New LLP registration: LLP or Limited Liability Partnership is a popular business structure due to its limited liability feature, which ensures that partners are only liable for the amount they have contributed to the business. This shields their personal assets from business-related debts and losses. Additionally, partners are not held responsible for the misconduct or negligence of other partners, further safeguarding their interests.
Running an LLP is convenient and cost-effective as it requires only two annual compliances: filing the annual return by May 30 and the solvency statement by October 30 each year. Furthermore, closing an LLP is a relatively speedy process, taking about two to three months, in contrast to a private limited company, which can take up to a year for closure. Another advantage is that there is no mandatory minimum capital requirement, and an LLP can be established with just two partners.
However, there are certain drawbacks associated with an LLP. For instance, if one partner decides to leave the organization, the LLP may be dissolved. Non-compliance can lead to fines, which can be as high as Rs 5 lakh per year. Even if an LLP is dormant, it still needs to file income tax and annual returns regularly. Failure to file Form 8 or Form 11 (annual filings) incurs a fine of Rs 100 per day, per form.
One notable limitation is that private investors, including angel investors or venture funds, cannot invest in an LLP since there is no concept of equity shareholders as seen in other business structures. Moreover, unlike companies with a turnover of up to Rs 250 crore, LLPs are subject to a higher income tax rate of 30 per cent, regardless of their turnover.
How to Set Up a Limited Liability Partnership in India
- The first step in registering an LLP in India is to get the Digital Signature Certificate (DSC) and Director Identification Number (DIN). DSC is a specific type of digital certificate issued by licensed Certifying Authorities (CAs) and serves as a legally recognized form of digital signature within the country. DIN, on the other hand, is a unique identification number allotted to an individual who is appointed as a director of a company.
- Then comes reserving the name of your proposed LLP or Limited Liability Partnership-Reserve Unique Name (LP-RUN). Check the free name search facility on the MCA portal under MCA Services > LLP Services > Check LLP Name
- The registrar will approve the name if it sees the name not undesirable or doesn’t sound similar to any existing partnership firm, LLP, trademark or body corporates
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- Click on the ‘E-form’ link on the portal and select Form 1 to reserve the name (up to six names can be entered)
- Enter details of at least two designated partners of the proposed LLP
- Append DSC and submit the form along with the required fee
- Once the name is reserved by the Registrar, login to the MCA portal and select MCA Services > E-Filing > LLP Forms Download > Incorporation Document and Statement (Form 2)
- Fill the form and pay the required fee as per the total monetary value of the contribution of partners in the proposed LLP. If the contribution is not more than Rs 1 lakh, the fee is Rs 500; between Rs 1 lakh and Rs 5 lakh, the fee is Rs 2,000; Rs 4,000 if the contribution is between Rs 5 lakh and Rs 10 lakh and Rs 5,000 if the contribution exceeds Rs 10 lakh
- The form has to be digitally signed by the person named in the incorporation document as a designated partner having permanent DPIN and also to be digitally signed by an advocate or company secretary or chartered accountant or cost accountant
- The submitted form will be analysed by the registrar and if found satisfactory, the LLP will be registered in 14 days and will issue a certificate of incorporation