1. WHAT IS LIMITED LIABILITY PARTNERSHIP? A new trend that has been observed of-late is that more and more entrepreneurs have started opting for Limited Liability Partnerships. But what is a Limited Liability Partnership? Till few years back there used to be only 2 forms of organisation 1. Limited Liability Organisations i.e., Companies 2. Unlimited Liability Organisations i.e., Partnership/Proprietorship But these organisations have their own plus and minuses. However as Businesses grew there was a need for a form of organisation which was a hybrid between the 2 forms of organisations. Moreover, the rapid growth of service sector created an environment and a demand for a new form of Organisation. Thus, the concept of Limited Liability Partnership was evolved which incorporates the benefits of both Companies as well as Partnerships. MEANING OF LLP The Law defines LLP as:- “A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organising their internal structure as a partnership” 2. WHAT ARE THE FEATURES OF LLP? 1. The LLP has Separate Legal Entity i.e., the LLP and the partners are distinct from each other. 2. Minimum of 2 partners are required to for, a LLP. However, there is no limit on the maximum number of partners. 3. No requirement of Minimum Capital Contribution. 4. Registration is compulsory. 5. The LLP Act does not restrict the benefit of LLP structure to certain classes of Professionals only and would be available for use by any enterprise. 6. Company Law Board has jurisdiction over the affairs of the LLP. 3. WHAT ARE THE BENEFITS OF FORMING A LLP? 1. The Liability of each partner is limited to his share as written in the agreement filed at the time of creation of LLP. 2. It has Low Cost of Formation and is Easy to Form. 3. The Partners are not liable for the acts of each other and can be held liable only for their own acts. 4. Less restrictions and compliance are enforced on a LLP by the Government. 5. As a Juristic Legal Person, a LLP can sue in its name and be sued by others. 4. WHAT ARE THE DISADVANTAGES OF FORMING A LLP? The only disadvantage of forming a LLP is that it cannot come out with its IPO (Initial Public Offer) and Raise Money from the Public 5. HOW TO REGISTER LLP? Pre-requisites for registering a LLP • Minimum 2 Partners (Individual or body corporate) • Minimum 2 Designated Partners who are individuals and at least one of them should be resident in India. • Digital Signature Certificate • LLP Name • LLP Agreement • Registered Office Pre-requisites for registering a LLP An LLP should have minimum 2 partners. In case any Body Corporate is a partner, then it will be required to nominate any person (natural) as its nominee for the purpose of the LLP. Partner of LLP can be consisted of • Companies incorporated in and outside India • LLP incorporated in and outside India • Individuals Resident in and outside India Partners of LLP Every LLP should have minimum 2 designated partners who are individuals and at least one of them should be resident in India. A person or nominee of a body corporate, intending to be appointed as who is appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs. DPIN can be obtained by submitting application along with address proof and identity proof of the individuals. Digital Signature Certificate All forms for registration of LLP shall be filed online after signing digitally and for this purpose, one of the designated partners shall take digital signature certificate. LLP Name Selection of business name is crucial for the image of your venture. You select a name which reflects the business you plan. Ensure selected name satisfy LLP Name Guidelines of Ministry of Corporate Affairs. LLP Agreement Like partnership, partners of LLP can frame agreement for defining their terms, profit sharing ratio etc. The basic contents of Agreement are, Name of LLP, Name of Partners and Designated Partners, and Form of contribution, Profit Sharing ratio and Rights and 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 required for following purposes. 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 Companies. 6. WHAT ARE THE TAX IMPLICATIONS OF LLP’s? In India, the Government has notified that LLP’s would be taxed in the same form as Partnership i.e. Tax would be levied on the LLP and the partners would be exempt from the tax. Moreover, as LLP’s would be taxed in the same form as Partnership Firms, no tax would be levied on the conversion of Partnership Firms into LLP’s. LLP’s are taxed at a flat rate irrespective of income for the A.Y.2013-14 as follows Income Tax at 30% of total income. Surcharge at 10% if total Income Exceeds Rs. 1 Crore. Educational Cess is payable at 3% of the total of Income Tax.
Posted on: Tue, 03 Sep 2013 09:59:36 +0000
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