Limited Liability Partnership: Meaning, Features, Advantages & More

A business model that combines the flexibility of a partnership with the security of limited liability has become a preferred form of organisation among entrepreneurs. And this is what a Limited Liability Partnership (LLP) offers. Whether you have a start-up or are looking to enhance your venture, an LLP as the name suggests, could give you the strategic advantage to take your venture forward.

What Is a Limited Liability Partnership (LLP) in business?

A limited liability partnership (LLP) in business is an innovative structure where partners have limited liability, which means, they are not responsible for the debts and claims of the LLP surpassing their invested capital and any personal agreements made. LLP is appealing to small and medium-sized businesses.

In a limited liability partnership (LLP), partners can benefit from a cost advantage of scale by working together and reducing their liability for the actions of other partners. Just as with any legal entity you must check with a (LLP experienced) lawyer first and know the laws in your country (your state) before making decisions. Limited Liability Partnership (LLP) Act of 2008 is a distinguished business structure that blends partnership flexibility with corporate liability protection

What are the features of a limited liability partnership (LLP) in business?

Here are some unique features of a Limited Liability Partnership (LLP) designed to offer both protection and flexibility in a business:

• There is a separate legal entity just like other companies.
• A minimum of two persons should come together as partners to establish LLP. 
• There is no upper limit on the maximum number of partners.
• At least one designated partner must be a resident of India.
• The liability of each partner is limited to the contribution made by the partner.
•  The formation of an LLP is a low-cost initiative.
•  There are fewer compliance and regulations in an LLP
• The is no requirement for minimum capital contribution to form an LLP

What are the advantages of a Limited Liability Partnership (LLP) in business?

Some advantages of Limited Liability Partnership (LLP) include:

• Separate legal entity: Having a separate identity, LLP can practice certain benefits like owning property, entering contracts, engaging in legal proceedings, etc independently.
• Limited liability of the partners: With limited liability, partners are also not responsible for the LLP ‘s debts and obligations. It is limited to only paying the contributions agreed upon to protect their assets.
• Low cost and less compliance: LLP is a low-cost enterprise in comparison to any corporation. With fewer regulatory and compliance requirements an LLP is easier to manage.
• Minimum capital contribution: There is no requirement to have a minimum capital before forming an LLP. It can be formed with any amount of capital contributed by the partners.
• Pass-Through Taxation: LLP does not need to pay an income tax. The structure saves tax as the partners are not taxed doubly as in a corporation.

What are the disadvantages of a Limited Liability Partnership in business?

There are some disadvantages owing to the nature of a Limited Liability Partnership enterprise. They are:

Penalty for non-compliance: While there is low compliance in LLP, the flip side is that you must pay a heavy penalty if the compliances are not completed on time. It is needed to file returns with the Ministry of Corporate Affairs irrespective of any activity in the year. On failing a penalty is imposed on the LLP.

Winding up and dissolution of LLP: The LLP is dissolved if it does not meet two criteria. A) An LLP must have two partners for six months B) If the LLP fails to pay its debts.

Difficulty in raising capital: Since LLPs do not have theedge of equity or shareholdinglike a company, there is no window for Angel investors or venture capitalists to invest in an LLP. A shareholder must be a partner in LLP besides taking responsibility as a partner. As a result, investors do not invest in an LLP which makes it difficult to raise capital.

What is the LLP Registration Process in business?

A few steps delve into the LLP registration process for businesses which include:

Step 1: Acquire Digital Signature Certificate (DSC)

For registration, apply for a digital signature of the designated partners of the LLP proposal. All LLP documents are filed online and hence need digital signatures. The partner has to collect the class 3 category of DSC from government-recognized certifying agencies. A list of certified agencies will be provided and the cost of a DSC shall depend on the agency.

Step 2: Apply for a Designated Partner Identification Number (DPIN)

All the designated partners or those intending to be designated partners must apply for DPIN. The application for allotment of DPIN must be made from DIR 3. Scanned copies of documents (Aadhar and PAN) need to be attached to the form which needs to be duly signed by a practising Company Secretary, Chartered Accountant, or Cost Accountant. It's important to note that only a natural person can be a partner in an LLP who is eligible to acquire a DPIN. No artificial legal entities like a company, LLP, OPC, or association of persons are allowed a DPIN.

Step 3: Name Approval

For reservation of the name of the proposed LLP, a RUN -LLP (Reserve Unique Name-Liability Partnership) is filed which shall be processed by the Central Registration Centre. It is recommended to do a free search on the MCA portal before quoting the name.

You need to choose from a list of names from the system of existing companies/LLPs which makes your selection simpler. A suitable non-repetitive name shall be approved by the Central Government.

In case of a re-submission, a 15-day window shall be provided for any rectifications. You can provide 2 names of the LLP and must apply within 3 months from the name approval by the MCA.

Step 4: Incorporation of LLP

• The form used for incorporation is FiLLiP (Form for incorporation of Limited Liability Partnership) is filed with the Registrar with the authority over the state in which the registered office of the LLP is located. This is a unified form.
• Fees will be as per Annexure ‘A’
• This form is also used for applying for allotment of DPIN, in case a designated partner does not have a DPIN or DIN.
• The application for allotment can be made by two individuals only.
• The FiLLiP form can be used for name reservation too.
• The approved name and the reserved name shall be filled in the LLP.

Step 5: File Limited Liability Partnership (LLP) Agreement

LLP agreement is a contract of the mutual rights and duties with the partners and between the LLP and its partners.

• LLP agreement must be filed in Form 3 online on MCA Portal.
• Form 3 for the LLP agreement must be filed within 30 days from the date of incorporation.
• The LLP Agreement must be printed on Stamp Paper whose value differs from state to state.

What Documents are required for LLP Registration of business?

Documents of Partners

• PAN Card/ ID Proof of Partners: All the designated partners must provide their PAN ( as id proofs) at the time of registering LLP.
• Residence Proof of Partners: Partners can submit voter’s ID, passport, driver’s license, utility bills not older than 2 months, or Aadhaar card as residence proof. The name and other details of residence proof and PAN card should be the same. 
• Photograph – Partners should also submit their passport-size photograph on a white background.
• Passport (in case of Foreign Nationals/ NRIs) – If a foreign national and NRIs is a partner, they must submit their passport mandatorily. A passport must be notarized by the relevant authorities in the country or the related Embassy of such foreign nationals and NRI.

Foreign nationals or NRIs must submit proof of address also which will be a driver's 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 translation copy must be attached.

Documents of LLP

• Proof of the registered office of the LLP must be given during registration or within 30days of its incorporation.
• A rent agreement and a no-objection certificate from the landlord must be submitted if the LLP is using such a space as a registered office.
• All documents of utility bills like gas, electricity, telephone, etc are to be submitted bearing the complete address of the LLP premise and they need to be 2 months old only.
• Digital Signature Certificate: DSC application by one of the designated partners to be mandatory as all documents will be digitally signed.

What is the Checklist for LLP Registration?

• A minimum of two partners.
• DSC for all designated partners.
• DPIN for all designated partners.
• New name of the LLP, that does not exist in LLP or trademark.
• Capital contribution by the partners of the LLP.
• LLP Agreement between the partners.
• Proof of registered office of the LLP.

FAQs

Q1. Is LLP registration mandatory for a business?

Ans. Yes, registration of an LLP on the Ministry of Corporate (MCA) portal is mandatory to be a legally valid entity. 

Q2.What is DPIN?

Ans. A Designated Partner Identification Number (DPIN) is a unique number generated by the MCA to the designated partner of an LLP. DPIN can either be applied by a person when registering an LLP, or a person can later apply for a DPIN to become a designated partner of an existing LLP. 

Q3. What is the qualification of a person to be appointed as a designated partner in an LLP?

Ans. Any individual can become a designated partner in an LLP by consenting to it and fulfilling the LLP agreement. A corporation cannot be a designated partner. All partners can be designated partners in an LLP if such a provision is provided in the LLP agreement.

Q4. Which bodies cannot be converted into LLP?

Ans. Public companies, non-profit organisations, companies with unlimited liability, companies under special regulations, and companies under investigation or litigation are among the entities that cannot be converted into LLPs.