Key features & advantages
Key features and advantages of LLP
- LLP is governed by The Limited Liability Partnership Act, 2008.
- LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.
- No minimum capital requirement is there. Therefore, the capital required is as per the business need.
- Minimum 2 Partners are required and, unlike a private limited company, there is no maximum cap on the number of partners. In addition, a minimum of 2 Designated Partners is required under Section 7 of the LLP Act, 2008, of whom at least one Designated Partner must be resident in India. “Partners” and “Designated Partners” are distinct — every Designated Partner is a partner, but only Designated Partners bear the statutory compliance responsibilities of the LLP.
- Unlike the company, cost of incorporation in case of LLP is low.
- LLP is taxed at par with partnership firms and profit share is exempt in the hands of a partner under Section 10(2A) of the Income Tax Act, 1961. The LLP itself is taxed at a flat rate of 30% plus applicable surcharge and Health & Education Cess @ 4%, and is also subject to Alternate Minimum Tax (AMT) under Section 115JC at 18.5% of adjusted total income.
- Dividend Distribution Tax (DDT) under Section 115-O of the Income Tax Act, 1961 applied only to companies and never to LLPs, since LLPs distribute profit shares rather than dividends. In any event, DDT was abolished even for companies with effect from 1 April 2020 by the Finance Act, 2020.
- No compulsory audit requirement specified unless, under Rule 24 of the LLP Rules, 2009, turnover exceeds Rs. 40 Lakh or capital contribution exceeds Rs. 25 Lakh — either condition independently triggers a mandatory audit.
- LLP will have more flexibility as compared to a company and will have lesser compliance requirements as compared to a company.
- The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. However, despite perpetual succession under Section 3 of the LLP Act, 2008, an LLP can still be wound up voluntarily or by the National Company Law Tribunal (NCLT) under the LLP Act, 2008 and the Insolvency and Bankruptcy Code, 2016 — perpetual succession does not mean the LLP cannot be dissolved.
- Further, no partner is liable on account of the independent or unauthorised actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
- Mutual rights and duties of the partners within an LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
- LLP form is a form of business model which: (i) is organised and operates based on an agreement; (ii) provides flexibility without imposing detailed legal and procedural requirements; (iii) enables professional / technical expertise and initiative to combine with financial risk-taking capacity in an innovative and efficient manner.
- Under a “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. Whereas, under the LLP structure, the liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or unauthorised acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.
- LLP cannot carry on charitable activities. Section 11 of the LLP Act, 2008 restricts an LLP from being formed for not-for-profit purposes; entities intending to undertake charitable activities must instead register as a Section 8 company under the Companies Act, 2013, or as a Trust or Society under the applicable state law.
Documents required
Documents for LLP incorporation
- Designated Partner Identification Number (DPIN) under Section 7 of the LLP Act, 2008 and Digital Signature Certificate (DSC) for all the Designated Partners. (An existing Director Identification Number (DIN) is accepted as equivalent to DPIN.)
- Photo, PAN, ID proof and address proof of all the Designated Partners.
- Application for Name Approval in Form LLP-RUN (Reserve Unique Name – LLP) on the MCA portal and approval of the same. (Note: The proposed name should not be identical or deceptively similar to an existing LLP or company, must not infringe a registered trademark under the Trade Marks Act, 1999 as required by Rule 18 of the LLP Rules, 2009, and shall not violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950.)
- Drafting of documents and filing of e-forms, namely the LLP Agreement, which must be filed in Form 3 within 30 days of incorporation under Section 23 of the LLP Act, 2008; late filing attracts additional fees and penalties.
- Proof of office / registered address (property document if self-owned or lease / rental agreement) and latest copies of utility bills.
- Stamp paper for LLP Agreement of the state where LLP is incorporated.
- Brief write-up on the nature of business to be carried on in the proposed LLP.
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