LLP means Limited Liability Partnership, it is a kind of partnership firm with the benefits of companies like private limited, etc. LLP is becoming a more popular form of business in India for startups and small businesses as well as big enterprises. It has many features of a private limited company and this makes it more suitable for startups. Minimum 2 persons are required as a partner to register LLP with the Ministry of Corporate Affairs but there is no maximum limit for the partners in LLP. It is regulated and governed by the Central Government through the Registrar of Companies which is why the investors show their interest and trust in investing in these entities.
Process To Register LLP In India
Step 1 - Apply Name Reservation Form
The first step to starting an LLP registration process is to apply for a name reservation first. The name is the identity of every business and that is why it should be reserved; the examiner will approve that name which will be available and not similar to the existing names.
Step 2 - Apply For Digital Signature Certificate
The designated partners must have a digital signature (DSC) before filing the registration application to the registrar. DSC is an electronic signature and it has equal validity to a physical signature.
Step 3 - Preparation Of Documents
After name approval, there are certain documents that shall be prepared and signed by the designated partners, partners and professionals of the LLP.
Step 4 - Filing of Final Form
After the preparation of documents and DSC procedure the final form shall be filled with all relevant information and the same shall be filed to the ROC in whose jurisdiction the registered office of the company is situated along with the relevant fees.
Step 5 - Issuance Of Certificate Of Incorporation
If the registrar is satisfied with the application he will issue a certificate of incorporation and register the name of the LLP in its database or register.
Step 6 - Apply For LLP PAN Card
Once the certificate is received the PAN application shall be made to the NSDL PAN department.
Step 7 - Submission Of Initial LLP Agreement
It is important to submit the initial LLP agreement and it should be submitted within 30 days from the date of incorporation. The agreement shall be executed on notarized stamp paper, and the value of stamp paper will be determined by the value of capital contribution and the state where the registered office of the LLP is located.
Advantages For LLP Registration
- Separate Legal Entity: The LLP is also having its own identity which makes it different from its partners and other stakeholders. The LLP has separate legal status under the law.
- Limited Liability: The liabilities of the partner are limited and no partner or designated partner is personally liable for any debt or loss incurred by the LLP or other partner of the LLP.
- Perpetual succession: Just like other companies LLP also has the feature of perpetual succession which means the death of the partner doesn’t affect the life of the LLP until a closure application is made to the registrar with the consent of the partners.
- Own Property: The LLP can own properties in its name as well as it can sell, rent, pledge properties. Properties include intellectual property as well means brand registration, Copyright, patent etc.
- Easy to Start the business: The cost to start the LLP is quite low which makes it easy to start and the best option for startups.
- No Partners Limited: Although a minimum of 2 persons are required to start the LLP, but there is no maximum limit for the appointment of the partners in LLP. Whereas in private limited the maximum shareholder can be only 200 and in One Person company only 1 person can be a member.
- No Capital Requirement: At the time of LLP registration there is no minimum capital requirement which means the partners can start the LLP with Rs. 1000/- capital as well and there is a maximum capital requirement during the life of the LLP.
- Investors Choice: As there are proper rules and regulations to regulate the LLP as well as there is a proper authority that looks into the matter of LLP that is why investors show their trust in investing the LLPs.
- No Dividend Distribution Tax: On profit sharing of the LLP there is no additional tax applicable on the LLP as well as its partners in the form of DDT.
Disadvantages For LLP Registration
- Lack of Public Funding: The LLP is a partnership entity which means it cannot raise funds from the general public. The LLP can take funds from its partners or banks or institutions in form of debt.
- Cannot Operate without consent of Majority Partner: For taking every decision the consent of the majority partner is necessary a single partner cannot act in himself.
- High Tax Rate: Unlike other companies, the LLP has to pay high tax rates on its profit earned during the year. There is a flat 30% tax applicable on LLPs. And if the turnover of the LLP exceeds Rs. 25 Lakhs then the tax audit is mandatory for all the LLPs.
- New agreement for every change: If partners making any changes in the LLP like the name change, address change, partner change, their profit ratio change or altering any clause of the agreement then for each and every change ROC approval is required and LLP has to submit new supplementary agreement every time to the registrar.
- Penal Provisions: If any time the LLP and its partner fails to comply with the LLP compliances then LLP and its partners have to pay the fine which will be applicable to the LLP.
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