Limited liability protection is awarded to members and shareholders working in a Limited Liability Partnership (LLP). For small businesses, LLP is an ideal business setup.
In 2008, Limited Liability Partnership was introduced in India through Limited Liability Partnership Act. LLP is one of the simpler form of businesses to register in India as it comprises of an easy incorporation process and simple compliance formalities. Small, micro and professionals usually prefer LLP.
The concept behind this business unit formation and initiation of LLP was to form a business unit where liability is limited to the owners and has easy maintenance. In comparison with a conventional partnership, the predominant benefit of an LLP is in the amount of contribution made by each partner, liability is restricted. Additionally, their debts of the LLP will get limited liability protection. As it cannot issue equity shares, LLP is not suitable for businesses which have plans to raise equity funds during its lifecycle.
Alike shareholders of a Private Limited Company individuals are awarded with limited liability protection in an LLP. But unlike the shareholders of Private Limited Company, partners of LLP have the authority to operate and manage their business directly.
LLP is considered as a legal entity and authorized person established under the act. Thus, it has large legal capacity, can own a property and incur liabilities. Liability from the partners of LLP is not given to the Creditors of LLP.
LLP remains in existence until it gets legally dissolved because it has perpetual succession Demise or departure of any partner will not affect the LLP as it is a separate legal person. Regardless of any modifications in ownership, LLP remains in continuation or uninterrupted existence.
Easy transfer of Ownership is allowed in inducting a person as a partner of LLP. As LLP acts as a separate legal entity which is separate from its partners, the easy process of transferring ownership to a particular individual is possible. Therefore, changes in the ownership of the LLP happen due to changing the partners.
If the LLP has less than 40 lakhs of turnover and less than 25 lakhs of capital contribution, it will not require audit fee. Therefore, they are considered to be ideal for startups and small businesses. It is most suitable for businesses which need less regulatory compliance related formalities and are in the very beginning of operations.
LLP being an artificial authorized individual can obtain, own and trade property in its name. Partners cannot claim for the property owned by the LLP, as long as LLP is an ongoing concern.
In an LLP, Director Identification Number (DIN) and Digital Signature Certificate (DSC) will be required for the proposed managing partners. Within 2-3 working days, they can obtain the DIN and DSC.
A maximum of two proposed names must be received by MCA. Name approval, naming guidelines, NCA processing time and suitability can be acquired within 2-3 days, subject to availability.
Subject to their processing time, application for incorporation will be approved by MCA in 10-14 days. Documents of registration are submitted along with application of registration.
Directors and Shareholders of the company are required to submit their identity and address proof, in order to be incorporated. In the case of Foreign nationals, it is mandated to include in the submission a notarized copy or apostilled copy of their passport and in case of Indian nationals, PAN is compulsory. Documents which are submitted are meant to be valid. Residence proof documents like bank statement or electricity bill are supposed be less than 2 months old.
In order to prove access to the registered office, tax receipt or electricity bill along with rental agreement or sale deed, a letter from the landlord with his/her permission to utilize the office as a registered office of a company and a recent copy of water bill must be submitted. Every company must have a registered office in India.