limited liability partnership

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A Limited Liability Partnership is commonly known as LLP. It combines the features of both the Company as well as Partnership into a single form of organization.

LLP is a Body Corporate formed and registered under Limited Liability Partnership Act, 2008

LLP is a legal entity separate from that of its partners.

Permissible Business Activities in LLP is only which have profit motive.

Advantage for opting for LLP business structure is Limited Liability. The liability of the partners would be limited to their agreed contribution in the LLP. No partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partners wrongful business decisions or misconduct.

Limited Liability Partnership is managed as per the LLP Agreement entered into between all the partners, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describes the matters relating to mutual rights and duties of partners of the LLP and of the limited liability partnership and its partners.

Before taking any decision in respect of incorporating a LLP for carrying any business, it is necessary to analyze the benefits and drawbacks of the LLP, which are outlined below:

Benefits -

Easy to Form: It is very easy to form LLP, as the process is very simple as compared to Companies and does not involves much formalities. Moreover, in terms of cost the minimum fees of incorporation is as low as Rs 800 and maximum is Rs 5600.

Liability: A LLP exists as a separate legal entity from its partners. Both LLP and its partners are separate entities and both functions separately. Liability for repayment of debts and lawsuits incurred by the LLP lies on it and not on the partner. Any business with potential for lawsuits should consider incorporation, it will offer an added layer of protection.

Perpetual Succession: An incorporated LLP has perpetual succession. Notwithstanding any changes in the partners of the LLP, the LLP will be a same entity with the same privileges, immunities, estates and possessions. The LLP shall continue to exist till its wound up in accordance with the provisions of the relevant law.

Flexible to Manage: LLP Act 2008 gives LLP the atmost freedom to manage its own affairs. Partner can decide the way they want to run and manage and put the same in form of terms and conditions in the LLP Agreement . The LLP Act also in most cases provides that the said provision will applicable, only in case nothing is provided in the LLP Agreement.

Easy Transferable Ownership: It is easier to become or leave the partnership of the LLP or otherwise it is easier to transfer the ownership in accordance with the terms of the LLP Agreement. Ceasing of old partners and coming of new partners , will automatically leads to change in ownership of LLP.

Separate Property: A LLP as legal entity is capable of owning its funds and other properties. The LLP is the real person in which all the property is vested and by which it is controlled, managed and disposed off. The property of LLP is not the property of its partners.

Taxation: LLP is not required to pay surcharge on income tax. Moreover , it is also not required to pay tax on profits distributed to partners whereas Company is required to pay tax on dividend distributed to its shareholders.

Raising Money: Financing a small business like sole proprietorship or partnership can be difficult at times. A LLP being a regulated entity like company can attract finance from PE Investors, financial institutions etc.

Capacity to sue: As a juristic legal person, a LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP.

No Mandatory Audit Requirement: In LLP, only in case of business, where the annual turnover/contribution exceeds Rs 40 Lacs/Rs 25 Lacs are required to get their account audited annually by a chartered accountant. This provides great relief to small businessmen.

Partners are not agent of other Partners: In LLP, Partners unlike partnership are not agents of the partners and therefore they are not liable for the individual act of other partners.


Drawback +

Regulated form of Business: LLP is regulated form of business, as the LLP Act 2008 provides various provisions relating to management of affairs of the LLP which includes taking the permission of regulatory authority for undertaking certain actions.

Audit and Financial Disclosure: It is necessary for LLP to get its accounts audited annually and to prepare its balance sheet and profit and loss account in accordance with the prescribed guidelines. Lot of information as to the financial condition of the business is required to be disclosed and moreover, all such documents are available for public inspection, therefore it is not possible to maintain financial secrecy of the business.

Long Closing Proceedings: It is generally not easy to close the company as compared to other forms of business, the procedure to close is long and involves compliance of various formalities, at times it takes 1-2 years to completely wind-up the company. Moreover in certain cases, it is necessary to take the permission of the High Court to close the Company.

Transfer of Interest: It is not easy to transfer the interest in LLP as compared to company; various formalities are required to comply with in accordance with the terms and conditions of the LLP Agreement.

Amendment in LLP Agreement: LLP is governed by the terms and conditions as prescribed in the LLP Agreement and which if not properly drafted will result in disputed among the partners , delay in executing decision, requirement of amending the Agreement or executing a new one, in case the new partners are admitted.

Lack of Recognition: LLP is recently introduced in India and is therefore not recognized under various laws for the purpose of carrying various business and moreover due to being relatively new concept , there is still no clarity on various issues related to it , which might create problems in its smooth functioning.

Partners -

There should be at least 2 persons (natural or artificial) are required to form a LLP.

In case any Body Corporate is a partner, than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP.

Following can become a partner in the LLP.


» Company/Body Corporate incorporated in and outside India
» LLP incorporated in & outside India
» Individuals resident in & outside India

Contribution +

In case of LLP, there is no concept of any share capital but every partner is required to contribute towards the LLP in some manner.

The contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed.

In case the contribution is in intangible form, the value of the same shall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government.

The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed. The LLP Agreement must specify the contribution intended to be paid by all the members and the form in which it will be paid.


Designated Partners+

'Designated Partner' means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement.

Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India.

Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.

Designated Partner shall be:


a. Responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement and

b. Liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

Explanation - for the purposes of this section, the term 'resident in India' means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year.

Designated Partners Identification Number (DPIN) +

Every Designated Partner is required to obtain a DPIN from the Central Government.

DPIN is not required, where the Designated Partner already has Director Identification Number (DIN) by reason of being a Director in any Company.

DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in Form 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees.

It is not necessary to apply Designated Partner Identification Number every time you are appointed partner in a LLP, once this number is allotted it would be used in all the LLP�s in which you will be appointed as partner


Digital Signature Certificate+

All the forms like eForm 1, eForm 2, eForm 3 etc which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet.

Since all these forms are required to be signed by the partner of the proposed LLP and as all these forms are to be filed electronically, it is not possible to sign them manually.

Therefore, for the purpose of signing these forms, at least one of the Designated Partner of the proposed LLP needs to have a Digital Signature Certificate (DSC). The Digital Signature Certificate once obtained will be useful in filing various forms which are required to be filed during the course of existence of the LLP with the Registrar of LLP.


LLP Name+


Selection of the name for the proposed LLP to be incorporated is one of the important process of the entire incorporation process, ideally the name of the LLP should be such which represents the business or activity intended to be carried on by the LLP. Before selecting the name of the LLP, it is necessary to evaluate the proposed name under the following given criteria:

1. LLP with Similar Name: The proposed name of the LLP should not be similar to the name of the Company or LLP, which is already registered in India.


For example:
Name of Company already registered: Oasis Water Treatments Pvt Ltd Name of Proposed LLP: Oasis Water Treatment LLP Whether Proposed Name would be available: No

2. Prohibited Word: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950. click here to check the list of Prohibited Words

3. Words Based on Approval: Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval. click here to check the list of Words based on Approvals

4. Names reserved for Foreign LLP/Companies: In case Foreign LLP/Companies have reserved their name under rule 18 of the LLP Rules 2009, than that name will not be applicable for forming of LLP to persons other than the Foreign LLP/Company


LLP Agreement+

For the purpose of forming a LLP, there should be agreement between the partners interested in forming the LLP to be known as LLP Agreement.

The said Agreement forms the basis of the formation of LLP and lays down its founding structure. The LLP agreement is an agreement between the Partners and between the LLP & its partners.

The basic contents of Agreement are:


» 1. Name of LLP
» 2. Name of Partners & Designated Partners
» 3. Form of contribution
» 4. Profit Sharing ratio
» 5. Rights & Duties of Partners

In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. It is possible to amend the LLP Agreement but every change made in the said agreement must be intimated to the Registrar of Companies.


Registered Office+

The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same.

A registered office is also required for maintaining the Government records and books of Account of LLP.

At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered office with the Registrar of LLP.

Provision relating to taxation of a LLP


Limited Liability Partnership (LLP) is treated as Partnership firms for the purpose of Income Tax and is taxed like a partnership firm under the Income Tax Act, 1961.

Tax rate:

30% flat tax rate + 3% education cess

No Surcharge applicable

No Dividend Distribution Tax (tax paid by companies on dividend distributed

No Wealth tax applicable


Eligibility (Section 184):

In order for Limited Liability Partnership to be assessed as firm as Income Tax Act, it has to satisfy the following criteria:

The LLP is evidenced by an instrument i.e. there is a written LLP Agreement.

The individual shares of the partners are very clearly specified in the deed.

A certified copy of LLP Agreement must accompany the return of income of the LLP of the previous year in which the partnership was formed.

If during a previous year, a change takes place in the constitution of the LLP or in the profit sharing ratio of the partners, a certified copy of the revised LLP Agreement shall be submitted along with the return of income of the previous years in question.

There should not be any failure on the part of the LLP while attending to notices given by the Income Tax Officer for completion of the assessment of the LLP.


Steps for Computation of taxable income of a LLP :-

Find out the firms income under the different heads of income, ignoring the prescribed exemptions. The heads of income are:-


» Income from House Property
» Profits and Gains of Business or Profession
» Capital Gains
» Income from other sources including interest on securities, winnings from lotteries, races, puzzles, etc. ('Salary' income head is not included)

The payment of remuneration and interest to partners is deductible if conditions of section 184 and section 40(b) of the Income Tax Act are satisfied. Any salary, bonus, commission or remuneration which is due to or received by partners is allowed as a deduction from income of the partnership firm and the same is taxable in the hands of partners.

Make adjustments on account of brought forward losses/ disallowances of interests, salary, etc paid by firm to its partners. The total income so obtained is the "gross total income".

From the "gross total income", make the prescribed deductions and the balancing amount is the "net income" of the firm.


Assessment of Partners of LLP

Section 10(2A) of Income Tax Act exempts the profits from the LLP in the hands of the partner and it will not be subject to any tax

Any interest, salary, bonus, commission or remuneration paid/payable by the LLP to the partners is taxable in the hands of partners subject to compliance of necessary conditions. Any expenditure incurred in order to earn such income can be claimed as a deduction from such income


Expand All

General+

What is Limited Liability Partnership (LLP)?
What are the benefits of forming LLP?
Whether an entity having non profit objectives allowed to form LLP?
Why LLP is called a flexible business entity?
Which activities cannot be carried out by LLP?
Whether provisions of Indian Partnership Act, 1932 would be applicable to LLPs?
What is the difference between LLP & a Company?
For which type of business LLP is suitable?
Whether Professionals can form LLP?
Whether partners can carry varied nature of business in LLP?
What is the difference between LLP & Traditional Partnership Firm?

Incorporation+

What are the minimum requirements to form LLP?
Who can be Designated Partner?
What are the restrictions in respect of minimum and maximum number of partners in an LLP?
What are the steps to form LLP?
What are the qualifications for becoming a partner?
Whether a body corporate may be a partner of an LLP?
Is there any residency requirement for becoming partner?
What is the requirement in respect of ’Designated Partners’?
Which are the documents required for allotment of DPIN/DIN?
What is the validity of DPIN?
How much time does it take for allotment of DPIN?
What is Digital Signature Certificate?
For what other purposes, can I use DSC for?
What is Contribution?
What is the form of Contribution?
How can the Contribution be increased?
How can the name of the LLP be reserved?
How can the name of LLP be changed?
What are things to remember while choosing name of the LLP?
Whether having a registered office for LLP is mandatory?
Whether it is necessary to enter into LLP Agreement at time of incorporation?
Whether stamp duty will be paid on the LLP Agreement?

Management+

How can a person become a partner of an LLP after incorporation?
How can an existing partner cease to be a partner of an LLP?
What will be the obligation of a partner in case he changes his name or address?
Is a partner ceased from his liability on his cessation of being the partner of the LLP?
What shall be the rights of the partner on his cessation to become a partner?
What are the rights and duties of partners in the LLP?
How decisions in the LLP are taken?
How the bank account is operated in case of LLP?
Whether LLP Agreement can be amended?
What is the importance of the LLP Agreement?
Can a partner be expelled from the LLP?
What is the difference between Managing & Designated Partner?

Compliances+

Whether every LLP would be required to maintain and file books of accounts?
What are the obligations with reference to the financial disclosures in the LLP?
Whether the Registrar would have any power to call for information from LLPs?
Who is responsible for compliances under LLP?
Is there any requirement for appointment of a Company Secretary?
What compliance is required for change in name, registered office of LLP, changes in partners?
what are penalties for non compliance?

Closure+

What are ways in which LLP can be closed?
What would be the provisions in respect of winding- up of LLPs?

Taxation+

What is the tax treatment being provided for LLPs?
Who will be responsible for signing the Income tax return?
Whether interest on contribution is allowed under LLP? If yes, whether deduction of such interest would be allowed to LLP
Whether is there any limit on payment of remuneration to partners?
Whether MAT or Dividend Distribution tax will be applicable on LLP?
What is pass through taxation system?
What will be the treatment of remuneration in the hands of the partners under Income Tax?
Whether assignment/transfer/gift of the interest of partner to third person will be subject to income/capital gain tax?
Whether assignment of interest in LLP by any partner to other, shall be subject to tax liability?
Whether introduction of intangible contribution in LLP will be taxable?

Foreign Investment in LLP +

Whether foreigners can incorporate LLP?
Who can invest in LLP for the purpose of Foreign Direct Investment in LLP?
Who are not allowed to invest in LLPs?
Which activities are allowed to undertake by the Foreign Investor in LLP?
5. What are the activities which are not allowed under LLP Structure by Non residents?
Is Profit sharing also forms part of Foreign Investment?
Whether prior approval is required for FDI in LLP?
What is the procedure to obtain FIPB Approval?
How much time does it take to obtain FIPB Approval?
How is pricing done to bring FDI in LLP?
What is the mode of payment for foreign investor in LLP?
What are the compliances to be done in order to intimate RBI after receiving cash consideration?
Whether LLP with FDI can make downstream investments?

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