Should you form Limited Liabilities Partnership (LLP) : Know all About

A Complete Guide on Limited Liabilities Partnership

A Limited Liability Partnership means a business where the minimum two members are required and there is no limit on the maximum number of members. The liability of the members of an LLP is limited. LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its name. The LLP is a separate legal entity, liable to the full extent of its assets but liability of the partners is limited to their agreed contribution to the LLP

 

This growing structure has been emerging as a popular form of business organization for many licensed professionals like lawyers, doctors, Chartered accountants etc. This concept of business has been accepted in countries like U.S.A., U.K., Australia, and Germany. In the United Kingdom, LLP Act was enacted in 2000, in India, the LLP act was passed in 2008 for smooth conduction of LLPs, and in the United States of America, LLPs became part of the Uniform Partnership Act in 1996.

 A significant benefit of an LLP is that it allows the individual partners to be restricted from the joint liability of partners in a partnership firm. Where there are other business structures to choose from, it is necessary to discuss the advantages of choosing LLP as your business structure. Some of the key points to keep in mind as to whether you should select LLP as your business entity.

 

Procedure of Formation

LLP registration procedure is the easiest and transparent process as it has a blend of the benefits of a company and partnership firm namely, limited liability feature of a company and the flexibility of a Partnership firm.

LLP registration process includes following steps :-

• Get a digital signature (DSC)
• Apply for the Director Identification Number (DIN)
• Get the name of the company approved through ‘Reserve your Unique Name’ service (RUN)
• Incorporation of LLP
• File ‘Limited Liability Partnership Agreement’

Liabilities of Partners

LLP exist as distinct legal structures from the partners. All the obligations either for repayment of debts or lawsuits incurred by LLP, lie on the firm and not on the partners.

 

Cost of Registration

The registration cost of an LLP is relatively low as compared to formation of any other company (Public or Private).  The Cost of registration of LLP may range from Rs. 10000 to 15000 depending upon the professional handling the assignment.

 

Taxation of Entity

The taxation aspects of LLP and partnership firm are one and the same. Income of firm is taxable at flat 30%. Others rates of taxes are as follows:

1. Long term capital gain: 20%

2. Short term capital gain on sale of shares: 15%

3. Long term capital gain on sale of shares: 10%

4. If Net taxable income is more than Rs. 1 crore than surcharge of 12% shall be applicable

5. Health and Education cess of 4% shall be applicable on the amount of tax arising above

Share of Partners in the total income of firm and LLP is exempt in hands of partner under section 10(2A)

 

Number of members

LLP can be formed through minimum two partners. No cap of a maximum number of its partners

Others Compliance requirement

Limited liability is required to file Form 8 and form 11 annually every year after the end of financial year.

 

Timeline for formation

In order to form a Limited Liability Partnership, it will take approximately 20 days to incorporate (inclusive of time taken to obtain DPIN).

 

Legal aspects

LLP exists as distinct legal structure from the owners. All the obligations either for repayment of debts or lawsuits incurred by LLP, lie on the firm not on the owners. LLP can also file a suit and suit can be filed against LLP.

 

Ownership of the assets

The LLP has ownership of assets and Partners only have a capital contribution in the LLP

DISCLAIMER

While every care has been taken in the preparation of this note to ensure its accuracy, I assume no responsibility for any errors which may be found herein. Neither this alert nor the information contained herein constitutes a contract or will form the basis of the contract. The material contained in this document does not constitute/substitute professional advice that may be required before acting on any matter.