Limited Liability Partnerships (LLPs) are commercial vehicles which combine the features of partnership and company form of business .The concept of Limited Liability Partnership (LLP) has been introduced in India by way of Limited Liability Partnership Act, 2008 (notified on 31st March 2008).
A Limited Liability Partnership combines the advantages of both the Company and Partnership into a single form of organization. In an LLP one partner is not responsible or liable for another partner’s misconduct or negligence. In an LLP, all partners have limited liability for each individual’s protection within the partnership, similar to that of the shareholders of a limited company. However, unlike the company shareholders, the partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP’s employees or other agents.
LLP – A Separate Legal entity
LLP is a separate legal entity, liable to the full extent of its assets; the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
Advantages and Disadvantages of LLP
- Separate legal entity
- Easy to establish
- Flexibility without imposing detailed legal and procedural requirements
- Perpetual existence irrespective of changes in partners
- Internationally renowned form of business in comparison to Company
- No requirement of minimum capital contribution
- No restrictions as to maximum number of partners
- LLP & its partners are distinct from each other
- Partners are not liable for Act of other partners.
- Personal assets of the partners are not exposed except in case of fraud.
- Easy to dissolve or wind-up
- Professionals like CS / CA / CWA / Lawyers can form Multi-disciplinary Professional LLP
- No requirement to maintain statutory records except Books of Accounts
- Less Cost of formation (Compared to a company)
- LLP cannot raise funds from Public
- Under some cases, liability may extend to personal assets of partners.
- No separation of Management from owners
Partners / Designated Partners of LLP
An LLP should have minimum 2 partners. Every LLP should have minimum 2 designated partners who are individuals and at least one of them should be resident in India.
Designated Partner of LLP shall be responsible for the doing of all acts and things that are required to be carried out by the LLP and is responsible for the compliance of the provisions and filing of document / returns/ statements of LLP Act and as may be specified in the LLP agreement
Designated Partner shall be liable to all penalties imposed on the LLP for any contravention of provisions of LLP Act.
Designated Partner Identification Number (DPIN)
A person or nominee of a body corporate, intending to be appointed as/ who is appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.
IMPORTANT NOTE: Director Identification Number (DIN) allotted under the Companies Act and DPIN are not same. DIN holder has to make a separate application for DPIN with his/her DIN. On submission of documents for verification, the DPIN status will be confirmed.
Management of LLP
Day to day operations of Limited Liability Partnership will be managed by Designated Partners, who are responsible for ensuring the compliances of all applicable laws.
Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describe the matters relating to mutual rights and duties of partners of the LLP and of the limited liability partnership and its partners.
Capital Contribution to LLP
Unlike in the case of a company, there is no requirement for minimum capital contribution for a LLP. However, the registration cost for LLP is determined on the basis of amount of contribution.
FDI in LLP
The Government of India has not notified the policy for Foreign Direct Investment in LLP.
Reservation of Name by a LLP registered outside India
A foreign LLP or a foreign company can reserve its existing name by which it is registered in the country of its incorporation by making an application to Ministry of Corporate Affairs. The reservation will be valid initially for three years and is renewable thereafter.
Branch office of Foreign LLP
A LLP registered outside India can establish an office in India and has to comply with the provisions of LLP Act 2008.
LLP Name – Guidelines
The guidelines for the availability of LLP names are prescribed by the LLP Act.
The name of the limited liability partnership shall not be one prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950
- Prohibited Words: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950.
- Words Based on Approval : Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval.
- Names reserved for Foreign LLP/Companies : In case Foreign LLP/Companies have reserved their name such names shall not be available for registration.
Comparison between existing Business Forms and LLP
|1||Prevailing Law||The Indian Partnership Act, 1932||Companies Act, 1956||Limited Liability Partnership Act, 2008|
|3||Creation||Created by Contract||Created by Law||Created by Law|
|4||Distinct entity||Not a separate legal entity||Separate legal entity||Separate legal entity|
|5||Name of Entity||Any name as per choice||Name to contain ‘Limited’ in case of Public Company or ‘Private Limited’ in case of Private Company as suffix.||Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.|
|6||Cost of Formation||Negligible||Minimum fees for Private Company is Rs.6,000/- and Minimum Fees for Public Company is Rs. 19,000/-||Comparatively lesser than Company.|
|7||Perpetual Succession||It does not have perpetual succession||It has perpetual succession||It has perpetual succession|
|8||Charter Document||Partnership Deed||MOA & AOA||LLP Agreement.|
|9||Common Seal||No common seal||Every company shall have its own common seal||LLP may have its own common seal|
|10||Formalities of Incorporation||Partnership Deed along with form / affidavit along with requisite filing fee||Various eforms along the Memorandum & Articles of Association are filled with Registrar of Companies||Various eforms are filled with Registrar of LLP with prescribed fees|
|11||Time line||It will take 7 days (approx.) to incorporate||It will take 10 days (approx.) to incorporate (inclusive of time taken to obtain DIN)||It will take 10 days (approx.) to incorporate (inclusive of time taken to obtain DPIN)|
|12||Legal Proceedings||Only registered partnership can sue third party||A company can sue and be sued||A LLP can sue and be sued|
|13||Foreign Participation||Foreign Nationals can not form Partnership Firm in India||Foreign Nationals can be a member in a Company.||Foreign Nationals can be a Partner in a LLP.|
|14||Number of Members||Minimum 2 and Maximum 20||2 to 50 members in case of Private Company and Minimum 7 members in case of Public Company.||Minimum 2 partners and their is no limitation of maximum number of partners.|
|15||Ownership of Assets||Partners have joint ownership||The company has ownership of assets||The LLP has ownership of assets|
|16||Rights / Duties / obligation of the Partners / Managing Partners / Directors||Governed by Partnership Deed.||Governed by AOA and resolution passed by shareholders or directors.||Governed by LLP Agreement.|
|17||Liability of Partners/Members||Unlimited.||Generally limited to the amount required to be paid up on each share.||Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.|
|18||Tax Liability||Income is Taxed at a Flat rate of 30% Plus surcharge as applicable.||Income Taxed at a Flat rate of 30% Plus surcharge as applicable.||Status of LLP has not made clear under the Taxation laws.|
|19||Principal/Agent Relationship||Partners are agents of the firm and other partners.||The directors act as agents of the company and not of the members||Partners act as agents of LLP and not of the other partners.|
|20||Transfer / Inheritance of Rights||Not transferable.||Ownership is easily transferable.||Regulations relating to transfer are governed by the LLP Agreement.|
|21||Transfer of Share / Partnership rights in case of death||The legal heirs have the right to get the refund of the capital contribution + share in profits.||In case of death of member, shares are transmitted to the legal heirs.||In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution + share in profits|
|22||Director Identification Number / Designated Partner Identification Number (DIN / DPIN)||The partners are not required to obtain any identification number||Each director is required to have a Director Identification Number before being appointed as Director of any company.||Each Designated Partners is required to have a DPIN before being appointed as Designated Partner of LLP.|
|23||Digital Signature||No requirement||Atleast one Director should have Digital Signatures.||Atleast one Designated Partner should have Digital Signatures.|
|24||Dissolution||By agreement, mutual consent, insolvency, certain contingencies, and by court order.||Voluntary or by order of National Company Law Tribunal.||Voluntary or by order of National Company Law Tribunal.|
|25||Transferability of Interest||Subject to the Partnership Agreement||A member can freely transfer his interest||Subject to the LLP Agreement|
|26||Admission as partner / member||As per the partnership Agreement||By buying shares of a company.||As per the LLP Agreement|
|27||Cessation as partner / member||As per the agreement||By selling his shares.||As per the LLP Agreement or in absenceby giving 30 days prior notice.|
|28||Requirement of Managerial Personnel||No requirement of any managerial; personnel.||Directors are appointed to manage the business and other statutory compliances||Designated Partners are responsible.|
|29||Statutory Meetings||No provision in regard to holding of any meeting||Board Meetings and General Meetings are required.||There is no provision in regard to holding of any meeting.|
|30||Maintenance of Minutes||There is no concept of any minutes||The proceedings of meeting are required to be recorded in minutes.||A LLP by agreement may decide to record the proceedings of meetings|
|31||Voting Rights||As per Partnership Agreement||As per the No of shares held by the members.||As per the terms of LLP Agreement.|
|32||Remuneration of Managerial||It can pay remuneration to its partner||Subject to law.||Depend upon LLP Agreement.|
|33||Contracts with Partners/Director||Partners are free to enter into any contract.||Restrictions on Board regarding some specified contracts, in which directors are interested.||Partners are free to enter into any contract.|
|34||Maintenance of Statutory Records||As Tax laws||Required to maintain books of accounts, statutory registers, minutes etc.||Required to maintain books of accounts.|
|35||Annual Filing||No return is required to be filed with Registrar of Firms||Filed with the Registrar of Companies every year.||Annual Statement of accounts and Solvency & Annual Return is required to be filed with Registrar of Companies every year.|
|36||Share Certificate||The ownership of the partners in the firm is evidenced by Partnership Deed, if any.||Share Certificates are proof of ownership of shares held by the members in the Company||The ownership of the partners in the firm is evidenced by LLP Agreement.|
|37||Audit of accounts||Only tax audit of their accounts as per the provisions of the Income Tax Act||As per the provisions of the Companies Act, 1956,||All LLP except for those having turnover less than Rs.40 Lacs or Rs.25 Lacs contribution in any financial year.|
|38||Applicability of Accounting Standards.||Not applicable||Mandatory||The necessary rules in regard to the application are not yet issued.|
|Partnership cannot merge with other firm||Companies can enter into Compromise / arrangements / merger / amalgamation||LLP’s can enter into Compromise / arrangements / merger / amalgamation|
|40||Oppression and mismanagement||No remedy exist||Provisions providing for remedy against Oppression and mismanagement exists||No provision relating to redressal in case of oppression and mismanagement|
|41||Credit Worthiness of organization||Creditworthiness of firm depends upon goodwill and creditworthiness of its partners||Companies enjoys high degree of creditworthiness.||Will enjoy Comparatively higher creditworthiness from Partnership|
|42||Whistle Blowing||No such provision is provided under Partnership Act, 1932||No such provision is provided under the Companies Act, 1956.||Provision has been made to provide protection to employees & partners|
|S. No||Form||Purpose||Section & Rules|
|1||Form 1||Application for reservation & Change of Name||Section 16(1), Rule 18(5)|
|2||Form 2||Incorporation Document & Statement||Section 11(2), Rule 11|
|3||Form 3||Information with regard to Limited Liability Partnership Agreement and changes, if any, made there in||Section 23(2) & Rule 22|
|4||Form 4||Notice of appointment of partners/ designated partner and changes among them, intimation of DPIN by the LLP to Registrar and consent of partner to become a partner /designated partner||Section 25(2) & (3), Rule 8, 10(8), 22(2) and 22(3)|
|5||Form 5||Notice of change of name||Section 19, Rule 20(2)|
|6||Form 6||Intimation of Particulars/Change in Particulars of Partners to LLP by partners||Section 25(1), Rule 22(1)|
|7||Form 7||Allotment of DPIN||Section 7(6) read with Section 266A to Section 266G of the Companies Act, 1956, Rule 10|
|8||Form 8||Statement of Account & Solvency||Section 34(2), Rule 24|
|9||Form 9||Consent to Act as Designated Partner||Section 7(3), Rule 7 & 10 (8)|
|10||Form 10||Intimation for Change in Particulars of Designated Partners to central Government||Section 7(3) read with Section 266A to Section 266G of the Companies Act, 1956, Rule 10(9)|
|11||Form 11||Annual return of LLP||Section 35(1), Rule 25(1)|
|12||Form 12||Intimation of other address (Other than registered office for serving of Documents)||Section 13(2), Rule 16(3)|
|13||Form 13||Notice of Resignation of Partner to all other Partners||Section 24(1)|
|14||Form 14||Intimation to Registrar of Firms/Companies for conversion of Firm/Company to LLP||Section 58(1), Rule 33|
|15||Form 15||Notice of change of Place of Registered Office||Section 13(3), Rule 17|
|16||Form 16||Format of Certificate of Incorporation||Section 12(1)(b)|
|17||Form 17||Application for conversion of Firm into LLP||Para 2, 3, 4 & 16 of second schedule Rule 38(1) read with section 55 and 58(1) thereof.|
|18||Form 18||Application for conversion of Private Company/Unlisted Company into LLP||Para 2 & 3 of third Schedule and 2, 3, 4 of Fourth Schedule, Rule 39(1) & 40(1) read with Section 56, 57 & 58(1)|
|19||Form 19||Format of Certificate of Registration on conversion of Firm/Company into LLP||Section 55, 56, 57 & 58(1), Rule 32(1)|
|20||Form 20||Affidavit in support of Summons||Rule 35(1)|
|21||Form 21||Summons for directions to convene a meeting under section 60(1)||Rule 35(2)|
|22||Form 22||Notice of Intimation of court order/Tribunal/ CLB/ CG to Registrar||Rule 35(11) & 17 and 41(4)|
|23||Form 23||Application for Direction to change the Name||Section 18, Rule 19(1)|
|24||Form 24||Application to the Registrar or Central Government for striking off name||Rule 37(1) (b)|
|25||Form 25||Application for reservation/renewal of name by a foreign LLP/foreign company||Rule 18(3)|
|26||Form 26||Form of Proxy||Rule 35 (4)|
|27||Form 27||Form for registration of particulars by foreign limited liability partnership||Rule 34(1)|
|28||Form 28||Alteration in the –
(A) the incorporation document, or other instrument constituting or defining the constitution of a limited liability partnership incorporated or registered outside India; or (B) the registered or principal office of a limited liability partnership incorporated or registered outside India; or
(C) the partner or designated partner if any of a limited liability partnership incorporated or registered outside India
|Section 19(1) & Rule 34(3)|
|29||Form 29||(A) Alteration in the certificate of incorporation or registration of limited liability partnership incorporated or registered outside India
(B) Alteration in the name or address of any of the persons authorized to accept service on behalf of a foreign limited liability partnership in India;
(C) Alteration in the principal place of business of foreign limited liability partnership in India;
(D) Cessation to have place of business in India
|Rule 34 (3) & (8)|
|30||Form 30||Certificate for Establishment of Place of Business in India||Rule 34(10)|
|31||Form 31||Application for compounding of an offence under the Act||Section 39, Rule 41(1)|
Where can we help?
- Incorporation of LLP
- Conversion of private or public company/partnership into LLP
- Obtaining digital signature certificate (DSC) and Designated Partner identification number (DPIN)
- Preparation of LLP agreement
- Compliances regarding filing of annual statement of account and solvency and annual return
- Audit of accounts of LLP
- Various formalities regarding formation viz. filing of various e forms, selection of name of LLP, etc
- Winding up or dissolution of LLP.