Difference Between Joint Venture and Partnership

Closure of LLP - Overview

The Limited Liability Partnership (LLP) closure process is a significant decision that can arise from various circumstances. Whether driven by voluntary factors, such as a mutual decision by the partners to discontinue operations, or involuntary factors, like non-compliance with statutory requirements, understanding the reasons and methods of closure is crucial.

The decision to close an LLP often stems from the following reasons:

1. Voluntary Closure:
   Partners may mutually agree to cease operations due to business inactivity, an unprofitable venture, or a strategic shift in focus. This proactive decision is usually taken when all stakeholders conclude that continuing operations no longer align with their goals.
2. Involuntary Closure:
   Sometimes, an LLP faces closure due to external circumstances such as non-compliance with legal or regulatory obligations, accumulation of penalties, or other statutory violations. In such cases, authorities may initiate the process of striking off the LLP from the official records.

Method or Procedure of Closing an LLP

Closing a Limited Liability Partnership (LLP) in India can be carried out through two primary methods: Voluntary Winding Up and Striking Off. Each method has its unique set of requirements, advantages, and limitations. Choosing the right approach depends on the LLP’s operational and financial status. Let’s look into the details of these two LLP closing procedures:

1. Voluntary Winding Up

Voluntary winding up is a process initiated by the partners when they collectively decide to dissolve the LLP. This method is typically chosen when the partners agree to cease operations due to inactivity, unprofitability, or a strategic decision to exit.

Advantages of Voluntary Winding Up:

• Controlled and Planned Process
• Avoids Penalties for Non-Compliance

Disadvantages of Voluntary Winding Up:

• Time-Consuming
• Settlement of Liabilities Required

2. Striking Off

Striking off is a simpler and faster method for closing an LLP. It is suitable for LLPs that have been inactive for a significant period and have no outstanding liabilities. This process involves applying to the RoC to remove the LLP’s name from the register.

Advantages of Striking Off:

• Simplified and Less Expensive
• Suitable for Dormant LLPs

Disadvantages of Striking Off:

• Not Applicable for LLPs with Liabilities
• Limited Scope for Active LLPs

Step-by-Step Procedure to Close an LLP

A brief overview of the process for closure of LLP in India:

1. Passing a Resolution for Winding Up

The first step is for the partners to pass a resolution for voluntary winding up. A majority of partners must agree, and the resolution must be filed with the ROC within 30 days.

2. Appointing a Liquidator

The partners must appoint a liquidator to oversee the winding-up process. The liquidator’s role includes realising the LLP’s assets and settling its liabilities.

3. Realising Assets and Paying Off Liabilities

The liquidator identifies and sells the LLP’s assets to clear all outstanding liabilities. Surplus funds, if any, are distributed among the partners.

4. Filing the Necessary Forms with the ROC

The LLP must file forms such as Form 24 and other requisite filings with the ROC to notify the authorities about the closure.

5. Obtaining the Final Order of Dissolution

After reviewing all filings and confirming the settlement of liabilities, the ROC issues a final order of dissolution, formally closing the LLP.

Filing LLP Form 24: Step-by-Step Process

Closing a Limited Liability Partnership (LLP) in India requires filing LLP Form 24 with the Ministry of Corporate Affairs (MCA). Below is a simplified step-by-step process to help you navigate this procedure:

1. Cease Business Operations

Before applying for closure, ensure that the LLP has either never commenced business or has stopped all commercial activities. If your LLP is still active, suspend all operations before proceeding.

2. Settle Liabilities and Close Bank Accounts

LLP Form 24 can only be filed if the LLP has no outstanding creditors and all bank accounts are closed. Obtain a closure letter from the bank as proof.

3. Draft Partner Affidavits

All designated partners must prepare an affidavit declaring:

• The LLP has ceased operations from a specific date or never started.
• The LLP has no liabilities, and partners agree to indemnify any future claims.

4. Prepare Supporting Documents

Attach the following documents to LLP Form 24:

• Copy of the latest Income Tax Return (if filed). If no returns were filed, this is not required for non-operational LLPs.
• A statement of accounts showing nil assets and liabilities, certified by a Chartered Accountant, dated no more than 30 days before filing.

5. Resolve Pending Filings

Ensure that:

• The LLP Agreement is filed, if not already done.
• Any overdue Form 8 and Form 11 are submitted up to the date of cessation of business.

6. File LLP Form 24 with MCA

Submit the completed LLP Form 24 with all attachments to the MCA. Once reviewed, a notice of striking off will be published on the MCA website if no objections are raised.

Documents Required to Close the LLP

Here is a list of LLP closure documents required during the process:

• Board Resolution for Winding Up: Document signed by all partners approving the winding-up process.
• Liquidator’s Consent: Written consent from the appointed liquidator.
• No-Objection Certificate from Creditors: If applicable, creditors must provide a no-objection certificate.
• Final Accounts and Balance Sheet: Statement of accounts showing all liabilities cleared.
• Tax Clearance Certificates: Certificate from the tax authorities confirming no pending dues.

 Conditions for LLP Closure

Certain conditions must be met before initiating the LLP closure process:

• Settlement of Debts and Liabilities: All outstanding debts and liabilities must be cleared.
• Statutory Filings: All statutory filings and compliance requirements must be up-to-date.
• Approvals: Necessary approvals from all partners and creditors (if applicable) must be obtained.

Advantages and Disadvantages of LLP

Like any business entity, an LLP has its own advantages and disadvantages that should be carefully considered before choosing this structure.

Advantages of an LLP

1. Limited Liability: The liability of partners is limited to their agreed contribution to the business, protecting personal assets in case of business debts or losses.
2. Separate Legal Entity: An LLP is a separate legal entity from its partners, meaning it can own assets, enter into contracts, and sue or be sued independently.
3. Flexibility in Management: There is no strict separation between ownership and management, allowing partners to manage the business as per their agreement.
4. No Minimum Capital Requirement: Unlike private limited companies, LLPs do not have a minimum capital requirement, making them more accessible to small businesses and startups.
5. Ease of Compliance: LLPs have fewer compliance requirements compared to companies, such as no mandatory board meetings or annual general meetings.
6. Unlimited Number of Partners: An LLP can have any number of partners, offering greater flexibility in expanding ownership.
7. Low Registration Cost: Setting up an LLP is more affordable than incorporating a private limited company.

Disadvantages of an LLP

1. Limited Recognition: LLPs are not as widely recognised as private limited companies, which may affect investor confidence or business collaborations.
2. Restrictions on Fundraising: LLPs cannot raise funds through equity, making them less suitable for businesses looking to attract venture capital or private equity investment.
3. Limited Scope for Public Trust: LLPs are not listed on stock exchanges, so they may lack the transparency that comes with publicly traded companies, leading to lower public trust.
4. Difficulty in Expansion: LLPs are not ideal for businesses aiming for rapid scalability, as the inability to issue shares limits their access to growth capital.

An LLP is an excellent choice for small businesses, professionals, and startups looking for a flexible, cost-effective business structure with limited liability. However, it may not be suitable for companies that require significant funding or aspire to scale rapidly. 

Frequently Asked Questions

Definition of "Startup"

As per the Startup India Scheme, a "Startup" is defined by the following criteria:

• The entity should be incorporated as a Private Limited Company, a Limited Liability Partnership (LLP), or a Registered Partnership Firm.
  
• The age of the company should not exceed 10 years from the date of incorporation.
  
• The annual turnover should not exceed INR 100 crore in any of the financial years since incorporation.
  
• The business should be working towards innovation, improvement of products/processes/services, or scalable business models with high potential for employment generation and wealth creation.
  
• Startups should be recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) to avail of scheme benefits.
  

What Is the Startup India Scheme?

The Startup India Scheme was launched in 2016 with the objective of encouraging entrepreneurship, generating employment, and fostering innovation. This initiative is managed by the Department for Promotion of Industry and Internal Trade (DPIIT) and aims to position India as a global startup hub by offering regulatory support, funding access, and tax exemptions.

Why Was Startup India Launched?

India has always been home to entrepreneurs, but before 2016, starting and scaling a business came with significant roadblocks- complex regulations, limited funding options, and restricted market access. Recognising this, the Government of India launched the Startup India initiative on January 16, 2016, to create a more supportive ecosystem for startups.

Here’s why the initiative was needed and how it helps:

• Reducing Bureaucratic Hurdles
  
• Easing Financial Constraints
  
• Encouraging Job Creation & Innovation
  
• Enabling Market Access & Growth
  
• Creating a Culture of Entrepreneurship
  

Since its launch, over 100,000 startups have been recognised under the scheme, creating jobs, driving innovation, and strengthening India’s position as a global startup hub.

Top Features Of the Startup India Scheme

The Startup India Scheme offers multiple benefits to startups, including:

• Tax Exemptions: Startups are eligible for a three-year income tax exemption.
  
• Funding Support: Access to government funds and venture capital assistance.
  
• Simplified Compliance: Reduced regulatory burden with self-certification for labour and environmental laws.
  
• Fast-Tracked Patent Registration: Reduced fees and faster processing for patent applications.
  
• Networking Opportunities: Participation in government-organised startup festivals and events.
  
• Access to Government Tenders: Startups receive preference in public procurement without prior experience requirements.
  

Eligibility Criteria for the Startup India Scheme

To be eligible, startups must meet specific criteria set by the Department for Promotion of Industry and Internal Trade (DPIIT).

Here’s a detailed breakdown of the eligibility requirements:

• Be incorporated as a Private Limited Company, LLP, or a Registered Partnership Firm.
  
• Be less than 10 years old from the date of incorporation.
  
• Have an annual turnover not exceeding INR 100 crore.
  
• Focus on innovation, scalability, and employment generation.
  
• Obtain DPIIT recognition for startup status.
  

Types of Organisations Eligible For the Startup India Scheme

The following entities qualify for the scheme:

• Private Limited Companies: Must be registered under the Companies Act, 2013.
  
• Limited Liability Partnerships (LLPs): Must be registered under the LLP Act, 2008.
  
• Registered Partnership Firms: Must be incorporated under the Indian Partnership Act, 1932.
  

How to Register Your Startup with the Startup India Scheme

Step 1: Incorporate Your Business

Before applying for Startup India recognition, you must officially register your business as a legal entity. Your startup can be incorporated as one of the following:

• Private Limited Company – Register under the Companies Act, 2013 with the Ministry of Corporate Affairs (MCA).
  
• Limited Liability Partnership (LLP) – Register under the Limited Liability Partnership Act, 2008 with the MCA.
  
• Partnership Firm – Register under the Indian Partnership Act, 1932 with the respective state authority.
  

Step 2: Register Under the Startup India Scheme

Once your business is incorporated, you can apply for recognition under the Startup India initiative by following these steps:

• Visit the Startup India portal → www.startupindia.gov.in
  
• Click on "Register" and create an account.
  
• Log in and navigate to “Recognition” → “Apply for DPIIT Recognition”.
  
• Fill in the application form with details about your business.
  

Step 3: Apply for DPIIT Recognition

To get official recognition as a startup, you must apply for DPIIT (Department for Promotion of Industry and Internal Trade) recognition. DPIIT-recognised startups gain access to tax benefits, easier compliance, and funding opportunities.

Steps to Apply for DPIIT Recognition:

• Provide business details (name, incorporation date, industry sector, location).
  
• Describe your startup’s innovation, scalability, and market potential.
  
• Upload supporting documents (explained in Step 5).
  
• Submit the application for review.
  

Step 4: Recognition Application Submission

Once all details are filled in, submit the Startup India recognition application.

The DPIIT reviews applications to ensure the business meets eligibility criteria (e.g., age of the startup, turnover, and innovation focus). If all documents are in order, recognition is granted within 2-3 weeks.

Step 5: Documents Required for Registration

You must upload specific documents during the registration process. Ensure you have:

Mandatory Documents:

• Certificate of Incorporation / Registration – Proof that your business is legally registered.
  
• Detailed Business Description – A document explaining how your startup is innovative and scalable.
  
• PAN (Permanent Account Number) – A copy of your business’s PAN card for tax purposes.
  

Additional Documents (If Applicable):

• Patent or Trademark Details – If your startup has intellectual property rights, submit supporting documents.
  
• Letter of Recommendation (Optional) – From an incubator, industry expert, or recognised institution supporting your innovation.
  

Step 6: Get Your Recognition Number

Once your application is approved, you will receive a Startup Recognition Number from DPIIT. This confirms that your business is officially recognised under Startup India and is eligible for various benefits.

Step 7: Some Other Important Things To Follow

• Ensure compliance with tax laws and regulatory requirements.
  
• Utilise government schemes and incentives to scale operations.
  

Benefits From DPIIT

Startups recognised under DPIIT receive several benefits, including:

• Tax exemptions under Section 80 IAC of the Income Tax Act.
  
• Easier access to government grants and funds.
  
• Self-certification for labour & environmental laws, reducing compliance costs.
  
• Simplified compliance and faster patent approvals.
  
• Gain visibility through Startup India showcases and events.
  

Advantages of the Startup India Scheme

• Financial Support: Grants, loans, and venture capital funding assistance.
  
• Regulatory Benefits: Self-certification for labor and environmental laws.
  
• Tax Relief: Exemption from income tax for 3 years.
  
• Market Access: Access to government tenders and public procurement schemes.
  
• Networking Opportunities: Participation in startup events and mentorship programs.
  

Conclusion

India is rapidly becoming a global hub for startups, and the Startup India Scheme is at the heart of this transformation. By nurturing innovation, job creation, and economic development, the initiative is shaping the future of entrepreneurship in India.

Frequently Asked Questions

Difference between Private Limited, LLPs & OPCs

Now that we've introduced the differences between these three types, let's explore their features and registration processes more thoroughly. This will help you determine which one is the most suitable for your business needs.

Private Limited Company: Features

In India, the Private Limited Company stands as the predominant choice for company registration, governed by the Companies Act of 2013 under the jurisdiction of the Ministry of Corporate Affairs (MCA). This structure is favoured by startups and businesses aspiring for growth and stability, owing to its adaptable ownership model and efficient management practices.

Outlined below are some key characteristics of a Private Limited Company:

1. Limited Liability

• Shareholders enjoy limited liability, safeguarding personal assets from business debts.

2. Separate Legal Entity

• Regarded as a distinct legal entity from its shareholders, allowing it to engage in contracts, own assets, and litigate under its name.

3. Ownership

• Owned by shareholders who possess shares in the company, with ownership transfer facilitated through share transactions.

4. Management

• Managed by appointed Directors, while day-to-day operations are overseen by management, with significant decisions often requiring shareholder approval.

5. Shareholders

• Requires a minimum of two shareholders and can accommodate a maximum of 200.

6. Regulation and Compliance

• Governed by the Companies Act and regulated by the Ministry of Corporate Affairs, mandating compliance with annual financial filings, general meetings, and statutory record maintenance.

7. Investment and Funding

• Attracts investment and funding relatively easily due to its defined ownership structure and limited liability feature.

Private Limited Company: Registration in India

The Ministry of Corporate Affairs (MCA) has introduced a streamlined and online process for company incorporation known as Simplified Proforma for Incorporating Company Electronically Plus (SPICe+), comprising two parts: Part A and Part B.

The steps are as follows:

1. Step 1: Apply for DSC

• Obtain a Digital Signature Certificate (DSC) from Certifying Agencies (CAs) with either one or two-year validity.

2. Step 2: Apply for Name Approval

• Apply for name using SPICe+ Part A which facilitates 'Name Reservation' with the provision for two proposed names and one re-submission (RSUB).

Note: While simultaneous application for name approval (Part A) and Incorporation (Part B) through SPICe+ is feasible, only one name can be reserved.

3. Step 3: Apply for Company Registration & Other Applications

• Following name approval, apply for Company Registration using SPICe+ Part B, which also includes the application for allotment of Director Identification Number (DIN), Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), etc.

4. Step 4: Apply for a Bank Account

• Open a current account for your company to facilitate seamless financial transactions and business operations.

5. Step 5: File the Commencement of Business Certificate

• Within 180 days of incorporation, file the Commencement of Business Certificate through Form INC-20A, which is a declaration submitted by the Director of the Company to the Registrar of Companies.

Upon approval of the SPICe+ Form, the Registrar of Companies (ROC) issues the Certificate of Incorporation, confirming the successful registration of your company.

The Certificate of Incorporation includes vital information such as the Company's name, registration number (CIN), date of incorporation, registered office address, and so on.

Example of CIN: U72200KA2013PTC097389

Read more about what each letter in a CIN signifies here.

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Limited Liability Partnerships: Features

A Limited Liability Partnership (LLP) is a business structure that combines features from both traditional partnerships and limited companies. And, LLPs are often favoured by professional services firms, small businesses, and ventures seeking the blend of partnership flexibility and limited liability protection.

Key characteristics of an LLP include:

1. Limited Liability

• Partners in an LLP benefit from limited liability akin to private limited companies.

2. Separate Legal Entity

• An LLP exists as a distinct legal entity from its partners, capable of owning assets, entering contracts, and engaging in legal proceedings independently.

3. Ownership

• Partners own the LLP, with the ownership structure outlined in the LLP agreement. Ownership transfer typically requires consent from other partners.

4. Management

• Managed by partners or a designated management team as specified in the LLP agreement. Decision-making is often collaborative, with each partner having an equal say.

5. Number of Partners

• Requires a minimum of two partners, with no maximum limit.

6. Regulation and Compliance

• Governed by the Limited Liability Partnership Act in India, featuring less stringent regulatory requirements compared to private limited companies. Compliance entails filing annual returns and maintaining statutory records.

7. Flexibility

• Offers enhanced flexibility in internal management and decision-making processes compared to private limited companies.

Limited Liability Partnerships: Registration in India

Establishing a Limited Liability Partnership (LLP) as a legally recognized business structure involves several crucial steps. Here is a brief and comprehensive outline of the LLP registration process.

1. Step 1: Obtain a DSC

• Obtain a Digital Signature Certificate (DSC) from Certifying agencies. To know more about the process, click here.

2. Step 2: Apply for Name Reservation

• Reserve an LLP's name via the LLP-RUN form, overseen by the Central Registration Centre. Up to two names can be proposed.

3. Submit the FiLLiP Form

• Fill out the FiLLiP form and submit it to the Registrar along with the Subscriber sheet and Director's consent (Form DIR-9).

4. Draft & File the LLP Agreement

• File the LLP Agreement using Form 3 on the MCA portal within 30 days of registration.

Upon approval of the FiLLiP Form by the Registrar of Companies (ROC), you will receive the Certificate of Incorporation, which has important details such as the LLP's name, registration number (LLPIN), date of incorporation, registered office address, and so on.

Example of LLPIN: AAA-1234

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One Person Companies: Features

One Person Companies (OPCs) present a unique business structure where a single individual can establish and manage a company. Combining aspects of a Private Limited Company and the advantages of Sole Proprietorship, OPCs cater to entrepreneurs and business owners who handle all ownership, operation, and management duties themselves.

1. Sole Ownership

• An OPC is solely owned and managed by a single individual, referred to as the sole shareholder or member.

2. Limited Liability

• Like other corporate structures, OPCs offer limited liability protection to the sole owner.

3. Separate Legal Entity

• OPCs are recognized as separate legal entities independent of the sole owner. This legal distinction enables you to enter contracts, own assets, and participate in legal proceedings under your company’s name.

4. Perpetual Succession

• Despite having only one member, OPCs feature perpetual succession. A nominee appointed during incorporation typically assumes control in the absence of the sole member.

By combining limited liability, separate legal entity status, and simplified operations, OPCs emerge as an appealing choice for small businesses and startups led by single entrepreneurs.

One Person Company: Registration in India

Due to their similarities with private limited companies, OPCs also employ SPICe+ for their company registration process.

SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) is a comprehensive online form introduced by the Ministry of Corporate Affairs (MCA) in India to streamline and simplify the company registration process.

1. Step 1: Apply for DSC

• Obtain a Digital Signature Certificate (DSC) from any Certifying Agencies in India.

2. Step 2: Submit Part A of SPICe+ Form (If filled separately)

• Apply for name approval using Part A of the SPICe+ form, allowing for submission of up to two proposed names and one re-submission.

3. Step 3: Draft the MoA & AoA

• Draft the Memorandum of Association (MoA) and Articles of Association (AoA) detailing the company's objectives and rules.

4. Step 4: Submit Part B of SPICe+ Form

• Submit Part B of the SPICe+ form along with necessary documents, including DSC, MoA, AoA, and declarations. Pay the prescribed fee for registration.

5. Step 5: Appoint a Nominee

• Appoint a nominee director as required by OPC regulations.

6. Step 6: File for the Commencement of Business Certificate

• Within 180 days of incorporation, file for the Commencement of Business Certificate (Form INC-20A) with the Registrar of Companies.

Upon successful approval of the SPICe+ Form, you’ll receive an email notification from the MCA containing the Certificate of Incorporation (COI) and PAN and TAN details of the Company.

The certificate of Incorporation (COI) includes crucial details such as the Company Name, Registration Number (CIN), Date of Incorporation, Registered Office Address, Company Structure, and more.

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For added clarity, check out our curated collection of sample templates, where you can download and customize most of these above-mentioned templates, as required.

Company Registration with Razorpay Rize

Razorpay Rize provides a wide array of services to facilitate an end-to-end streamlined company registration process, all at the lowest fees and without any hidden charges. Explore the different legal structures below to find the one that’s best for your business.

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Our package includes:

• Company Name Registration
• 2 Digital Signature Certificates (DSCs)
• 2 Directors’ Identification Numbers (DINs)
• Certificate of Incorporation(COI)
• MoA & AoA [Applicable for Private Limited Companies and OPCs]
• LLP Agreement [Applicable for LLPs]
• Company PAN & TAN

*Prices and documents can differ based on the company type.

Find Out Which Company Type to Register

If you operate a small business with limited resources, opting for LLP or OPC registration might be more favourable due to lighter compliance requirements. However, for larger businesses with substantial capital needs, registering as a Private Limited Company provides greater flexibility in raising funds. So, before proceeding with the registration of either a Private Limited Company, LLP, or OPC, it is essential to carefully evaluate the following factors.

• Business Nature and Size
• Fundraising Requirements
• Tax Implications
• Personal Liability Protection

Ultimately, the choice between a Private Limited Company, LLP, or OPC structure depends on the unique characteristics of your business, including its nature, size, fundraising requirements, tax implications, and personal liability protection.

Still confused about which company type to register with? We’ve got you covered! Introducing our latest tool - "Know Your Company Type."

For the first time in India, answer a quick set of questions about your startup, and this tool will utilize your responses to identify the perfect company registration type for you. Find your ideal fit with just one click!

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In summary, choosing between Private Limited Companies, OPCs, and LLPs depends on your business goals and preferences. Each structure offers unique benefits, whether it's scalability with Private Limited Companies, convenience with OPCs, or simplicity with LLPs. If you have any unanswered questions or want to get started with the company registration process, feel free to get in touch with us!

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