Setting up of LLP:

A Limited Liability Partnership (LLP) is a unique and flexible business structure that combines the advantages of a partnership and a corporation. It offers limited liability to its partners while maintaining the tax benefits and operational flexibility associated with traditional partnerships.

The Limited Liability Partnership Act, 2008 was enacted by the Parliament of India to introduce and legally sanction the concept of LLP in India. The act makes provisions for the formation and regulation of limited liability partnerships and for matters relating therewith.  The Act mentions LLP is a body corporate formed and incorporated under this act and is a legal entity separate from that of its partners. It has perpetual succession. Thus, any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the Limited Liability Partnership. LLP is permitted to carry out any legal business in India, after obtaining a Registration from Ministry Corporate Affairs.

Why one can prefer LLP over Private Limited:

LLP offers a lot of advantages. It is organised and operates on the basis of an agreement. It provides flexibility without imposing detailed legal and procedural requirements. It enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner. LLP is considered an upgraded version of Partnership with Limited Liabilities.  The LLP was bought into picture to give a vehicle to run a small business with limited liability.

LLP registration benefits is that it enjoys pass-through taxation. Meaning that LLPs carry a 30% Corporate Tax which is 5% higher than tax rate applicable to Private Limited Companies. However, the post tax profits can be withdrawn by the partners of the LLP without paying any further tax in the hands of the partners or LLP. This avoids double taxation, which is a common feature of corporations. (In case of Corporations withdrawal of Profits by shareholders attracts additional tax based on their Individual tax slab).

Is LLP suitable for only particular types of businesses?

No. LLP is suitable for all types of Business. LLPs have gained popularity among professionals, small and medium-sized enterprises, and service providers for various reasons, making it an essential part of the modern business landscape. However,  for a business which needs funding from a third party or external Investors, then LLP may not hold good. The simple reason is that the concept “Valuation of Shares” is not available for LLP.  Valuation of Shares can only apply to Companies, where capital is divided by shares and share values can be ascertained. This helps Shareholders to realise their monetary value.

Businesses which need regulatory approvals like NBFC business, Finance Companies, Investment Companies & other prescribed businesses are not allowed to form LLPs, those businesses go for Company sort of legal structure.  Also, if businesses need to tap external finance like bank loans, the Private Limited Companies are preferred over LLP.

Apart from the above cases, LLPs are bestsuitable  and  sorted vehicles to carry out the business.

Requirements to set up LLP:

Here are the few mandatory requirements to set up LLP.

• There should be a minimum of two partners. Out of which one should be resident in India for more than 120 days immediately preceding one year. Resident in India meaning person who is staying in India.
• The Name of the LLP to be given during registration. The proposed name should be unique and should not be subject to trade mark by any one else. You can check the availability of names in the below link https://www.mca.gov.in/mcafoportal/showCheckCompanyName.do
• The objects of the LLP should be clearly written. The objects ieThe business activities should not include Banking, NBFC, Investment related activities. The whatever object written in the documents may or may not be carried out by the partners.
• Registered office address. The LLP should provide a valid registered office address where official communication can be sent.
• The capital bought by the partners are considered as Contribution under LLP. The contribution can be bought in cash/asset format. The minimum contribution can be Rs. 2.

Documents Required:

Forming a Limited Liability Partnership (LLP) typically involves several mandatory documents and filings.  Here is a general list of LLP registration documents that are often mandatory when establishing an LLP.

• KYC documents of the partners namely Pan, aadhar, email id, Mobile Number
• Supporting documents relating to registered office address like electricity bill for the address proof, No objection to use the address or Rental agreement
• Partners may need to sign consent forms and affidavits affirming their consent to become partners and declaring that they are not disqualified under the relevant laws
• Subscriber sheet is one of the key document which provide consent to be the Designated Partner for an LLP.

Process to be followed:

To form an LLP registration process, specific procedures must be followed:

• Step 1 Name: Partners should choose a unique name and check its availability in MCA Portal.
• Step 2 Application: Application for name approval should be filed with MCA for approval.
• Step 3 Application for Incorporation: Once the name approval is received, application for Incorporation can be filed.
• Step 4 Professional Certificate: Incorporation application to be accompanied by Subscriber sheet and be certificated by practising Professional. The professional can be an Advocate, Whole time practising CS/CA/CMA
• Step 5 Receipt of Certificate of Incorporation: Once application is clear in all respects, ROC, Central Registration centre will issue the Certificate of Incorporation.
• STEP 6 PAN & TAN Issue: Along with Certificate, Government may issue a PAN and TAN as per requirement.

Post LLP formation, certain regulatory registration to be obtained (you can read about regulatory registration in our portal in this link- https://bclindia.in/business-setup-services/ Also LLP agreement must be executed among the partners and be filed with the Registrar of Companies within 30 days of Incorporation.

Conclusion:

LLP offers a unique blend of liability protection, management flexibility and tax advantages that make them an attractive choice for various businesses. However, before establishing an LLP, partners should carefully consider their specific needs and seek legal and financial advice to ensure compliance with all regulatory requirements. With the right planning and execution, LLPs can be a valuable vehicle for business growth and success.