The J.J. Irani Committee and The Bhatt Committee introduced the concept of Limited Liability Partnership in India. The Limited Liability Partnership Act, 2008 was published in 2008 and came into effect on 31st March 2009. The Limited Liability Partnership is a business entity that provides the company the benefits of Limited Liability. It is one of the most beneficial forms of company for entrepreneurs and small business owners.
WHAT IS A LIMITED LIABILITY PARTNERSHIP?
The Limited Liability Partnership Act 2008 defines Limited Liability Partnership or LLP as a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners. It can also be defined as a business structure with features similar to Corporate Company and Partnership firm.
In Limited Liability Partnership the members are not liable for debts or losses incurred. The company is liable for all such debts and losses. The LLP Act 2008 regulates and governs the formation of Limited Liability Partnership in India.
FEATURES OF LIMITED LIABILITY PARTNERSHIP
- A Limited Liability Partnership is a body corporate. As per Section 3 of the Companies Act, 1956 a body corporate can be defined as and includes a limited liability partnership registered under the Companies Act or a limited liability partnership incorporated outside India.
- In a LLP audit of the accounts is required only if the contribution exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh
- Limited Liability Partnership has a perpetual or continued existence, which means death, bankruptcy, insanity and change in membership does not affect the existence of LLP.
- Partners can directly manage the business and management of the Limited Liability Partnership. There is no distinction between management and ownership of the LLP
- There should be a minimum of two partners one of which shall be a resident of India. The partners cannot be held liable for negligence or misconduct caused by another partner.
- Limited Liability Partnership is an artificial legal person. It has all the rights of an Individual.
ONLINE REGISTRATION PROCEDURE OF LLP
- The Applicant has to obtain a Digital Signature Certificate or DSC for the designated partners.
- Apply for e-form DIR 3, this form is filed to obtain Designated Partners Identification Number.
- Your name makes your company standout in the market. Applicant has to apply for name reservation and approval on the RUN website on the MCA Portal.
- The applicant has to file for Incorporation of LLP with the ROC of the state where he resides. The applicant has to submit the application along with the required documents.
- The applicant has to file the online LLP agreement along with the stamp duty on the MCA portal within 30 days of incorporation.
CONTENTS OF LLP AGREEMENT-
A LLP agreement is the most important document required for LLP Registration, a well drafted LLP Agreement has the following clauses-
- Details of the Partners
This clause includes the names, address and age of the designated partners.
- Details of the LLP
This clause states that the business is a Limited Liability Partnership. Any changes made in the LLP shall be notified by the Designated Partner to the Registrar of Companies.
- Capital Contribution
This clause includes the details of the capital contributed by each partner. The contribution can be in the form of assets which are tangible and intangible.
- Profit sharing Ratio
This clause states how the profit shall be divided among the partners. It clearly states the profit sharing ratio.
- Remuneration of Partners
The partners are entitled to get remuneration. It includes any salary, bonus, commission paid to a partner. A LLP sets forth the amount and mode of payment.
- Dispute Resolution
The LLP agreement includes a dispute resolution mechanism mutually agreed upon by the parties. LLPs may face conflict of interest and disputes may arise. A well-defined Dispute resolution mechanism saves cost on litigation.
DOCUMENTS REQUIRED FOR LLP REGISTRATION
- Telephone Bill
- Aadhaar Card
- Bank Statement
- Election Card or Voter Identity Card
- Ration Card
- Driving License
- Electricity Bill
ADVANTAGES OF LLP REGISTRATION
- Limited Liability Partnership does not require minimum paid up capital. The investment by the partners could be in the form of tangible or intangible assets.
- There is no limit on maximum number of members or partners but there has to be minimum two designated partners.
- Limited liability is the biggest advantage of a LLP. Each partner’s liability is limited to his contribution. In case of insolvency the assets of the LLP are used to pay off debts.
- LLP registration is a low cost procedure. It does not burden the partners to bear with exorbitant expenses for registration.
- LLP partners can withdraw their profits without worrying about tax deductions. The Dividend Distribution Tax is not applicable to LLPs
ARE YOU PLANNING TO REGISTER YOUR LIMITED LIABILITY PARTNERSHIP?
ezyLegal can help you register and incorporate your Limited Liability Partnership and provide you with the right legal guidance. You can schedule your Consultation with an ezyLegal Lawyer and know the detailed process and advantages of registering your LLP.