A limited liability partnership (LLP) is a type of business that incorporates the benefits of a partnership firm and a company into a single-form organisation. That aside, there are benefits exclusive to this structure that are worth considering.
LLPs came into existence in India in 2008 and are regulated under the Limited Liability Partnership Act of 2008. If you have a company that is registered as an LLP, then you need to have a minimum of two partners, but there is no upper limit in the number of partners.
However, do remember that the two designated partners are required to be individuals, one of whom should be a resident of India. The partners are directly responsible for compliance with all provisions of the LLP Act of 2008, LLP structure and provisions specified in the LLP agreement.
Features of an LLP
Some of the features of a limited liability partnership include the following with the LLP Structure:
- It is a separate legal entity
- The liability of each partner is limited to the contribution made by the partner
- The cost of forming an LLP is low
- There are fewer compliances and regulations
- There is no minimum capital contribution required.
Advantages of the LLP
Some of the advantages of having an LLP Structure include the following:
- Separate legal entity: Like private limited companies, an LLP is a separate legal entity, i.e., it is distinct from its partners. The contract is signed in the name of the LLP, which means an increase in trust for stakeholders
- Limited liability: As the name suggests, the name LLP means limited liability partnership, which means the liability of the partners is limited to the contributions made by them. This means that they are not personally liable for any loss in business, but only liable for the contributions made by them
- Low cost and less compliance: Compared to forming a company, the money involved in forming an LLP is low. LLPs are required to file two statements annually, i.e., annual returns and a statement of accounts and solvency
- Minimum capital contribution not required: LLPs can be formed without minimum capital, i.e., LLPs can be formed with any capital contributed by the partners.
Disadvantages of Having an LLP
Some of the disadvantages of having an LLP Structure include the following:
- Penalty for non-compliance: LLPs have to follow minimal compliance, but if these are not completed on time, then the LLP will be required to pay a heavy fine. Even if the LLP has zero business for a financial year, it is required to file returns to the MCA annually
- Winding up and dissolution of LLP: If the minimum number of partners is below two for a six-month period, then the LLP will be dissolved
- Difficulty to raise capital: LLPs don’t have concepts of equity of shareholders and, as a result, angel investors and venture capitalists cannot invest in a Limited Liability Partnership.
LLP and Income Tax
LLPs are taxed at a flat rate of 30%. However, other income tax provisions apply similarly, except that general partnership firms are covered under presumptive tax schemes. This means that if a company’s turnover is below ₹2 crores or above ₹50 lakhs, there is no need to maintain books of accounts or have one’s accounts covered.
check here to more about: https://www.incometax.gov.in/iec/foportal/
Documents Required to Start an LLP
Some of the documentation required to start a limited liability partnership include the following:
- Photo identity proof of partners: This includes any one of the following – Aadhaar card, PAN card, passport, voter ID, driver’s licence
- Address proof of partner: This includes any one of the following: Aadhaar card, passport, voter ID, driver’s licence, utility bill such as telephone bill, electricity bill
- Signatures of partners
- NOC from the property owner: This NOC should be provided if the office premise is rented
- Rental agreement of registered office.
Contact our experts at Vakilsearch if you have started or wish to start a limited liability partnership. Our team of specialists will not only assist you in making your business idea a reality but will also provide a variety of services to make your life easier.
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