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How to Form an LLP in India - All You Need to Know
A limited liability partnership (LLP) is a business entity that is a combination of a corporate entity, similar to a company, and partnership. As an alternative to a partnership, an LLP offers its members limited liability while enjoying the benefits of being in a partnership firm.
An LLP has distinct features compared to other types of businesses such as corporations or partnerships. It provides the benefits of being partners while limiting each partner’s liability for the actions or obligations of another partner.
To form an LLP, you will need assistance from legal advisors who understand the unique laws applicable to this type of business. Here is what you need to know about forming an LLP in India.
Check Out
Before you go about forming your limited liability partnership, make sure you carefully check the list of things you will need to form your partnership. This will help you to stay on top of things from the word go and make sure that you do not miss out on anything.
Some of the things that you should check out before you form your LLP are the legal structure of your business, business name availability, registration process, funding requirements and taxation issues.
How to Form an LLP in India?
The formation of an LLP requires the partnership agreement to be in writing. The agreement should cover the name of the partnership, the address of the place of business, nature of the business, contribution in cash/stock of each partner, term of the partnership, dissolution of the partnership, manner of partnership's administration and the rights and liabilities of the partners.
Now you can understand why we suggested that you make sure that you have all the paperwork in order before you go about forming your LLP. Once you have the documents ready, you can go ahead and register your LLP.
To do this, you will need to visit the office of the Registrar of Companies (ROC), along with your registration form and the accompanying documents. You will also have to make a small payment before filing the form with the ROC. The ROC will then examine the documents and register your LLP. The entire process may take around a month.
Why Form an LLP?
The main reason to form a limited liability partnership is to get limited liability while still enjoying partnership benefits. The most important benefit of forming an LLP is that partners in the business are not personally liable for the debts or liabilities of the partnership. This is known as limited liability, which is something that you do not get in a proprietorship or a partnership. In a limited company, however, you do get this benefit.
Thus, forming an LLP is your best bet if you want partnership benefits without the risk of being personally liable for the partnership’s debts. Another reason why you should form an LLP is that it is flexible. Unlike a proprietorship or a partnership, an LLP can be easily converted to a corporation or vice versa. This means that you can change your business structure if you so wish.
LLP Registration Requirements
There are certain requirements that your Partnership Agreement must meet if you want to form an LLP. These requirements are as follows:
- There must be at least two partners in the LLP.
- There must be a capital contribution of at least Rs. 1,000 in cash or goods (if the LLP is carrying out a business).
- There must be a written partnership agreement between the partners.
The LLP registration process will vary slightly, depending on whether you are forming the LLP under the Indian Partnership Act or the Companies Act. If you are forming an LLP under the Indian Partnership Act, then you will need to file an application for LLP registration with the Registrar of Companies (ROC) as well as a memorandum of partnership containing the names of the partners and the address of the LLP’s business premises.
If you are forming a limited liability partnership under the Companies Act, then you will need to file an application for limited liability partnership registration with the Registrar of Companies (ROC) as well as publish a notice about the LLP in two national newspapers.
Advantages of Forming an LLP
There are several advantages of forming an LLP. Firstly, forming an LLP offers you tax benefits. You can avail tax deductions on profits that you earn as a partner in an LLP. Profits earned by partners are considered as business income and are taxed at the applicable income tax rate. However, they can claim deductions on any expenditure incurred in the course of earning those profits.
Secondly, it is easier to raise funds as an LLP. The LLP can issue equity shares or convertible debentures to investors. And partners in an LLP can also raise funds by taking a loan against their share in the business. Thirdly, it is easier to manage your business. Since partners in an LLP are bound by a contract, there is less room for conflict since all partners are aware of their obligations.
Steps to Form an LLP
Depending on whether you are forming an LLP under the Indian Partnership Act or the Companies Act, the following are the steps to form an LLP:
- If you are forming an LLP under the Indian Partnership Act, then you will have to file an application for LLP registration with the Registrar of Companies (ROC) as well as a memorandum of partnership containing the names of the partners and the address of the LLP’s business premises. You will also have to publish a notice about the LLP in two national newspapers.
- If you are forming an LLP under the Companies Act, then you will have to file an application for limited liability partnership registration with the ROC as well as publish a notice about the LLP in two national newspapers.
Rights and Obligations of LLP Members
Unlike a joint venture, the partners in an LLP are independent contractors who are not liable for any debts of the LLP. They have no right to control or direct the management or operations of the LLP and can only contribute their expertise and experience.
The partners in an LLP have the following rights:
- Right to withdraw from the LLP: All partners have a right to withdraw from the partnership at any time with a notice period of at least one month.
- Right to stay in the LLP: All partners have the right to stay in the LLP but will not be entitled to any profit until their withdrawal is complete.
- Right to stay in the LLP: All partners have the right to stay in the LLP but will not be entitled to any profit until their withdrawal is complete.
Key Takeaway
A limited liability partnership is a business entity that is a combination of a corporate entity, similar to a company, and partnership. To form an LLP, you will have to file an application for LLP registration with the Registrar of Companies (ROC) as well as publish a notice about the LLP in two national newspapers.
There are certain requirements that your Partnership Agreement must meet if you want to form an LLP. These requirements are as follows:
- There must be at least two partners in the LLP.
- There must be a capital contribution of at least Rs. 1,000 in cash or goods (if the LLP is carrying out a business).
- There must be a written partnership agreement between the partners.
However, to streamline the process of forming an LLP, you can consult with our professional experts. They will get the job done in the right manner and keep you updated until the process is complete.
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