Limited Liability Partnership
A Limited Liability Partnership, also know as an LLP, is a combination of a Partnership and a Pvt. Ltd. Co. It was introduced in 2008 through the Limited Liability Partnership Act, 2008 which is the governing Act over Limited Liability Partnerships. However, Limited Liability Partnerships also need to follow the provisions of the Companies Act. Limited Liability Partnerships are convenient mediums to transact business as they minimize the legal formalities and paper work needed to run Pvt. Ltd. Companies and gives limited liability as a bonus to the partners unlike traditional partnerships. There need to be atleast two Designated Partners who shall be responsible for the legal compliances required for the Limited Liability Partnership.
FAQ
1. How many partners are needed to form a LLP?
A. A minimum of two partners are needed to form a LLP. There is no restriction on the maximum number of partners.
2. Who can be partners in an LLP?
A. Any individual or body corporate may be a partner in a LLP. However an individual shall not be capable of becoming a partner of a LLP, if— (a) he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; (b) he is an undischarged insolvent; or (c) he has applied to be adjudicated as an insolvent and his application is pending.
3. Who can be Designated Partners?
A. In case of a LLP where the partners are bodies incorporate, at least two individuals should be Designated Partners and atleast one of them should be a resident of India.
4. Is there a minimum requirement of capital for starting a LLP?
A. No. There is no minimum requirement of capital required to starting a LLP.
5. Would I need to appear before anybody for starting a LLP?
A. No. The presence of the applicant is normally not required. All the documentation can be done through emails and courier.
6. What are the documents required at the time of starting a LLP?
A. Before applying to start a LLP, the two Designated Partners are required to obtain A DPIN (Designated Partner Identification Number). To obtain a DPIN, a person needs to provide an Identity proof, Address proof and PAN card. Based on this the DPIN is applied for and then the applicant may start the process for starting a LLP.
7. How long would it take to start functioning as a LLP starting from the application to obtain DPIN?
A. It would take roughly 15-20 working days to obtain the Certificate of Incorporation from the Registrar of Companies. The time may vary if there are complications, or delay in submitting documents and the ease with which we get the Government approvals. But it rarely exceeds 30 days even then.
8. What can I do to speed up the process of incorporating a LLP?
A. To ensure that your LLP is started with minimum waste of time, it is imperative that no time is wasted is providing the documents required from time to time. Choosing a unique name also helps in saving time as common names or names already in use are rejected by the Registrar of Companies and we are required to reapply after such rejection.
Advantages of Limited Liability Partnership
Limited Liability
As the name suggests, the principle and most important advantage of a LLP is that the liability of the Partners is limited. Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. However, in a LLP liability of the partner is limited to his agreed contribution. No partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.
Taxation point of view
A LLP is taxed in the same way as a regular partnership. A LLP is required to pay 30% plus surcharge and education cess on the profits that remain on books after giving interest on capital to partners and remuneration to partners.
No minimum capital requirement
There is no mandatory requirement of minimum capital for starting a LLP unlike Pvt. Ltd. Co. It can be started with minimum capital. Capital can be in the form of money, tangible or even intangible asset.
No limit on Partners
There is no restriction on the number of partners for a LLP.
No dividend distribution tax
No dividend distribution tax :- Unlike Pvt. Ltd. Cos., LLP is not supposed to pay dividend to its share holders. Therefore, it is exempt from paying Dividend Distribution Tax. The income that partners receive from the LLP, except their share in Net Profit, is taxed in the hands of the partners themselves.