February 05, 2024 at 08:15 AM
As the name suggests, LLP Registration gives the partners running a business limited liability, in simple terms, it means the partners involved in a business have limited liability, no individual partner is liable for the liability and misconduct created by another partner. The Limited Liability Partnership Act, of 2008 governs the rights and duties of the partners, and these partners and responsible for compliance with the provisions of this act.
It is an alternate form of business, which is different from sole proprietorship, partnership and company. LLP gives limited liability to the patterns in a business and also flexibility in the independent decision-making to the partners who are operating a company besides that, it also has a very low compliance cost.
The following are the features are as follows
It has features and is a combination of both – A Partnership Business incorporated under the Partnership Act, of 1932 and that of A corporation that is incorporated under the Companies Act, of 2013.
Normally as per the provisions, LLP can have two designated partners. This may be natural persons or a Body Corporate.
A Body Corporate may be defined as, a company that is incorporated/registered outside India, but does not include a corporation sole, a cooperative society that is not registered under any law for the time being in force, and any other body corporate that is not a company according to Section of the Companies Act, 1956. It includes the following:
In supplement to the point above, an LLP may be treated as a separate entity, a separate artificial person, it can be made a partner, as discussed above, a partnership firm because it is not explicitly restricted in the Partnership Act, as well as a shareholder in the company if it can acquire shares of the company since it is not explicitly restricted in the Companies Act, 2013.
An LLP is capable of perpetual succession, it can own, hold, and dispose acquire shares like a part of its name the property may be movable, immovable m tangible or intangible, and it has its ongoing existence despite of members being there alive or not alive.
The company uses A stamp or seal to show that they have approved themselves of doing business. An LLP doesn’t need to have a seal or stamp to be used in the common name of the business. But if an LLP still wants to have a seal, as per section 14(c) of the Limited Liability Partnership Act, 2008 then it needs to be used carefully in the presence of the two designated partners.
As per Section 6(1) of the Act, there need to be at least two designated partners, for the formation of an LLP. Section 7 of the act states that one of them must be a resident of India and must be able to incorporate a company in India. Death, or absence of one partner, or even reduction in one of the partners on the table brings the sole liability on the remaining one partner if he agrees to do so but it cannot be for a period than that of 6 months. The minimum number of members required for the formation is 11.
An LLP may be investigated by the Central Government, in case there is an allegation the LLP is trying to fraud creditors or partners, or if there is a negative complaint by the Registrar of the Companies
An LLP is formed only to make a profit or to do business, it cannot be formed for Pro, or any sort of charity.
An LLP is governed by the terms of the LLP agreement that the partners have agreed upon with each other, and the LLP agreement decides how the business would run, how the business would be functioning, powers and responsibilities of the partner and this agreement must comply with the Limited Liability Partnership Act, 2008.
The provisions of the Limited Liability Partnership Act, 2008 allow the conversion of a Partnership firm under the Partnership Act, and a private or public unlisted company into an LLP providing that there is no security interest subsiding on the date of application subsisting on the date of application on the date of application for conversion and all shareholders become partners.
All the partners in an LLP are the agents of the LLP, an unauthorized action of a single partner does not bind all the partners to it. Each partner is individually liable for their action and to the extent of their contribution to the LLP. They aren’t liable personally as mentioned above. The designated partners are responsible for the legal compliance of the LLP.
There are various forms
An LLP acts as a separate legal entity, hence it can be held liable. It can sue as well as be sued, Partner cannot be held personally liable for any act done in the course of the business, protects them from personal liability, only can be held to the extent of their contribution to the business
There is no minimum capital investment specified for an LLP. A partner’s contribution consists of both tangible, movable and immovable or intangible property.
Kind of business that is easily formed, because it mainly runs based on an agreement between the partner in compliance with the LLP Act. It has a meagre cost of formation and is easy to comply with.
Upon LLP Registration, the Partners can easily take part in the management, management is not separate from the Partners running the business. No Partner is liable for the misconduct of the other partner.
LLP registration opens the door to a limited number of fillings annual returns filing, filing of the statement of accounts, income and tax returns filing and there is no compulsion of audit it has only get to audit when:
Personal Assets, of the partners are protected against Tax.
LLP registration leads to easy process. Consequently, an LLP can be easily winded up in two or three months, unlike a private limited company.
Unlike Partnership, for LLP registration there needs to be made a lot of paperwork, due to the separate legal status it holds.
Investors are reluctant to make investments in an LLP, they have to become partners to take some responsibility for the business. It does not have the concept of equity and shareholding
Upon, LLP registration, an LLP has to pay a higher penalty for non-compliance as compared to a private limited company
At least two partners are needed, a sole partner after one has left can only function for a limited time for 6 months, after one partner leaves a single partner cannot run the business anymore.
Besides having the advantage of limited filling, the returns filed by an LLP are higher even though there is no business happening or there are no profit margins. Irrespective of the turnover they are taxed at 30%.
LLP cannot issue shares and raise money from the public as the partnership is limited to the participation of its partners only.
In conclusion, a Limited Liability Partnership offers the advantages of limited liability, flexible management, and pass-through taxation, fostering a balanced business structure. It encourages entrepreneurial collaboration while safeguarding personal assets. However, challenges include potential complexities in decision-making and compliance. Despite this, the LLP’s adaptability makes it an appealing choice for small to medium-sized enterprises seeking liability protection without the formalities of a corporation. Understanding both the benefits and limitations is crucial for businesses to leverage the LLP structure effectively, aligning with their specific goals and operational needs.
The biggest Advantage of having an LLP is that it protects the partners from personal liability.
Yes, an LLP often provides pass-through taxation, allowing profits and losses to flow directly to individual partners, potentially resulting in tax advantages.
Challenges may include complexities in decision-making due to the shared management structure and the need to comply with certain formalities, albeit less stringent than those of a corporation.
No, an LLP cannot be formed with one person, it needs two partners and eleven members. If one of the partners is reduced, it can run with one partner having sole liability but only for 6 months.
No, an LLP cannot issue shares. Capital is typically contributed by partners, and the flexibility in profit-sharing is a distinctive feature compared to a company’s share capital structure.