To remodel your business into a Limited Liability Partnership arrangement, you must know the complete nature of such a business model.
LLP Membership Guidelines
To overcome the drawbacks of a Partnership Firm, the Ministry of Corporate Affairs, to serve the purpose of a Partnership arrangement in business, came up with a new business model, i.e. Limited Liability Partnership (LLP). This LLP structure is operated and governed by the mutually agreed LLP Partnership agreement between its member partners.
One can define an LLP as a combination of a Partnership firm minus its disadvantages and a registered company. It has many similar features to that of a registered company. But let us also first understand the differences between an LLP and a Private Limited company and their respective advantages and disadvantages.
LLP vs Pvt Ltd Company: Points of Differences
Incorporation Process
Although almost similar in their approach, an LLP requires registering for and obtaining a DPIN for designated partners. In contrast, a registered company must register for and obtain a DSC and DIN number for its member directors.
Cost of Incorporation
An LLP is a business model for relatively small to medium businesses. Also, the government fee for an LLP registration is cheaper than that of a Private Limited Company. Whereas a PLC is a business model meant for larger enterprises. Therefore, it requires more incorporation costs.
Business Model
A PLC business structure is more flexible than that of an LLP. It offers an easy transfer and sharing of business stocks within the firm.
Compliance
An LLP enjoys lesser compliance and regulations in comparison to a PLC. PLC is a fairly large structure, so the vigilance of the MCA is more on the registered company model. Hence, we have listed some of the LLP vs PVT LTD advantages and disadvantages, and you can choose the business model as per your choice.
Now, coming back to the roles of the designated partners, let us discover the nature of the new Partnership business model that we have written about in this article.
Limited Liability Partnership: Corporate Structure
An LLP is a corporate body formed and incorporated under the Limited Liability Partnership Act. It is a legal entity separate from that of its partners. An LLP firm has perpetual succession. Any change in the partners of an LLP firm registration does not affect the LLP firm's existence, rights or liabilities.
Member Partners Qualification
Any individual or corporate can be a partner in a Limited Liability Partnership firm, provided that an individual must not become a partner if he is of unsound mind by a Court of competent jurisdiction and the finding is in force. Also, he is an undischarged insolvent and has applied to be adjudicated insolvent, and his application is pending.
Membership Limit as defined in the LLP Partnership Agreement
Every limited liability partnership shall have at least two partners. Suppose at any time the number of partners in an LLP partnership agreement is well below two. Also, the Limited Liability Partnership firm carries on business for more than six months while the number of members is decreasing. In that case, the person who is the only partner of the LLP firm will be liable personally for the obligations of the Limited Liability Partnership firm during that period.
Limited Liability Partnership: Liabilities of Designated Partners
A designated partner must be responsible for all acts, matters and things as required. This includes filing any document, return, statement and report under the provisions of the LLP partnership agreement. A designated partner must be liable for all penalties on an legal liability partnership for contravention of those provisions.
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