All about LLPs

Kalpana Borjha | Kalinga University | 22nd June 2020

Introduction: 

Limited Liability Partnership is a combination of a private limited company and a partnership firm. It is an alternative corporate business with benefits of limited liability and flexibility of a partnership. An LLP can continue its business irrespective of the change in partners. None of the partners is liable for the unauthorized acts of another partner In India all the activities of a Limited Liability Partnership are governed by the LLP Act, 2008, and Limited Liability Partnership Rules, 2008.

Features of an LLP:

• Separate Legal Entity- an LLP is maintained as a separate legal entity, the partners and the LLP are different from each other.
• Minimum 2 Partners- A minimum of 2 partners is necessary to establish an LLP. There’s no limit for the maximum number of partners.
• The benefit of LLP is available to any enterprise and not just restricted to certain classes of professionals.
• No minimum capital contribution is required to form an LLP.

Advantages of an LLP:

• The liability of each partner is limited to a particular share as mentioned in the agreement while creation the LLP.
• It is cost-efficient and easier to form as compared to a company, etc.
• There is less restriction and compliance of Government in an LLP, as compared to that in a company.
• Partners in LLP are not liable for the acts of other partners and are liable only for their own actions.
• Partners are not individually liable to be sued against the LLP because LLP itself is considered as a juristic person and can sue or be sued by others in its name.

Disadvantages of an LLP:

• An LLP cannot raise funds from the public because it cannot come out with its IPO which a company can easily do.

Taxation of LLP in India: 

In India LLPs are taxed as a Partnership firm, tax is levied in the name of the LLP and the partners are free from tax. The income tax return is signed and verified by the designated partner and in his absence, any other partner can perform the task. It has lower tax rates as compared to companies and they are also not subject to dividend distribution tax, i.e., it won’t be liable to pay tax when the profit is distributed among the partners.

Registration of a new LLP: 

An LLP registration is much easier as compared to registration of other types of business entities. A simple procedure is needed to be followed for the registration of an LLP.

• Obtaining DIN or DPIN- obtaining the Director Identification Number (DIN) or the Designated Partner Identification Number (DPIN) by each delegated partner of LLP is the very first step towards registration.
• Digital Signature Certificate- According to the IT Act, 2000 all LLPs need to submit all the electronic documents to use Digital Signature Certificate (DSC) to ensure the required level of security. A licensed Certifying Authority is the one who issues the DSC.
• Apply for a Name- Every LLP has its unique identification name. Apply for the LLP’s name by filling it in Form 1. When the ministry approves the LLP’s name, a confirmation mail is sent to the registered email id for the same.
• When the LLP registration process is done and is approved, the LLP agreement is needed to be filed within 30 days.

Conclusion: 

LLPs appears to be one of the best ways to start a business. The only downside of establishing an LLP is that it isn’t allowed to increase funds from the public and sometimes it is difficult to wind up the process of LLP as compared to other business entities. However, LLPs aren’t completely downside if planned and made in action well.