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Limited Liability Partnership

A non-resident can start business in India by incorporating a Public limited company, Private limited Company, Limited Liability partnership or Section 8 company (Non-profit organization). Limited Liability Partnership emerged as an alternative corporate business form to provide the benefits of limited liability of a company and the flexibility of a partnership. Mutual rights and duties of partners within a Limited Liability Partnership are governed by an LLP agreement. Being a limited liability partnership, one partner is not responsible for the other partner’s misconduct or negligence. All partners have limited liability for each individual\\\\'s protection within the partnership, similar to that of the shareholders of a limited company but unlike the shareholders, partners have the right to manage the business directly.

Features

  • Separate Legal entity

    LLP shall be a body corporate and is a legal entity established under the act. Therefore LLP form of organisation has wide legal capacity and can own property and sue and be sued by others on its own name.

  • Management of LLP

    Management is vested with the partners unless specifically maintained in the LLP agreement. It is possible for an LLP to delegate all powers of management to a single person except compliance requirements under the LLP Act.

  • Minimum No of Partners

    Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India .

  • Perpetual existence

    A LLP has perpetual existence until it is legally dissolved. A LLP, being a separate legal person, is unaffected by the death or other departure of any Partner but continues to be in existence irrespective of the changes in Partnership.

  • Limited Liability

    In LLP all partners have limited liability for each individual\'s protection within the partnership, similar to that of the shareholders of a limited company. However, unlike the company shareholders, the partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP\'s employees or other agents.

  • Corporate entity can be partner

    Unlike partnership firm which permits only natural persons to be partners of the firm ,a Limited liability partnership can have a corporate entity as its designated partner.

Pros & Cons

Pros

  • Tax benefits In the eyes of tax laws, LLP is a \'Firm\' and hence firm taxation is applicable to LLP. Various taxes levied on a company, like minimum alternative tax, dividend distribution tax and surcharges are not applicable to an LLP.
  • Less cost of formation and maintenance Statutory filing fees payable by an LLP is lesser compared to a company. Hence, even small businesses can think of incorporating their firm as running costs are very low.
  • Audit requirement Unlike companies form of organization where all companies are required to appoint a chartered accountant as auditors for auditing there accounts , in case of LLP audit requirement starts only in case contributions exceed Rs. 25 lakh or turnover exceed Rs. 40 Lakh.
  • Allow foreign direct investments A public limited company allows 100% FDI through automatic route (except the prohibited Sector) and prior approval of FIPB (Foreign Investors Protection board) required in case of approval route.

Cons

  • Difficulty on transfer of ownership Ownership rights are not transferable easily without obtaining consents of all partners of the LLP. If any partner wishes to transfer some portion of ownership, he has to obtain consent of all partners. The resolution to be passed by majority in numbers of the partners in some cases like increase or decrease in contribution or designated partners, amalgamation, shifting of the registered office of firm.
  • Risk of Implied authority Each partner is an agent for the LLP . Hence, the decisions made by him bind all the partners. At times, an incompetent partner may lend the firm into difficulties by taking wrong decisions. Risk involved in decisions taken by one partner is to be borne by other partners also.
  • Requires at least one resident partner In case NRI/Foreign National wants to form an LLP in India then at least one partner of the firm should be a resident of India. Thus two foreign partners cannot form a LLP in India.
  • Public deposits and ECBs not allowed Raising funds from public is not allowed in LLP. Also LLP is not allowed to raise External Commercial Borrowing (“ECB”). Thus LLP cannot take commercial loans from its foreign partners, FII’s (Foreign Institutional Investors), banks from outside India, any financial institution outside India or any other entity outside India.

Applicable Taxes & Compliances

A partnership business is liable to tax at the rate of 30% on whole of the income plus 10% surcharge to be paid if total taxable income is over 1 crore and 3% cess to be paid . No compulsory audit is required in case of partnership firm except tax audit beyond a prescribed turnover. Also, no profit distribution tax is applicable to a partnership firm.
Service tax is a tax levied by Central Government of India on services provided or to be provided by the service provider excluding services covered under the negative list at the consolidated rate of 15%
Value Added Tax is the indirect tax which is imposed on goods and services at value additions on each stage of production starting from raw material to final product. The standard rate of VAT is 20% on the selling price.
Central Excise duty is an indirect tax levied on those goods which are manufactured in India and are meant for home consumption at the rate of 12.5% The taxable event is \'manufacture\' and the liability of central excise duty arises as soon as the goods are manufactured.
Custom Duty is a tax imposed on the export and import of goods . Taxable event is import into or export from India . The duties are levied both on specific and ad valorem basis ( based on the value of goods).
Labour law mediates the relationship between employees, employers and the government. Body of rulings pertaining to working people and their organizations, including trade unions and employee unions, enforced by government agencies. There are two categories of labour laws; collective and individual. Collective labour law involves relationships between the union, the employer and the employee. Individual labour law involves concerns for employees\\\' rights in the workplace .Some of the laws included in it are:

The Employees PF & MP Act – Under this act both the employer and employee has to contribute 12% of the basic + Dearness Allowance of the employee’s salary to the EPF and EPS on monthly basis. The objective of this act is to provide Old Age income security to the employees and this act is applicable to the employer having 20 or more employees.

The Employees State Insurance Act –Under this act the employer and employee has to contribute 4.75% and 1.75% each of the gross salary to ESIC. Its objective is to provide benefits to employees in case of sickness, injury or related matters. This act is applicable to the employees whose wages are up to 15000 pm.

The Payment of Gratuity Act – The Gratuity is a lump sum payment made to the employee when he/she leaves the service. It is payable to the employee who has completed 5 years of service with the any factory, mine or establishment employing 10 or more persons. It is payable @ 15 days wages for every year of completed service.

Procedure

How long Does It Take?

Route of Entry

Prior approvals 3-5 Days

In case of Foreign Investment through automatic route no prior approvals are required but in cases where the business falls under the category of approval route prior approval from FIPB (foreign Investors protection board) is required.

Obtaining DSC and DPIN

1-5 Days

Digital signature certificate (DSC) and Director’s Identification number (DIN) is required for the proposed partners of the firm. A Digital Signature Certificate (DSC) is a USB drive which contains a secure digital key that certifies the identity of the holder. DSC is used as an Electronic signature of the holder to sign MCA / Income Tax form. DPIN is a unique identification number for a Designated Partner.

Obtaining Name Approval from ROC

5-10 Days

A minimum of one and a maximum of six proposed names must be submitted to the MCA. Subject to availability and naming guidelines, ROC will provide a online generated written confirmation of the name he would allow the proposed firm to use.

Drafting LLP Agreement

2-5 Days

LLP agreement is a document that outlines in detail the rights and responsibilities of all parties to a business operation. It has the force of law and is designed to guide the partners in the conduct of the business. It is helpful in preventing disputes and disagreements over the role of each partner in the business and the benefits which are due to them.

Submission to MCA and receiving approval along with incorporation certificate

5-10 Days

After verifying the incorporation documents ROC would issue the approval along with certificate of incorporation or resubmission if there is some changes required.

FAQ

  • Is an office required for starting a Limited Liability Partnership?

    An address in India where the registered office of the LLP will be situated is required. The premises can be a commercial / industrial / residential where communication from the MCA will be received.

  • What are the documents required for incorporation of LLP?

    Identity proof and address proof is mandatory for all the proposed Designated Partners of the LLP. PAN Card is mandatory for Indian Nationals. In addition, the landlord of the registered office premises must provide a No Objection Certificate for having the registered office in his/her premises and must submit his/her identity proof and address proof.

  • What do I need to quickly incorporate my LLP?

    To incorporate a LLP quickly, make sure the proposed name of the Limited Liability Partnership is very unique. Names that are similar to an existing private limited company / limited liability partnership / trademark can be rejected and additional time will be required for resubmission of names.

  • What is a Digital Signature Certificate?

    A Digital Signature establishes the identity of the sender or signee electronically while filing documents through the Internet. The Ministry of Corporate Affairs (MCA) mandates that all Designated Partners apply with a Digital Signature for Designated Partner Identification Number. Hence, a Digital Signature is required for all Designated Partner of a proposed LLP.

  • Can NRIs / Foreign Nationals be a Designated Partners in a LLP?

    Yes, a NRI or Foreign National can be a Designated Partner in a Limited Liability Partnership after obtaining Designated Partner Identification Number. However, atleast one Designated Partner in the LLP must be a Resident India.

  • Can an existing partnership firm or company be converted to LLP?

    Yes, an existing partnership firm or a company that is unlisted can be converted into LLP. There are many advantages of converting a partnership firm into a LLP; however, the same doesn\'t apply for the conversion of a Company to a LLP.

  • Can a minor be appointed as a Partner in a LLP?

    The Designated Partners needs to be over 18 years of age and must be a natural person. Even foreign nationals can be appointed as a Partner with the approval for Foreign Contribution Promotional Board.

  • How many people are required to incorporate a Limited Liability Partnership?

    Minimum two people / partner are required to incorporate a LLP and can have a maximum of any number of Partners. Out of which one should be resident of India.

  • Do I have to be present in person to incorporate a LLP?

    No, you will not have to be present at our office or appear at any office for the incorporation of a Limited Liability Partnership. All the documents can be scanned and sent through email to our office. Some documents will also have to be couriered to our office.

  • How long will it take to incorporate a LLP?

    Generally, to incorporate a Limited Liability Partnership it takes around 14-20 days. The time taken for incorporation will depend on submission of relevant documents by the client and speed of Government Approvals. To ensure speedy incorporation, please choose a unique name for your LLP and ensure you have all the required documents prior to starting the incorporation process.

  • What are the annual compliance requirements for a LLP?

    LLPs are required to file an annual filing with the Registrar each year. However, if the LLP has a turnover of less than Rs.40 lakhs and/or has a capital contribution of less than Rs.25 lakhs, the financial statements do not have to be audited.

  • What is Designated Partner Identification Number (DPIN)?

    Designated Partner Identification Number is a unique identification number assigned to all existing and proposed Designated Partner of a LLP. It is mandatory for all present or proposed Designated Partner to have a Designated Partner Identification Number. Designated Partner Identification Number never expires and a person can have only one Designated Partner Identification Number.

  • Is Foreign Direct Investment (FDI) allowed in LLP?

    Yes, Foreign Direct Investment (FDI) is allowed in LLP under the automatic route in sectors allowed by the Foreign Investments Promotion Board (FIPB). However, Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors (FVCIs) will not be permitted to invest in LLPs. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs.)

  • How can apply for reserving a LLP name?

    File LLP Form No. 1 (Application for reservation or change of name) by logging on to the LLP portal along with the fee prescribed and attaching the digital signature of the designated partner proposing to incorporate a LLP.

  • Will LLPs be available to charities?

    No. LLPs are only available to any lawful business that is carried out with a view to a profit.

Documents Required

DOCUMENTS REQUIRED FOR THE PROCESS

    Documents Required from Designated partner

  • Passport size photograph
  • Passport (Mandatory)
  • Identity Proof (Voter ID/ Driving License/or any other identity proof of the respective country) any one of the Following with Self Attestation
  • Address Proof (Latest Bank Account Statement/Mobile Bill/Electricity bill/any other utility bill of the respective country) any one not older than 2 months)
  • *Note-Documents Should be notarized at the Indian Embassy of the particular country and apostIlization or consularization as the case may be
  • *Note-In case the document is in a foreign language, then it must be translated by an official translator and notarized or apostilled.

    Documents for Registered Office of the LLP

  • Rental agreement/ Lease agreement along with No objection certificate from the owner
  • Sale deed in case of owned property
  • Electricity bill /Property tax receipt/ Water tax receipt/ Telephone bill ,Any One not older than two months
  • *Note-In case one of the designated partner is a Corporate Entity (Company, LLP, etc.,), then Certificate of Incorporation of the Body Corporate must be attached along with the resolution passed in favour of Body Corporate to subscribe the shares of the proposed incorporated company.
  • *Note-In addition to the above proofs and documents, a number of documents like Form-9, Subscriber sheet, LLP Agreement would be drafted by a Professional. These legal documents made specifically for the incorporation must be signed and notarized by the promoters of the Company.