Limited Liability Partnership Registration
Overview
A Limited Liability Partnership is a corporate business vehicle that enables entrepreneurial initiative to operate in flexible and efficient manner by providing the benefits of limited liability and allowing its members to organize their internal structure as a partnership. LLP form of business is ideal for all classes of entrepreneurs whether it be traders, manufacturers or professionals. It is easy to incorporate and manage. LLP is more credible and preferable than a normal partnership firm.
Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. It exhibits elements of both partnership and corporation. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence unlike a traditional partnership in which each partner has joint and several liability.
Advantages of a Private Limited Company
There is no minimum capital requirement in LLP. An LLP can be formed with the least possible capital. Moreover, the contribution of a partner can consist of tangible, movable or immovable or intangible property or other benefits to the LLP.
An LLP requires a minimum of 2 partners while there is no limit on the maximum number of partners. This is in contrast to a private limited company wherein there is a restriction of not having more than 200 members.
All companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. This is perceived to be a significant compliance benefit. A Limited Liability Partnership is required to get the tax audit done only in the case that:
1. The contributions of the LLP exceeds Rs. 25 Lakhs, or
2. The annual turnover of the LLP exceeds Rs. 40 Lakhs
The cost of registering LLP is low as compared to the cost of incorporating a private limited or a public limited company.
For income tax purpose, LLP is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax and share of its partners in LLP is not liable to tax. Thus no dividend distribution tax is payable. Provision of ‘deemed dividend’ under income tax law, is not applicable to LLP. Section 40(b): Interest to partners, any payment of salary, bonus, commission or remuneration allowed as deduction.
In the case of a company, if the owners to withdraw profits from the company, additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by the company. However, no such tax is payable in the case of LLP and profits of an LLP can be easily withdrawn by the partners.
Disadvantages of a Private Limited Company
Even if an LLP does not have any activity, it is required to file an income tax return and MCA annual return each year. In case an LLP fails to file Form 8 or Form 11 (LLP Annual Filing), a penalty of Rs.100 per day, per form is applicable. There is no cap on the penalty and it could run into lakhs if an LLP has not filed its annual return for a few years.
In case of a proprietorship or partnership firm, there is no requirement for filing an annual return. Hence, only penalty under the Income Tax Act would be applicable.
An LLP does not have the concept of equity or shareholding like a company. Hence, angel investors, HNIs, venture capital and private equity funds cannot invest in an LLP as shareholders. Thus, most LLPs would have to rely on funding from promoters and debt funding.
The income tax rate for a company with a turnover of up to Rs.250 crores is 25%. (Further reduced in 2019 for new companies involved in manufacturing). However, LLPs are taxed at a 30% rate irrespective of the turnover.
LLP Registration Process
It usually takes 15-20 days to register a LLP subject to ROC processing time. Pioneer One makes LLP registration easy for you.
Documents required for LLP Registration
For Partners / Promoters
For LLP Address
Choosing a Name for your LLP
Certain important points should be kept in mind when choosing a name for LLP registration: