Legal Guide

What is the Limited Liability Company Law in India?

by Mansi Gehrana · 4 min read

Limited Liability Company Law

Introduction

  • After nearly 90 years of British rule, the former British colony of India attained independence in 1947, and in 1950 it established itself as a federal republic. The “Republic of India” is what it is formally known as.
  • A President, Prime Minister, and Legislature are part of its federal parliamentary constitutional republic political structure (Parliament).
  • A common option for Westerners seeking to hold 100% of a South Asian business is an Indian LLC or Limited Liability Company.
  • LLC formation, dissolution, and permitted commercial operations are governed by the Companies Act 2013. There is, as such, no Limited Liability Company Law in India. 

What is a Limited Liability Company as per the Limited Liability Company Law?

  • A corporate form known as a limited liability company (LLC) shields its owners from being held personally liable for the obligations of the company.
  • A member of an LLC can be any individual or company, with the notable exceptions of banks and insurance companies.
  • LLCs delay paying taxes on their earnings.
  • Members record their share of their profits and losses on their personal tax returns after they are passed through to them.

What are the advantages & disadvantages of an LLC as per the Limited Liability Company Law?

There are some advantages & disadvantages of incorporating an LLC as per the Limited Liability Company Law. These are discussed as follows- 

  • Similar to the limited responsibility of shareholders in a limited corporation, a limited liability partnership permits member partners to only be liable or responsible for their own conduct in the business.
  • A limited liability company is regarded as a legal entity per the Limited Liability Company Law. It can purchase, possess, and even sell its properties. No one else may assert ownership of the partnership’s assets while it is still in existence.
  • To reduce their own and their partners’ or investors’ personal responsibility, business owners primarily choose to register their companies as LLCs.
  • Many see an LLC as a cross between a corporation, which has some liability protections, and a partnership, which is a simple commercial agreement between two or more owners.
  • LLCs have a number of advantages, but they also have a number of drawbacks. An LLC may need to be dissolved in line with state law upon a member’s demise or insolvency.

Which types can an LLC be incorporated as the Limited Liability Company Law?

The limited liability company can be established as a private limited company, limited liability partnership, or public limited company in accordance with the rules for commercial enterprises in India. For the aforementioned categories of legal entities, there are different rules regarding the maximum number of shareholders that can be included in the firm, according to the process for forming a company in India.

A private limited company can be founded with up to 50 shareholders (and a minimum of 2), although there are no restrictions on how many people can join a public limited company (however, the minimum number is established at seven).

How can an LLC be incorporated as per the Indian Limited Liability Company Law?

In India, the well-known limited liability corporation (LLC), which can be set up anywhere in the globe, can be set up as a private limited company or a limited liability partnership. 

The investors would gain the protection of limited liability through an LLC in India since they will only be held liable for the debts of the business to the extent that they have contributed to its capital. The Limited Liability Company Law and the Companies Act 2013 set forth the rules to be followed when forming a firm in India that is registered as an LLC.

Foreign businessmen should be aware that among the aforementioned legal entities, the private limited company is the most popular business structure for both domestic and international businessmen.

Compliances involved in incorporating an LLC in India as per the Limited Liability Company Law?

There are some steps to be followed by the LLC as per the applicable Limited Liability Company Law in India to get it registered. Some of them are-

  • The name of the LLC must not be already in use by another Indian legal body. 
  • The documentation for incorporation as per the Limited Liability Company Law must be submitted to the Ministry of Corporate Affairs after the company name has been authorized. The necessary paperwork consists of the Memorandum of Association, Articles of Incorporation, Subscriber Sheet, notarized Directors’ affidavits and declarations, as well as evidence of the Registered Office Address.
  • The shareholders’ intent to own business shares is shown by their signing of the Memorandum of Association and the Articles of Association. It is necessary to notarize the subscriptions.
  • LLCs are distinct from the shareholders who own them in a legal sense. Only their part of the capital contributions is subject to liability. The shareholders of an LLC are not personally liable for the debts of the company if it is sued in court.
  • There must be an Annual General Meeting of shareholders as per the Limited Liability Company Law. Meetings of the board of directors might take place anywhere. Shareholders’ meetings, however, must take place in India. Records of meeting minutes must be kept and kept at the registered office.
  • The public can access the Ministry of Corporate Affairs’ records as per the Limited Liability Company Law. Access to shareholders, directors, audit, and financial records are all included in this.
  • The time needed to register and approve the LLC is between 10 and 15 business days.

Conclusion

Another type of business registered under the Indian Companies Act of 2013 is a Limited Liability Company. Limited Liability Corporations are a relatively new type of business in India compared to private limited and public limited companies. It is frequently referred to as a limited liability company developed under the Limited Liability Company Law, and the nature of its operations is relatively similar to those of a partnership firm and a sole proprietorship. 

A company is a group of people who come together or an artificial person created under the Limited Liability Company Act to do a certain business. Due to its numerous advantages over other business entity types, limited liability company registration has been rapidly increasing. Always take the online legal advice of a Business Lawyer for incorporating an LLC in line with the Limited Liability Company Law. 

To know more about the process of incorporating an LLC in India as per the Limited Liability Company Law, consult a Business Lawyer.

Mansi Gehrana

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Mansi Gehrana

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