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A limited liability proprietorship is a mix of both a partnership and a company, put together to form a single organisation. It is a formal partnership between at least two business partners. Each of the business partners is provided with limited liability, which means they do not stand responsible for any loss, debts or liabilities that the business might face.
In recent times, Limited Liability Proprietorship or LLP has become one of the most preferred forms of business registration as it has elements of both a partnership firm and private company to benefit from. Read this article to understand all you need to know about LLP.
What is limited liability proprietorship?
As the name suggests, a limited liability proprietorship is a mix of both a partnership and a company, put together to form a single organisation. It is a formal partnership between at least two business partners. Each of the business partners is provided with limited liability, which means they do not stand responsible for any loss, debts or liabilities that the business might face. Unlike in a partnership firm, where each partner is responsible for everything, in an LLP, each partner is accountable for their own negligence only.
What are the advantages of LLP?
Wondering why should you choose LLP over other business registrations? Have a look:
- Easy & quick to build: Building an LLP is a simple process. It does not have complicated steps and requirements and neither does it take months of waiting time. The minimum amount of fees for incorporating an LLP is INR 500 and the maximum that can be spent is INR 5,600
- Continuity in succession: The life of the LLP is not affected by the death or retirement of any of the partners. If one of the partners withdraws because of any reasons, it does not mean that the LLP gets wound up. An LLP can only be shut down on the basis of the provisions of the Limited Liability Protection Act of 2008
- Limited liability: All the partners of the LLP have limited liability, which means that the partners are not liable to pay the debts of the company from their personal assets. No partner is responsible for any other partner’s misbehaviour or misconduct
- Streamlines management: All the major decisions and management activities in an LLP are taken care of by the board of directors hence the shareholders receive very less power in making decisions
- Hassle-free transfers: There are no restrictions on joining and leaving an LLP. One can easily admit as a partner and transfer the ownership to others
- Taxation benefits: An LLP is exempt from various taxes such as dividend distribution tax and minimum alternative tax. Also, the rate of tax is less when compared to other business types
- No compulsory audit requirements: There is no mandatory audit requirement for an LLP until the company exceeds the annual turnover of INR 40 lakhs
What are the disadvantages of LLP?
- Not covered in all States: In India, there are certain variations in tax benefits from State to State. There are also cases when States restrict the formation of LLP. This is one of the major disadvantages of an LLP
- Less credibility: An LLP has many benefits but the fact is that people do not consider LLPs to be a credible business. People still trust companies or partnerships over LLPs
- Differences amongst partners: Since each partner is responsible for their own part, there are cases when partners do not consult each other before proceeding with a decision or agreement
- Transfer of interest: Though interest and ownership can be transferred, it usually is a long procedure. Various formalities are required to comply with the provisions of the Limited Liability Partnership Act
Documentation requirements for registering LLP
Before you start with the procedure of registering an LLP or make changes in an existing LLP, have a look at the list of documents you might need:
- Form 7 is required to obtain a Designated Partner Identification Number (DIN) while registering your LLP. It may be sought from the MCA website. Along with the duly completed form, a registration fee of INR 100 must also be paid
- Form 1/ RUN-LLP is required to register a name for the LLP and reserve it. It may be used to christen an LLP or to alter the present name. The fee for submitting this form is Rs 10,000
- A request must also be filed by the partners for their DSC to be registered if it hasn’t already been done before
- Form 2/FiLLiP is required for incorporating a registered LLP. This form must be sent to and acknowledged by the concerned State’s Registrar
- An LLP agreement must be made, which outlines the duties of each partner involved. This requires the filling and submitting of Form 3
- In the case of changing, altering, adding or removing partners, the partners must submit Form 4
- Form 11 must be used to file the IT returns of the LLP
- If the office address of the LLP is to be changed, then Form 15 must be filed
How to form a Limited Liability Proprietorship
As mentioned earlier, forming an LLP is easy and quick. Before you get started, obtain a DSC or Digital Signature Certificate as the following steps will require it. File for one if you don’t already have one. Further, here are the steps involved in forming an LLP. You can visit mca.gov.in and follow the steps listed below:
- Issue a Designated Partner Identification Number for yourself, which serves as an ID card
- File Form 7 and pay the required fees
- Register a name for your LLP using Form 1 and pay Rs 200
- Incorporate the LLP via Form 2. The LLP agreement must also be made at this stage
- File the LLP Agreement as per Section 2(o) of the LLP Act, 2008 using Form 3
With the above-mentioned steps, you are all set to start an LLP of your own.