Limited Liability Partnership
A Limited Liability Partnership or an LLP is a legal entity which is registered under the Limited Liability Partnership Act, 2008 and making it an instant success with startups and professional services. In traditional Partnership, the liability is unlimited. In contrast, in LLP the liability is limited. It acts as a middle ground between a Company and a Partnership as it gives you the advantages of a Company with the flexibility of a Partnership. LLP was introduced to provide a form of business that is easy to maintain and to help owners by providing them with limited liability.
An LLP is registered as per the guidelines of the Ministry of Corporate Affairs aka MCA. Recently, it has become one of the most preferred forms of legal entities in India.
Private Limited Company vs. LLP
The Private Limited Company and Limited Liability Partnership both are limited liability structures in business. However, the companies offer certain key advantages, especially for startups. Ownership of the company is defined by share capital, which is easy to transfer compared to ownership transfer in LLP. Also, it clearly differentiates management and ownership. However, one should also consider higher compliance and mandatory audit requirement, making it an expensive structure to maintain.
Benefits of Limited Liability Partnership
Limited Liability Protection to Directors personal assets
Many times startups need to borrow money and take things on credit. In case of normal Partnerships, Partners personal savings and property would be at risk incase business is not able to repay its loans. In an LLP, only investment to start a business is lost, personal assets of the Partners are safe.
Better image and credibility in Market
Limited Liability Partnership (LLP) is a popular and well known business structure in the world. Corporate Customers, Vendors and Govt. Agencies prefer to deal with LLP instead of proprietorship or normal partnerships.
No Audit Requirement & Minimal Compliances
Limited Liability Partnership is easy to manage and statutory audit is not required. LLP is most ideal for small enterprises. Tax Audit is also not required for LLPs with capital less than Rs. 25 lakh and turnover not exceeding Rs. 40 lakh.
Separate Legal Entity
Limited Liability Partnership is a separate legal entity from the partners. Each partner can sue the other in case a situation arises. It has an uninterrupted existence that follows perpetual succession like private limited company, i.e., the partners might leave, but the business remains. A term of dissolution has to be mutually agreed on for the firm to dissolve.
Transferring the ownership of LLP is also simple. A person can quickly be inducted in as a designated partner and the ownership switches to them.
Suitable For Small Business
Limited Liability Partnership having a capital amount less than 25 lakhs and turnover below 40 lakhs per year do not require any formal audits. It makes registering as LLP beneficial for small businesses and startups. An LLP can own or acquire property because it is recognized as a juristic person. Partners of LLP cannot claim the property as theirs.
No Owner /manager Distinction
An LLP has partners, who own and manage the business. This is different from a private limited company, whose directors may be different from shareholders. For this reason, VCs do not invest in the LLP structure.
Documents required for LLP registration
- PAN Card or passport (Foreign Nationals & NRIs)
- Aadhaar Card/ Voter’s ID/Passport/Driver’s License
- Latest Bank Statement/Telephone or Mobile Bill/Electricity or Gas Bill
- passport-sized photograph
- Notarized Rental Agreement of the registered office (In case of Rented Registered Office)
- No-objection Certificate from the property owner (In case of Rented Registered Office)
- Sale Deed/Property Deed in English (In case of owned property)
Note: Any one of the partners must self-attest the first three documents. In the case of foreign nationals and NRIs, all the documents must be notarized. Your registered office need not be a commercial space; it can be your residence, too.
Selection of name for your LLP
The Registrar of Companies (RoC) has issued guidelines for Limited Liability Partnership to name the business. It is essential that to follow the rules closely or your application may end up getting rejected, leading to a much longer process.
In Cloudtail India Private Limited, Cloudtail is the unique component. Now, once taken, the name will not be given to any other business in categories related to the business.
Abbreviations, adjectives and generic words are rejected. So XYZ would be rejected, as would Good Quality Biscuits. The words bank, exchange and stock exchange, unless approved by RBI or SEBI, would also be rejected.
No Common Trademark
There should not be a registered trademark by the same name on the Intellectual Property Register. If there is one, the name can only be approved if you are able to get a No-Objection Certificate from its owner authorizing you to use it. Otherwise the applicant has to select new name.
In XYZ Foods Private Limited, the word ‘Foods’ describes the business the company is into. You cannot have ‘Foods’ in your name if you’re, say, in the logistics or services business.
Process of Registration of Limited Liability Registration
Here we make the process of LLP registration seamless and hassle-free. It is required to arrange basic documents of partners and other legal documents including proposed name.
Step 1: Obtaining DSC and DPIN
The first step is to obtain Digital Signature Certificate of the desired partners of the Limited Liability Partnership. The reason for this is that all the forms need to be submitted online and it require the directors’ digital signatures. The law also requires that all directors file for a DPIN number. The application has to be made in Form DIR- 3.
Step 2: Application for Name Approval
The second step involves in registering the Limited Liability Partnership is to see whether the proposed name is already taken. The registrar only approves LLP names that are not taken before. The approval of the name will be made by the Registrar only if the Central Government does not deem it undesirable. The name should also not hold any resemblance to any of the existing partnership firms, LLPs, trademarks, or body corporate.
Step 3: LLP Agreement
Limited Liability Partnership agreement is very crucial in a limited liability partnership as it determines the mutual rights and duties amongst the partners, and between the LLP and the partners. The partners enter into the LLP agreement upon the LLP registration by filing form 3 online on the MCA portal. This procedure has to be done within 30 days of the date of incorporation.
Step 4: LLP Incorporation Certificate
Once the registrar approves LLP Agreement you’re steps closer to getting your LLP registered. The next step is to get the LLP Incorporation Certificate. You can do by submitting all documents to the registrar. The time frame is between 2- 15 days. Once you get your LLP Incorporation Certificate, you’re ready to go.
Step 5: Apply For PAN & TAN & Bank Account
As soon as you get the incorporation certificate, you need to apply for your company PAN & TAN with the NSDL. The procedure takes around three weeks to get done. We also provide assistance in opening Current Account.