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LLP (Limited Liability Partnership)
A Limited Liability Partnership (LLP) is a popular business structure in India that combines the benefits of a partnership and a private limited company. It is ideal for businesses looking for a flexible structure with limited liability for partners and minimal compliance requirements.
Key Features
- Limited Liability: There is limited liability to the extent of the agreed contribution of each partner in the LLP.
- Distinct Legal Entity: The LLP holds a distinct legal identity independent of its partners.
- Continuous Existence: The LLP survives if there is a transition in partners.
- Flexible Operations Management: Partners can manage operations as agreed.
- Minimal Compliance: Companies are usually subject to more regulations.
Documents Required
- PAN Card of all partners.
- Aadhar Card or Address Proof (e.g., passport, voter ID) of all partners.
- Address Proof of Registered Office (utility bill, rental agreement, or NOC from the owner).
- Passport-size Photographs of all partners.
- Digital Signature Certificate (DSC) for all designated partners.
- LLP Agreement (drafted after incorporation).
Process
- Get DSC: To file the online forms, a Digital Signature Certificate is a must.
- Apply for DIN: Designated Partner Identification Number (DIN) for all partners.
- Approval of Name: Reserve a unique name for the LLP with the Ministry of Corporate Affairs (MCA).
- File Incorporation Form: Submit Form FiLLiP with necessary documents to incorporate the LLP.
- Draft LLP Agreement: Which outlines the roles and responsibilities of partners and profit-sharing.
- Certificate of Incorporation: Get the official Certificate of Incorporation issued by the MCA.
- Apply for PAN and TAN: Essential for tax and financial compliance.
- Open Bank Account: Open a current account in the LLP's name.
General Partnership vs. LLP
General Partnership and LLP are similar but differ in structure, regulation, liabilities, advantages / disadvantages. One can choose based on business goals. Few of the differences are highlighted below.
| Parameter | Difference |
|---|---|
| Number of Partners | General Partnership has 2–10 members, while LLP needs 2 partners, with no limit on maximum. |
| Legal Status | Partnerships lack separate legal status while LLPs have perpetual succession and separate entity. |
| Compliance | LLPs must file annual returns with MCA and ROC, while partnership firms don't need to file. |
| Transferability | Partnership requires all partners' consent for share transfer, while LLP allows more flexibility. Transferee isn't automatically a partner. LLP's ownership structure is more complex. |
| Perpetual Succession | Partnership Firm does not have perpetual succession whereas LLP has perpetual succession. |
| Property Purchase | Partnership can't buy property in its name, while LLP can buy movable/immovable property in its name. |
| Audit of Accounts | Partnership firms need audit as per Income Tax Act. In contrast, LLP audit depends on annual turnover which is 40 lakhs annually. |
| Agreement Between Partners | Partnership governed by Partnership Act, while Partnership Deed controls operation. LLP governed by LLP Act, and LLP Agreement controls operation. |
| Manageability | Partnership firms tied to state government, while LLPs registered under MCA and have more flexibility to move and operate. |
| Partners’ Dependency | Partnership dissolution affected by partner's resignation or death, while in LLP, subsistence doesn't depend on partners. |
| Dissolution | Partnership can dissolve by agreement, court order, etc. LLP can dissolve voluntarily or by order of National Company Law Tribunal. |
Private Limited vs. LLP
| Private Limited Company | LLP |
|---|---|
| It is a tightly held business entity incorporating the qualities of a corporation and a partnership. | It is a type of partnership in which participants’ liability is fixed to the amount of money they invest. |
| LLC stands for Limited Liability Company. | LLP stands for Limited Liability Partnership. |
| The obligation of its members is determined by unpaid investment returns on shares. | The partners’ liability is restricted to the amount they contribute. |
| Regulated by Memorandum of Association (MoA) and Article of Association (AoA). | Regulated by the LLP Partnership Agreement. |
| Directors are the owners of the firm. | Partners are the owners of the firm. |
| The tax on profit is 25%. | The tax on profit is 33%. |
| Company name selection → DIN & DSC application. | DIN registration for partners and DSC for at least one partner. |
| A Private Limited Company continues to exist even if directors change. | An LLP ceases to exist if partners leave or die. |
| Audit requirement is mandatory. | Audit mandatory only if turnover exceeds Rs. Forty Lakhs or capital exceeds Rs. Twenty Five Lakhs. |
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