Why it makes sense to go for LLP

With the emergence of time when people were forged bythe unethical structure of partnership firms and were not diligent enough to afford the compliances of that of a company, the Ministry of Corporate Affairs brought the concept of Limited Liability Partnership Firms into picture i.e. an entity which offers management flexibility coupled with less compliances to do.

As per the LLP Act 2008 an “LLP is defined as that business entity where having two Designated Partners is minimum requirement and such partners had their liability limited to their contribution towards the LLP”.

A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization and offers a hybrid structure. So, those want the benefits of both the structure, then LLP is the best option for them.

LLP as a business Structure proved itself to be a midway for those who were operating partnership firms but wanted to work in the organized sector under a legally compliant structure with world recognitionrestricted liability.

The greatest advantage which LLP offers is the flexibility to do business. Instead of being bound by legal provisions, LLP’s are free to create their own rules of management, which was not possible in case of companies. As result of which, a lot of companies have started to convert themselves into LLP. 

In case of LLP, the LLP Agreement is of fundamental importance. The Agreement defines the rules of the games, terms and conditions of the relationship vis-à-vis the LLP and the partners and the partners inter-se. The entire LLP functions on the basis of the LLP agreement.

LLP is managed by the Partner themselves. Generally partners who manage the business are called managing partners. There is also a concept of designated partners in the LLP. In terms of law designated partners are responsible for compliance of LLP Act, Income Tax etc. Generally it is believed that designated partners are also the managing partners but it can’t be true in all cases. Different partners may be  called as designated and managing partners.

LLP is generally suitable for:

1.      Small to medium scale businesses

2.      Worldwide LLP are more used in service industry

3.      Businesses where different partners have different role to play

4.      Businesses where investors can play a role as a silent partner while the owners are in the driver’s seat.

5.      Start-ups

Key reasons to go for  LLP

·         Low registration cost.

·         Separate Legal Entity

·         Limited Liability of partners

·         Easy to establish

·         No requirement of minimum Capital Contribution

·         Unlimited number of Partners

·         Personal Assets of the partners are not exposed except in case of fraud

·         Unlike company , no Tax is levied on Profit distributed to Partners

·         LLP is flexible and governed by rules framed by partners

·         Less Compliances as compared to Company

Minimum Requirements to register LLP

·         2 (Two) Partners

·         Out of partners, 2 (Two) should be appointed as  Designated Partners

·         Registered Office in India

·         Atleast 1 (One) Partner should be Resident in India

·         Can be formed only for Profit making

Steps to form LLP:

·         Deciding Partners

·         Obtaining Digital Signatures of Designated Partners

·         Applying for DIN of Designated Partners

·         Checking Name Availability of the LLP

·         Applying for Name Approval

·         Preparing & Filing Incorporation documents

·         Obtaining Certificate of Incorporation

·         Preparing & Filing LLP Agreement

LLP vs Other Forms of Business Entities

This table compares LLP on some key attributes with Company & Partnership

Basis of Difference	LLP	Company	Partnership Firm
Registration Cost	Minimum Govt Registration fees Rs. 750	Minimum Govt Registration fees Rs. 5000	Minimum Government fees Rs. 1000
Min. Capital/Contribution	Any amount can be induced to start the LLP	Min Paid up share capital Rs.100, 000 for Private Limited Companies and Rs.500, 000 for Public Limited Companies.	Any amount can be induced to start the Partnership Firm.
Min Number of Members/Partners	Min. 2 Designated Partner	Min 2 Member/Directors in a Private Limited Company and Min 7 Members and 3 Directors in a Public Limited Company.	Min. 2 Partners are to form Partnership firm
Liability	Liability of the Partners is restricted towards their Contribution so made.	Liability of members can be either limited or unlimited subjected to the nature of the company so registered.	The liability of the Partners of such entity is unlimited as one is bound by the act of another.
Compliances	The Compliances in an LLP is not stringent as that in a company	The Compliance Management in case of a company is stringent and shall have to be complied.	The liability to fulfill all the compliances upon the Partnership Firm is optional
Participation by Foreigners	A Foreign national can be a partner in the LLP subject to additional compliances	A Foreign national can be a Member/Director in a Company	A Foreign national cannot be a partner in the Partnership Firm

Who can become Partner in LLP?

·         Companies/ Body Corporate registered in or outside India

·         LLP registered in or outside India

·         Individuals resident in or outside India