To start a business in India, you need to determine which type of legal entity is best for your needs. For many new companies, particularly those that are formed by professionals or as small businesses, registering as a Limited Liability Partnership (LLP) could be the right choice. An LLP provides the flexibility of a traditional partnership combined with the security of a private limited company. An LLP protects its partners from the risk of losing their personal assets in the event that the business suffers financial losses or faces legal issues, but still provides the partners with flexibility to run the business.
In this guide, we will explain the requirements for becoming eligible to register as an LLP, the purpose of an LLP, the process for registering as an LLP, and the costs associated with registering as an LLP within the country.
What is an LLP Registration?
LLP Registration is the process of registering a Limited Liability Partnership (LLP) with the Ministry of Corporate Affairs (MCA) under the Limited Liability Partnership Act 2008.
Upon registering with the MCA, the LLP creates itself into a distinct, legal entity separate from its partners. That is, once registered, the LLP can have its own assets, enter into contracts, and conduct business independently from its partners.
This is the option most often chosen by:
- New business startups,
- Professional services providers (i.e., consultants; chartered accountants; lawyers; freelancers),
- Established small to medium-sized businesses.
Primarily because of the benefits provided to partners by way of limited liability, reduced compliance obligations, and greater operational flexibility.
Who Can Register an LLP?
To become either a partner or a legal entity in an LLP, you have to meet some basic criteria to register your LLP in India.
Minimum Number of Partners
You will require at least two partners (i.e., an LLP cannot be formed without two partners).
There is no limit as to how many partners may be involved in forming an LLP.
Designated Partner Requirement
You must have at least two designated partners (i.e., two people who will run the business).
At least one designated partner must reside in India.
Eligible Persons
To register an LLP, the following people or entities may do so as partners:
- Citizen of India.
- Foreign person.
- Non-resident Indian (NRI).
- Company/corporation.
Procedure to Register an LLP in India
The Registration of a Limited Liability Partnership in India is done online via the Ministry of Corporate Affairs (MCA) website.
Step 1: Digital Signature Certificate
All of the designated partners must obtain a Digital Signature Certificate, as this will be used for the signing of the online documents during the registration process.
Step 2: Director Identification Number
After obtaining the Digital Signature Certificate, each of the designated partners must then apply for a Director Identification Number, which is that partner's unique identification number assigned to them by the MCA.
Step 3: Reserve LLP Name
The next step is the reservation of an LLP name, which is again completed online through the MCA portal. The name of the LLP must be a unique name that has either the words Limited Liability Partnership or the abbreviation LLP at the end of the name.
Step 4: File LLP Incorporation Application
After the reserved LLP name has been approved, the designated partners will file the LLP Incorporation Application (FiLLiP) form for the registered business (LLP). This application must be accompanied by a number of supporting documents.
Step 5: Submit Required Documents
Most documents required during this step include:
- Partners PAN card
- Aadhaar/ID proof
- Proof of address for all partners
- Foreign nationals need to provide a copy of their passport
- Proof of registered office
- Utility bill/rental agreement
Step 6: Certificate of Incorporation
The MCA will issue a Certificate of Incorporation after completing its due diligence and verifying the required documents for registering an LLP in India.
Step 7: File Partnership Agreement
Within 30 days of registering as an LLP in India, partners must file a Partnership Agreement with the Registrar, which sets out how partners will work together to share profits and who will run the business.
Once all these steps are completed, the company can legally commence business operations.
Cost of LLP Registration in India
The cost of registration for an LLP varies based on factors such as professional fees, government fees, and the contribution of partners to establish an LLP.
Some of the Key Benefits of an LLP
Limited Liability
Limited liability means that your partner’s personal assets cannot be used to pay back business debts.
Separate Legal Entity
An LLP is a distinct legal entity separate from its partners, similar to how a corporation is a separate entity from its shareholders.
Lower Compliance Than Private Limited Companies
Compared to a private limited company, LLPs have fewer compliance requirements, making start-up less cumbersome.
No Minimum Capital Requirement
The LLP does not require a minimum amount of paid-in capital to establish it.
Flexible Profit-Sharing Ratios
The partners can agree on their share of the profits through a partnership agreement.
For these reasons, LLPs are becoming more popular with small businesses and new ventures.
Conclusion
Forming an LLP is a great alternative for Entrepreneurs, Professionals, and Small Businesses that want a simple (easy), flexible, and legally secure way to structure their business.
The advantages of an LLP include limited liability protection, minimal compliance requirements, and operational flexibility- these features create a good combination for both Partners and Company structures.
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