Which type of entity should be chosen to start a business? This question is very important for the entrepreneur. Most of us want to start a business in such type of entity which will provide unlimited benefits and lesser compliance. If one has to enjoy the benefits of partnership registration but does not want the inefficiency of any partner to affect the progress of the business, then registering a Limited Liability Partnership Company is the best option, where one can have the benefits of both “the company” and “the partnership”.
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Limited Liability Partnership / LLP Registration
One can treat the Limited Liability Partnership (LLP) is an ameliorated version of the Partnership. The LLPs are incorporated and are governed by the Limited Liability Partnership Act 2008. The main objective behind introducing the LLP registration was to provide a business form that is simple to operate without risking the liabilities of the owners.
To register a business, LLPs are the most preferred type of entity as it provides the benefits of both a partnership firm and a company.
A partnership firm has a partnership deed, which regulated the rules and guidelines on which a company will operate and will manage their operation. It includes the objective of the company, share capital, shareholding percentage, profit share between the partners, etc. Similar to a partnership, LLPs also have an agreement named “LLP AGREEMENT”, which regulates all the provisions to operate the company.
LLP Agreement –
LLP Agreement is drafted between the designated partners of the Limited Liability Partnership or between the Limited Liability Partnership. This agreement is drafted under section 2(1)(0) which determines rights and duties of the designated partners and their rights to the company.
The LLP agreement must be executed within 30 days of the date of incorporation. LLP agreements are executed on stamp paper and the value of stamp paper is dependent on the state of incorporation and the amount of capital contribution from the partners
Contents of LLP Agreement
- ·Name of the LLP
- ·Date and parties of the agreement
- ·Introductory provisions - includes the definition of terms used in the LLP agreement
- ·Partners’ contribution and method of contribution
- ·LLP record keeping and bank arrangement
- ·Profit Allocation and distribution
- ·Capital and current account
- ·Disassociation of partner
- ·Redemption and cross-purchase of rights
- ·Issue of partnership rights
- ·Sales, transfer of partnership rights
- ·Partner’s rights to records
- ·Management and fiduciary duty
Features of LLP
- LLP agreements can be modified just like partnership deeds.
- The existence of the LLPs is treated as a SEPARATE LEGAL ENTITY.
- LLP can be registered with only two partners – “designated partners”
- LLPs are required to do the accounting and tax filing similar to other companies.
- The designated partners have the benefit of limited liability
Benefits of LLP
- Limited Liability – This means that the liabilities of all the designated members is limited meaning if the company experiences any loss, then the personal assets of the company’s partners won’t be seized i.e. the partners are not required to pay for the losses from their personal assets.
Separate Legal Entity- the Company’s existence will never demolish or dissolve by any means for e.g. death of the partners, any exit of partners etc, thus making it a separate legal entity.
- Easy transfer of shares - Unlike partnership firms, the addition of new partners was really difficult as it affects its existence, but in LLP is it easy to add new partners or to transfer the shares.
- No minimum capital requirement – Unlike other companies, the LLP has the privilege that they do not require any minimum capital to start the business or to register it.
No limit of the maximum number of partners- a private company has a maximum cap on the number of members they can keep, but in case of LLP there is no such limit. It requires a minimum of 2 partners to form an LLP and the maximum can be any number.
- The designated partners have only right in the profits and the loss of the company. The company’s assets will never be owned by the partners of the company.
- Similar to other companies, an LLP can also issue debentures on fixed charges or floating charges.
- No audit – All the other type of business entity require a regular audit. But in case of LLPs the audit is not required until and unless -
- Up to Annual turnover of Rs. 40 lakhs
- Up to the capital contribution of Rs. 25 lakhs.
Requirements to register LLP firm
- The entities are required to add LLP as suffix in the company’s name
- Minimum two designated partners are required to register
- One designated partner must be an Indian resident
- No minimum capital is required
From all the Designated Partners and Shareholders
- PAN card
- ID proof - Driving license/ passport/ voter ID card
- Address proof - latest mobile or telephone bill, bank statement etc.;
For the proposed registered office
- Latest address proof - the electricity bill or water bill or landline bill
- NOC or rent agreement from the owner of the premises
Procedure for LLP Registration
- Step 1 - Obtain the Digital Signature Certificate (DSC)-
The DSCs are used to sign the documents digitally. This is required as the documents which will be submitted to MCA for approval are required to be signed by DSC.
- Apply for DPIN
all the designated partners are required to obtain Designated Partner Identification Number (DPIN). This is similar to DIN numbers and serves are the identification number of the designated partners.
- Company Name Approval
the company names can be filled in the form LLP RUN with a maximum of two names. The name provided must be as per rule 8 of the Company’s Act 2013.
- Filing of Incorporation application
once the name is approved by the Registrar of Companies of the respective state where the registered office of LLP is located, the form FiLLiP is filled to obtain the incorporation certificate. This forms includes all the details of the designated partners and the necessary attachments.
If all the documents are found up to the mark, then the ROC issues the Certificate of Incorporation (COI) towards the company.
- File LLP Agreement-
LLP Agreement is drafted between in such a way that it includes and determines the rights and duties of the designated partners and their rights to the company.
It is required to file the LLP agreement within 30 days from the date of incorporation in Form 3, signed and executed on stamp paper. The value of stamp paper is calculated with the specified percentage as per the contribution of the designated partners in the company, also it differs from state to state.
Getting your company registered as Limited Liability Partnership provides you a benefit as it is the most efficient mode of carrying business at the lowest risk, with many benefits like limited liability, not much compliance, tax benefits etc. Besides all such features it is the cost-saving also. Thus, if you need any assistance in the LLP registration procedure, consult Corpseed ITES Private Limited. Advisors.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.
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