What is LLP ? How to incorporate LLP?
LLP is governed by Limited Liability Partnership Act- 2008 which came in to force on 1st day of April 2008. This Act was introduced with the idea of promoting MSME Sector (Micro Small Medium Enterprise) with the advantage of self-governance and less compliance.
LLP Act, 2008 constitute 81 Sections and 4 schedules. So far LLP Rules 2009 has prescribed many forms to be filed with MCA.
LLP is an alternate corporate body, comprising the benefit of both Company and Partnership.
- It contains the benefit of Limited liability to partner and Flexibility of Partnership.
- LLP is a corporate body and granted the legal status same as that of company.
- Unlike the partnership in LLP the liability of the partner is limited up to the contribution made by them.
BENEFITS OF LLP AS COMPARED TO PRIVATE COMPANY:
COMPARATIVE ANALYSIS
| Particulars | LLP | Private Company |
| Members | Minimum 2 Partner | Minimum 2 Member,Maximum 200 Members |
| Liability | Limited, Except in case of Fraud and wrongful Act | Limited Liability |
| Forms to be filled | Regular-E-form-8 & Eform-11 | Regular-AOC-4 & MGT-7 |
| Transfer/ Inheritance of Shares | Transfer, But transferee may not have management right | By court order once the company have been wound up |
| Easy to Form, Run and manage | No Minimum Capital requirement for Incorporation | No Minimum Capital requirement for Incorporation |
| Requirement as to maintenance of Statutory Records | NO such Requirement. | It is must to maintain statutory records as per Companies Act-2013. |
| Audit of Accounts | Require only if Turn over above 40 lacs or Contribution more than 25 lacs. | Audit is Compulsory. |
| Management through | LLP agreement. | Memorandum of Association and Article of Association of company. |
| Compliance Requirement | very few compliances than company | More compliances compared to LLP |
The comparative chart of compliances to be made by a company and LLP is given below.
| Particulars | LLP | Private Company |
| Maintenance of Statutory Records | No such Registers are required to maintain | Many Registers are Required to Maintain Under Company as per Companies Act- 2013 |
| Addition or Deletion of Directors | Require to amend LLP Agreement and File e-form- 3 & e-form-4. | Require to Pass Resolution in General Meeting, File e-form-DIR-12 and require many documents from the person who is appointed as Director. (As per Section-152 of Companies Act-2013.) |
| Change in Registered Office | Require to amend LLP Agreement and File e-form Form-15 | There is Complete lengthy process for change in registered office of company as Per Section-13 of Companies Act-2013 |
| Increase in Capital | Only require to amend LLP Agreement and File e-form Form-3. | Require to Pass Ordinary resolution in General Meeting and file form SH-7. |
| Annually form filling requirement | Only Two annual form E-form- 8, E-form-11 | There are much forms E-form-AOC-4, MGT-7/MGT-7A, MGT-14 (if applicable), ADT-1 (if applicable) |
| Disclosure of Interest | No such requirement | Require to Take disclosure from director under Section-184(1) and to file form- MGT-14. |
| Convening of Meetings | No such requirement | Require to hold Meetings as per Section- 173. (At least Two Board Meeting and one Annual General Meeting for Small Company and At least four Board Meeting and One Annual General Meeting for other then Small company). |
| Audit of Accounts | Require only if Turn over above 40 lacs or Contribution more than 25 lacs. | Audit is Compulsory. |
| Loans & borrowings | As per LLP Agreement. No other requirements | There is Cap for Loans and Borrowings as per section 179 & 180, Require to hold Board Meeting and file form with ROC. |
| Deposits | No such condition. | Loan from other then director is cover under deposit as per Definition of Deposit under Companies Act-2013. |
| Related Party Transactions | No Restrictions | Transaction to be at arm’s length price only and as per provisions of Secton-188 of Companies Act-2013. |
| Income Tax Return Applicable | ITR-5 | ITR-6 |
Minimum Requirements for LLP
- Minimum 2 Designated Partners (DP)
- At least 1 of the DP shall be Indian resident
- If a body corporate is DP then it has to nominate a natural person
- Director Identification No.(DIN) has to be obtained by 2 partners
- Digital Signature Certificate of any one of the DP
Process of Registration as LLP
Step 1: Obtain Digital Signature Certificate (DSC)
Before initiating the process of registration, you must apply for the digital signature of the designated partners of the proposed LLP. This is because all the documents for LLP are filed online and are required to be digitally signed with class 3 DSC.
So, the designated partner must obtain their digital signature certificates from government recognized certifying agencies.
Step 2: Reservation of Name
LLP-RUN (Limited Liability Partnership-Reserve Unique Name) is filed for the reservation of name of proposed LLP which shall be processed by the Central Registration Centre under Non-STP. But before quoting the name in the form, it is recommended that you use the free name search facility on MCA portal. The system will provide the list of closely resembling names of existing companies/LLPs based on the search criteria filled up. This will help you in choosing names not similar to already existing names.
The registrar will approve the name only if the name is not undesirable in the opinion of the Central Government and does not resemble any existing partnership firm or an LLP or a body corporate or a trademark.
The form RUN-LLP has to be submitted with fees
A re-submission of the form shall be allowed to be made within 15 days for rectifying the defects. There is a provision to provide for 2 proposed names of the LLP.
Step 3: Incorporation of LLP
- The form used for incorporation is FiLLiP (Form for incorporation of Limited Liability Partnership) and Form Addendum to FiLLiP (if partners exceeds 200) which shall be filed with the Registrar who has a jurisdiction over the state in which the registered office of the LLP is situated. The form will be an integrated form.
- This form also provides for applying for allotment (Maximum 2 DPIN) of DPIN, if an individual who is to be appointed as a designated partner does not have a DPIN or DIN.
- The application for allotment of DPIN shall be allowed to be made by two individuals only.
- The application for reservation may be made through FiLLiP too.
- If the name that is applied for is approved, then this approved and reserved name shall be filled as the proposed name of the LLP
- Digitally sign the form and attach documents and submit with fee as applicable.
Step 4: Certificate of Incorporation of LLP
on Approval of form Fillip and Form 9 the MCA will issue Certificate of Incorporation of LLP along with PAN and TAN.
Step 5: Execute and file LLP Agreement in form 3 with MCA
LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners.
The LLP Agreement has to be printed on Stamp Paper. The value of Stamp Paper is different for every state.
Contents of LLP Agreement are:
- Name of LLP
- Name of Partners & Designated Partners
- Form of contribution
- Profit Sharing ratio
- Rights & Duties of Partners
- Proposed Business
- Rules for governing the LLP
Form 3 for LLP agreement has to be filed on MCA Portal within 30 days of the date of incorporation.
Annual Filings of LLP
Form 8
Form 8 must be filed within 30 days from the end of 6 months of the financial year along with some prescribed fee. This must be digitally signed by 2 designated partners and it must be certified by a chartered accountant/company secretary/cost accountant. Form 8 has two parts:
Part A – Statement of Solvency
Part B – Statement of Accounts, Statement of Income & Expenditure
The penalty for not filing this form would be Rs. 100 per day until it is compiled.
Form 11
Form 11 contains details of the number of partners, total number of partners, total contribution received by all partners, details of body corporate as partners and summary of partners. All LLPs should file this form within 60 days from the closure of the financial year with the prescribed fee. Hence, the due date for filing LLP Form 11 is 30th of May each year.
LLP Audit
LLPs are separate legal entities. Therefore, it is the responsibility of the Designated Partners to maintain proper book of accounts and file annual return with the MCA each financial year. LLPs are not required to audit its accounts unless the annual turnover exceeds Rs.40 lakhs or if the contribution exceeds Rs.25 lakhs or as LLP agreement audit is mandatory.
Income Tax Return Filing
LLPs must file income tax return using Form ITR 5. Form ITR 5 can be filed online through the income tax website using the digital signature of the designated partner. The deadline for LLP tax filing in India is July 31st if tax audit is not required. LLP whose turnover exceeded Rs. 40 Lakh or whose contribution exceeded Rs. 25 Lakh are required to get their accounts audited by a practising Chartered Accountant. The deadline for tax filing for LLP required to obtain audit is October 30th.
Event Based Compliance by LLP:
| Compliance | Section | e-form | Time Limit |
| Filing of Consent of Designated Partners | 7(3) | Form 4 | Within 30 days of incorporation or subsequent appointments |
| Filing of Change in Partners | 25(2) | Form 3 and Form 4 | Within 30 days of Change |
| LLP Agreement & Changes therein | 23(2) | Form 3 | Within 30 days of incorporation or Changes in LLP Agreement |
| Shifting of Registered Office | 13(3) | Form 15 | Within 30 days of Compliance |
| Change of Name | 19 | Form 5 | Within 30 days of Compliance. |