (who is capable of entering in to an agreement) or a body corporate can become a partner in an LLP. A body corporate means an LLP registered under the LLP Act, limited company registered under the Companies Act, a registered legal entity in any country registered under relevant laws of that country. However, it does not include a society or a corporation sole.
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