CLASS: BBA (H) Sem 1

DIVISION: C

SUBJECT: Bussiness Organisation And Structure

TOPIC: Limited Liability Partnership

SUBJECT CODE: 04LS1103

SUBMITTED TO: Prof. Navjyot Raval

ACADEMIC YEAR: 2019-20

GUIDED BY: Dr. Navjyot Raval
Table Of Contents:

1. Introduction to LLP;

1.1 About LLP

1.2 Salient festures of LLP

1.3 Target Groups

2. Process of registration as LLP;

INTRODUCTION TO LLP
1.1 About LLP

LLP is an alternative business vehicle to carry out business which combines the characteristics of
a private company and a conventional partnership. LLP provides limited liability status to its partners
and offers the flexibility of internal arrangement through an agreement between the partners.

This combination will give entrepreneurs and businessmen a more structured business vehicle
compared to a sole proprietorship or a conventional partnership. It provides the flexibility of controlling
the business operation in accordance with the partnership agreement whilst enjoying the limited
liability status compared to a company which is subject to strict compliance requirements under the
Companies Act 1965 in most of its affairs.

LLP is a business vehicle which would offer simple and flexible procedures in terms of its
formation, maintenance and termination while simultaneously has the necessary dynamics and appeal
to be able to compete domestically and internationally. The LLP was also introduced in countries such as
the United States of America, United Kingdom, Singapore, India and Japan as a form of alternative
business vehicle.

1.2 Salient features of LLP

• LLP is a body corporate and has legal personality separate from its partners (separate legal entity).

• LLP has perpetual succession.

• Any changes in relation to the partners of an LLP will not affect the existence, rights or liabilities of the
LLP.

• LLP has unlimited capacity and capable of suing and being sued, acquiring, owning, holding and
developing or disposing of property.

• LLP may do and suffer such other acts and things as bodies corporate may lawfully do and suffer

1.3 Target groups

The LLP may be formed by any business group to carry on any lawful business with the view to make
profit. However, the main targeted business groups are:

• Professionals (e.g Lawyers, Accountant & Company Secretaries)

• Small and medium sized businesses

• Joint ventures

• Venture capitals

Process of Registration as LLP

Step 1: Obtain DSC
Step 2: Apply for DIN
Step 3: Name Approval
Step 4: Incorporation of LLP
Step 5: File LLP Agreement

Steps to form a limited liability partnership

Step 1: Digital Signature Certificate (DSC)

Before initiating the process of registration, you must apply for the digital signature
of the designated partners of the proposed LLP. This is because all the documents
for LLP are filed online and are required to be digitally signed.
So, the designated partner must obtain their digital signature certificates from
government recognized certifying agencies. Here is a list of such certified agencies.
The cost of obtaining DSC varies depending upon the certifying agency. Also, you
should obtain either class 2 or class 3 category of DSC or you can click here & let a
ClearTax expert procure DIN for you. If you go for Limited Liability Partnership
company registration with ClearTax, up to 2 DINs are covered in the plan & there is
no need to apply for DIN separately.
Step 2: Director Identification Number (DIN)
You have to apply for the DIN of all the designated partners or those intending to be
designated partner of the proposed LLP.
The application for allotment of DIN has to be made in Form DIR-3. You have to
attach the scanned copy of documents (usually Aadhaar and PAN) to the form. The
form shall be signed by a Company Secretary in full- time employment of the
company or by the Managing Director/Director/CEO/CFO of the existing company in
which the applicant shall be appointed as a director.

Step 3: Reservation of Name

LLP-RUN(Limited Liability Partnership-Reserve Unique Name) is filed for the
reservation of name of proposed LLP which shall be processed by the Central
Registration Centre under Non-STP. But before quoting the name in the form, it is
recommended that you use the free name search facility on MCA portal. The system
will provide the list of closely resembling names of existing companies/LLPs based
on the search criteria filled up.
This will help you in choosing names not similar to already existing names. The
registrar will approve the name only if the name is not undesirable in the opinion of
the Central Government and does not resemble any existing partnership firm or an
LLP or a body corporate or a trademark. The form RUN-LLP has to be accompanied
with fees as per Annexure ‘A’ which may be either approved/rejected by the
registrar. A re-submission of the form shall be allowed to be made within 15 days for
rectifying the defects. There is a provision to provide for 2 proposed names of the
LLP.

Step 4: Incorporation of LLP

1. The form used for incorporation is FiLLiP(Form for incorporation of Limited
Liability Partnership) which shall be filed with the Registrar who has a
jurisdiction over the state in which the registered office of the LLP is situated.
The form will be an integrated form.
2. Fees as per Annexure ‘A’ shall be paid.
3. This form also provides for applying for allotment of DPIN, if an individual who
is to be appointed as a designated partner does not have a DPIN or DIN.
4. The application for allotment shall be allowed to be made by two individuals
only.
5. The application for reservation may be made through FiLLiP too.
6. If the name that is applied for is approved, then this approved and reserved
name shall be filled as the proposed name of the LLP
Step 5: File Limited Liability Partnership Agreement
LLP agreement governs the mutual rights and duties amongst the partners and also
between the LLP and its partners.

 LLP agreement must be filed in form 3 online on MCA Portal.

 Form 3 for LLP agreement has to be filed within 30 days of the date of
incorporation.
 The LLP Agreement has to be printed on Stamp Paper. The value of Stamp
Paper is different for every state.

Here is a list of documents required for registration:

Documents of Partners:

 PAN Card/ ID Proof of the Partners

 Address Proof of the partners
 Residence Proof of Partners
 Photograph
 Passport (in case of Foreign Nationals/ NRIs)

Documents of LLP:

 Proof of Registered Office Address

 Digital Signature Certificate
A. Documents of Partners
1. PAN Card/ ID Proof of Partners – All the partners are required to provide their
PAN at the time of registering LLP. PAN card acts as a primary ID proof.
2. Address Proof of Partners – Partner can submit anyone document out of
Voter’s ID, Passport, Driver’s license or Aadhar Card. Name and other details as per
address proof and PAN card should be exactly same. If spelling of own name or
father’s name or date of birth is different in address proof and PAN card, it should be
corrected before submitting to RoC.
3. Residence Proof of Partners – Latest bank statement, telephone bill, mobile bill,
electricity bill or gas bill should be submitted as a residence proof. Such bill or
statement shouldn’t be more than 2-3 months old and must contain the name of
partner as mentioned in PAN card.
4. Photograph – Partners should also provide their passport size photograph,
preferably on white background.
5. Passport (in case of Foreign Nationals/ NRIs) – For becoming a partner in
Indian LLP, foreign nationals and NRIs have to submit their passport compulsorily.
Passport has to be notarized or apostilled by the relevant authorities in the country
of such foreign nationals and NRI, else Indian Embassy situated in that country can
also sign the documents.
Foreign Nationals or NRIs have to submit a proof of address also which will be
a driving license, bank statement, residence card or any government issued identity
proof containing the address.
If the documents are in other than the English language, a notarized or apostilled
translation copy will be also be attached.

B. Documents of LLP
1. Proof of Registered Office Address
Proof of registered office has to be submitted during registration, or within 30 days of
its incorporation.
If the registered office is taken on rent, rent agreement and a no objection certificate
from the landlord has to be submitted. No objection certificate will be the consent of
the landlord to allow the LLP to use the place as ‘registered office’.
Besides, anyone document out of utility bills like gas, electricity, or telephone bill
must be submitted. The bill should contain complete address of the premise and
owner’s name and the document shouldn’t be older than 2 months.
2. Digital Signature Certificate
One of the designated partners needs to opt for a digital signature certificate also
since all documents and applications will be digitally signed by the authorized
signatory.

Time Involved In Registration Process

LLP formation starting from obtaining DSC to Filing Form 3 takes approximately 15
days subject to availability of all the documents.
Annual filings for Limited Liability
Partnership (LLP)
For a Limited Liability Partnership (LLP), the returns should be filed periodically
for maintaining compliance and escape heavy penalty under the law for non-
compliance. A Limited Liability Partnership has only few compliances to be
followed every year which is amazingly low as compared to the compliance
requirements placed on the private limited companies. However, the fines seem
to be quite large. Whilst non-compliance might only charge a Private Limited
company INR 1 lakh in terms of penalties, it might charge an LLP up to INR 5
lakh.

Limited Liability Partnerships are separate legal entities; hence, it is the duty of the
elected partners for maintaining a proper book of accounts and filing an annual
return with the Ministry of Corporate Affairs (MCA) annually. Limited Liability
Partnerships are not required to audit their books of account except where their
annual turnover is more than INR 40 lakhs or if the contribution is more than INR 25
lakh. Hence, an LLP is not required to get their books of account audited if it fulfills
the above-mentioned condition, making the process of annual filing simpler.
Limited Liability Partnerships are required to file their Statement of Account &
Solvency within a period of thirty (30) days from the end of six (6) months of the
financial year and Annual Return within sixty (60) days from the end of the financial
year. Dissimilar to Companies, Limited Liability Partnerships are mandatorily
required to maintain the financial year, from 1st April to 31st March. Hence, the
Statement of Account & Solvency is to be filled on or before October 30th of every
financial year and the annual return for LLPs is due on May 30th every year even if
the LLP has not completed any business in that specific financial year. Some of the
annual filings are mandatory whether the LLP has begun any business or not.

In short:

Annual Returns are to be filed in the prescribed Form-11. This form is

considered as the summary of management affairs of LLP, like numbers of
partners along with their names. Moreover, the form 11 has to be filed by 30th
May every year.

Filing and Audit requirement under Income

Tax Act
As discussed earlier, Limited Liability Partnerships whose turnover is more than INR 40 lakh
or whose contribution has exceeded INR 25 Lakh have to get the books of account audited
by practicing Chartered Accountants. The deadline to file the tax return for an LLP which is
required to get his books audited is September 30th. For LLPs where tax audit is not required
deadline, the due date for tax filing is July 31st.
For LLPs which have entered into any international transactions with associated enterprises
or have undertaken specified Domestic Transactions, need to file Form 3CEB. This form
should be certified by a practicing Chartered Accountant. Limited Liability Partnerships
which are required to file this Form can do their tax filing by 30th November.
LLPs should file their income tax return in Form ITR 5. This form could be filed online via
the income tax website with the help of the designated partner’s digital signature.

1. Convenient
It is easy to start and manage a business like entrepreneurs. LLP agreements are customized
in according to meet the needs of partners concerned. There is fewer formalities in areas of
legal compilation, annual meeting, resolution as compared to any other Private Limited
Company. For a detailed comparison between LLP and Private Limited read Choosing
between LLP and Private Limited.

2. No minimum capital requirement

LLP can be started with the minimum amount of capital money. Capital may be in the form
of tangible, movable asset like Land, machinery or intangible form. Capital requirement in
the case of a Private company( Requirements for Registration of a Private Company)
and Public Company(Requirements for registration of a Public Company) is Rs. 1, 00,000
and Rs. 5,00,000 respectively whereas no such mandatory capital requirement specified
under the LLP.

3. No limit on owners of business

LLP may have partners varying from 2 to many. There is no limit for partners in LLP. An
LLP requires a minimum 2 partners while there is no limit on the maximum number of
partners in contrast to a private company wherein there is a restriction of not having more
than 200 members.

4. Lower Registration Cost

The cost of registration of LLP is low as compared to any other company (Public or Private).
Read a Cost Comparison of LLP, OPC, private limited, partnership, proprietorship.

5. No requirement of compulsory Audit

LLPs are not required to audit the accounts. Any other company (Public, Private) are
mandated to get their accounts audited by the auditing firm. LLP is required to audit their
account in the following situation:

 When the contributions of the LLP exceeds Rs. 25 Lakhs, or

 When annual turnover of the LLP exceeds Rs. 40 Lakhs

6. Savings from lower compliance burden

LLP have to face less compliance burden as they have to submit only two statements i.e. the
Annual Return & Statement of Accounts and Solvency. Whereas in the case of private
company, at Least 8 to 10 regulatory formalities and compliances are required to be duly
completed. Read Annual Cost Comparison of Private Limited and LLP.

7. Taxation Aspect on LLP

LLP is not liable to pay the tax on the income and share of its partner. Thus, no dividend
distribution tax is payable as under section 40(b). Bonus, commission or remuneration,
Interest to partners, any payment of salary, allowed as deduction. Provision of ‘deemed
dividend’ under income tax law, is not applicable to LLP.

8. (DDT) not applicable

If the partners of LLP withdraw profits from the company, an additional tax liability in the
form of DDT is not payable by partners. Whereas, in the case of a company, the owners have
to pay DDT @ 15% ( surcharge & educational cess). Hence, profit of LLP is in the hands of
its partners can be easily withdrawn by the partners.

Assets of LLP
Partners undertake to contribute some amount towards LLP firm which they
contribute in the form of cash or assets, while executing the LLP agreement. Once
cash or assets are contributed to LLP, it cannot be returned to the partners of an LLP
unless there is any specific provision mentioned in LLP agreement.
Difficulty in transfer of ownership
Ownership rights are not transferable easily without obtaining consents of all
partners of the LLP.
If any partner wishes to transfer some portion of ownership, he has to obtain
consent of all partners. The resolution to be passed by majority in numbers of the
partners in some of these cases – increase or decrease in contribution, increase or
decrease of designated partners, alteration of working partners, amalgamation,
shifting of the registered office of firm, opening or closing of bank account.

Admission of new partner

The supplementary agreement containing details of new partners and his
contribution has to be created and then accordingly the existing partners need to
revise or change the contribution held by them due to admission of new partners in
the LLP agreement.
These changes have to be intimated to the concerned Registrar of Companies within
whose jurisdiction registered office of the LLP is situated.

Offenses and penalties

LLP Act has provided the provisions of offenses and penalties. For default/ non-
compliance on procedural matters such as delay in filing of e-forms, one has to
pay default fee for every day for which the default continues.
Such default fee would be payable at the rate of rupee one hundred per day after the
expiry of the date of filing (as prescribed in relevant provision) up to a period of
three hundred days. The offense can result in either (i) through payment of fine or
(ii) through payment of fine as well as imprisonment of the offender.
Permission of Foreign Direct Investment (FDI) in LLP
As per FDI Policy, FDI in LLP is allowed only through Government route, FDI in
LLP under automatic route is not permissible.
Further FDI in LLP through Government route is allowed to only those sectors
where 100% FDI is allowed under automatic route under the FDI policy.
Foreign company or individual can invest in LLP in India but it requires prior
government approval.
Limitation in External Commercial Borrowing (ECB)
LLP is not allowed to raise External Commercial Borrowing (“ECB”). Thus LLP
cannot take commercial loans from its foreign partners, FII’s (Foreign Institutional
Investors), banks from outside India, any financial institution outside India or any
other entity outside India.