All about Limited Liability Partnership

Limited Liability Partnership

Hey everyone! Welcome back. In our last blog we discussed the Partnership form of Business and its suitability. If you really like the Partnership form but is concern about the unlimited liability associated with it then LLP is the right form for you. So let's learn more about it.

What is LLP?

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 has perpetual succession which means it can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.

The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. Further, no partner is liable on account of the independent or unauthorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct. 

Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ , LLP is called a hybrid between a company and a partnership.

Difference between LLP & partnership firm.

In LLP the partners have limited liability  whereas under partnership firm, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. Further, In LLP no partner is liable on account of the independent or unauthorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.

In LLP there are Annual compliance like filing ROC forms but there is no such ROC compliance for Partnership Firm. 

Difference between LLP & a Company

A basic difference between an LLP and a joint stock company lies in that an LLP it would be by a contractual agreement between partners.

The management-ownership divide inherent in a company is not there in a limited liability partnership.

LLP will have more flexibility as compared to a company.LLP will have lesser compliance requirements as compared to a company.

Incorporation of LLP

Let us understand how to incorporate LLP:

1) Obtain Digital Signature, as for filing the incorporation form you need to have DSC.

2) The designated partners of LLP are required to have Director Identification number/ Designated Partner Identification number. If you don't have DIN, you have to apply from MCA site.

3) File Form 1 for Reservation of Name for LLP.

4) For incorporation, we are required to file Form 2, the Registrar will then issue Certificate of incorporation if he is satisfied that the relevant provision had been complied.

5) Finally, after incorporation don't forget to file Form 3. Form 3 gives information about the LLP agreement.

Accounts and Audit

An LLP shall be under obligation to maintain annual accounts reflecting a true and fair view of its state of affairs. A “Statement of Accounts and Solvency” in prescribed form shall be filed by every LLP with the Registrar every year.

Every LLP whose turnover exceeds forty lakh rupees, or whose contribution exceeds twenty five lakh rupees, shall be liable to get its accounts audited in accordance with Rule 24 of LLP, Rules 2009.

Taxation of LLP

LLP is liable to pay tax at the flat rate of 30% on its total income.

Surcharge: The amount of income-tax (as computed above) shall be further increased by a surcharge at the rate of 12% of such tax, where total income exceeds one crore rupees.

Health and education cess: The amount of income-tax and the applicable surcharge, shall be further increased by education cess and secondary and higher education cess calculated at the rate of four per cent of such income-tax and surcharge.

ROC Compliance

LLP is required to file LLP Form 8 (Statement of Account & Solvency) and LLP Form 11 (Annual Return) annually. Form 11 is required to be filed within 60 days of close of the financial year and Form 8 shall be filed within 30 days from the end of six months of the financial year to which it relates. Every LLP has to maintain a uniform financial year ending on 31st March of a year.

Conclusion

So LLP is a good option if you want a partnership form but without unlimited liability. The annual compliance and cost is less when compared with that of company. Hope you have enjoyed the blog. Let us know if you have any questions for us in the comments section. Till then stay safe.