LLP stands for Limited Liability Partnership. Limited Liability Partnership(LLP) is a flexible legal and tax organization that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners. A LLP, however, enjoys perpetual succession and limited responsibility for its partners, exactly like a corporation does.

The concept of LLP has been introduced in 2008. The LLP’S in India is regulated by the Limited Liability Partnership Act 2008. The definition of LLP has been already discussed under Section 3 of the Limited Liability Partnership Act 2008.

There must be minimum 2 partners and no upper limit on the maximum number of partners of an LLP.

There should be a minimum of two natural individuals serving as designated partners, at least one of whom must reside in India. The LLP agreement governs the allocated partners' rights and obligations. They bear sole responsibility for adhering to the LLP Act of 2008 and any other provisions laid out in the LLP agreement.

Features of LLP

  • Just like companies, it has a separate legal entity.
  • There should be Minimum two persons who come together as partners to set up LLP.
  • There is no upper limit on the maximum number of partners of LLP.
  • There should be minimum of two designated partners.
  • One member of the 2 designated partner must be a resident of India.
  • The LLP has limited liability as it is contributed by each partner every year.
  • The costing is low to form an LLP.
  • There is less compliance and regulations.
  • There is no requirement of minimum capital contribution.

Procedures of an Incorporation of LLP

Step 1: Apply for name:

Applying for the desired name via the RUN Form on the MCA portal is the first stage in the creation of an LLP. MCA gives us the choice of submitting two suggested names, which are then reviewed and approved. If any of the two suggestions is rejected, there is an opportunity to offer two other names.

Step2: Get Digital Signature Certificates (DSC):

For the proposed partners and designated partners, digital signature certificates must be requested in line with the relevant regulations. To save time, this step should be completed at the same time as the name application. Every application for LLP incorporation must be completed entirely online, and the authorized individual may sign it electronically using issues DSC alone.

Step3: Draft Partnership Deed with limited liability:

The partnership deed for the new LLP should be carefully drafted and printed on the stamp paper of the required amount after the name application has been submitted and approved. All of the partners must sign this document, and it should also be witnessed by a notary public. The following clauses are frequently included in an LLP deed:

  1. Information about the Partners, including Name, Address, and Profession;
  2. Information about the Firm: Name of the Firm, Address of the Firms, and the Type of Business the Firm Will Conduct.
  3. Capital: Information on the capital the partners have invested or contributed.
  4. When the business first started.
  5. Profit-Sharing: A partnership agreement should specify the proportions in which he profits and loses of the firm shall be distributed.
  6. Interest Clause: The agreement should include language that addresses interest on loans made, capital supplied, and withdrawals made by the firm's partners.
  7. Remuneration Clause: The agreement should specify the partners' wages, remunerations, commissions, and/or other forms of payment.
  8. Rights and Duties of Partners: A well-written partnership agreement should include clauses that define the rights and obligations of each partner, whether they are active or inactive.
  9. Partnership Changes: The deed must include the procedures to be followed in the event that the partnership's business or structure changes. The deed should also include the steps to be performed in the event of a partner's retirement, cessation, death, or induction.
  10. Additional terms: As long as they comply with the law, the deed may include any additional clauses that the partners have mutually agreed upon about any aspect of the LLP deed.

Step 4: Incorporation Application:

The form used for incorporation is FiLLiP (Limited Liability Company Incorporation Form) which must be filed with the Registrar having jurisdiction over the State in which the registered office of the LLP is located. The form will be an embedded form.

Fees must be paid as per Appendix “A”.

This form also allows you to request a DPIN transfer if a person designated as a nominated partner does not have a DPIN or DIN.

Allocation requests can only be submitted by two people. Reservations can also be made through FiLLiP.

If the requested name is approved then this approved and reserved name will be designated as the proposed name for the LLP.

Step 5: Post Incorporation

Filing of an LLP agreement: Form-3

The LLP Agreement governs the mutual rights and obligations between the partners as well as between the LLP and its partners. The LLP Agreement must be filed online in Form 3 on the MCA portal. Form 3 for LLP agreement must be filed within 30 days of incorporation. The LLP Agreement must be printed on stamp paper. The value of stamp paper is different in each state.

Documents Required for LLP Registration

  1. Documents of Partners
  • PAN Card/ ID Proof of Partners
  • Address Proof of Partners
  • Residence Proof of Partners
  • Photograph
  • Passport (in case of Foreign Nationals/ NRIs)

Foreign nationals or NRIs have to submit proof of address also which will be a driving license, bank statement, residence card or any government-issued identity proof containing the address. A translation copy that has been notarized or apostilled will be included if the documents are not in English.

B. Limited Liability Partnership (LLP) Documentation and Compliance

  1. Documents Required for LLP:
  • Proof of Registered Office Address
  • Digital Signature Certificate

Compliance Obligations for LLPs:

LLPs, as independent legal entities, have specific compliance obligations that must be adhered to by the elected partners. These obligations include maintaining proper accounting records and submitting an annual return to the Ministry of Corporate Affairs (MCA).

Audit Requirement: LLPs are mandated to audit their financial records only if their annual turnover exceeds Rs. 40 lakhs or if their contribution exceeds Rs. 25 lakhs. If an LLP does not meet these thresholds, there is no requirement for an audit, which simplifies the annual filing process.

Filing Deadlines:

  • Annual Return: LLPs must file their Annual Return and Statement of Account & Solvency within 60 days of the financial year's end and within 30 days of the end of the first six months of the financial year, respectively.
  • Financial Year: Unlike corporations, LLPs must follow a financial year that runs from April 1 to March 31. Therefore, even if an LLP did not conduct any business during a particular financial year, it must still complete the Statement of Account & Solvency by the deadline of October 30 and submit its annual return by May 30. Some annual filings are mandatory regardless of business activity.

Statement of Account & Solvency (Form 8): Every year, all registered LLPs must submit Form 8, which includes details of profits and other financial information related to the business. Form 8 must be certified by a practicing chartered accountant, company secretary, or cost accountant and signed by authorized partners. Failure to submit the statement of accounts and solvency report by the deadline will result in a daily penalty of Rs. 100. Form 8 must be filed no later than October 30 each financial year.

Annual Return (Form 11): LLPs are required to file their Annual Returns on Form 11, which provides a summary of the LLP's management activities, including partner details. Form 11 must be submitted annually by May 30.

Income Tax Act Filing and Audit Requirements: According to the Limited Liability Partnership Act of 2008, LLPs must have their accounts audited by practicing Chartered Accountants if their revenue exceeds Rs. 40 lakhs or their contribution exceeds Rs. 25 lakhs. To undergo an audit, LLPs must submit their tax return by September 30.

Income Tax Filing Deadline: For LLPs not requiring a tax audit, the income tax filing deadline is July 31. However, LLPs involved in specific domestic or international transactions with related entities must submit Form 3CEB, which should be certified by a practicing chartered accountant. The deadline for tax filing for such LLPs is November 30.

Income Tax Return Form: LLPs must file their income tax return using Form ITR 5, which can be submitted electronically via the income tax website using the designated partner's digital signature.

Ensuring compliance with these obligations is essential for LLPs to maintain their legal status and meet regulatory requirements. Failure to do so may result in penalties and legal consequences.

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