2020 has been the best year so far for many of those who wanted to do something on their own. The startup air is freely flowing throughout the country with many people wanting to quit their full-time jobs and build their own businesses. With that said, a business can’t be set up without being registered, and to register, you need to be well acquainted with the registration types: Sole Proprietor, Limited Liability Company, Private Limited Company, and Limited Liability Partnership. And, in this blog post, we are discussing in detail about the Limited Liability Partnership.
What is LLP?
An LLP is a type of legal business structure with multiple partners who share limited liabilities. It is the combination of a business structure where the partners enjoy the benefits of a company’s limited liability and the flexibility of a partnership.
In this type of business structure, a minimum of 2 partners are required, and any number of partners can be added, unlike the private limited, and the partners share limited liabilities. The personal assets of the partners are not at risk here, whatever the cause.
Advantages of a Limited Liability Partnership
1. The process of formation of a Limited Liability Partnership is uncomplicated.
2. LLP enjoys various tax benefits and provisions from the government.
3. A bare minimum of 2 partners must form an LLP, and there is no ‘maximum’ limit.
4. The partners of the LLP share limited liability. This means:
– The personal assets of the partners are not at any risk even if the company goes bankrupt.
– No partner is responsible for the misconduct or misbehavior of the other.
5. The transfer of ownership can be done in a Limited Liability Partnership (LLP).
6. The company continues to live even if any of the partners die or dissolve their partnership and can only be dissolved by the company act of 2008.
7. The board of directors is the decision-makers in the company and not the shareholders.
Disadvantages of a Limited Liability Partnership
1. The LLP came into existence in 2009 and is not a well-known form of business structure. Hence, most people don’t even consider forming an LLP.
2. The transfer of ownership is a tedious task with a lot of complications involved.
3. People trust companies and partnerships more than Limited Liability Partnerships.
4. There is always a conflict between the partners as there is no understanding between them, and they do not consult each other before making any decisions in the business interest.
Documents required to start an LLP
1. PAN Card of the Partners
2. Address Proof of the Partners
3. Utility Bill of the proposed Registered Office of the LLP
4. No-Objection Certificate from the Landlord
5. Rental Agreement Copy between the LLP and the Landlord
How to register a Limited Liability Partnership?
The Ministry of Corporate Affairs (MCA) has simplified the process of formation of LLP. The process to follow to register a Limited Liability Partnership are as follows:
1. NAME APPLICATION – You must select at least two names for the Company. The name should not be generic or shouldn’t be taken by another company or an already registered trademark.
2. DSC APPLICATION – A Digital Signature Certificate is the certificate obtained after registering your signature (the signature which will be used to sign the business documents online). If you don’t have Digital Signature Certificate already, you must apply for DSC within the time your name application is pending with MCA.
3. MOA / AOA PREPARATION – Nowadays, Memorandum and Articles of the Company need to be prepared online and signed using DSC unless the Company has foreign directors or body corporate subscribing to the shares which case documents need to be signed physically.
4. DIN APPLICATION – Director Identification Number (DIN) application for directors can be made at the time of filing to incorporate the Company.
5. INCORPORATION – You must file the documents along with the application. MCA will see the documents submitted. If they find the documentation to be in order, they will issue a Certificate of Incorporation of the Company and the PAN and TAN of the Company.
6. CURRENT BANK ACCOUNT: With a certificate of Incorporation, you need to open a current bank account in the name of the Company.
Once the bank account is incorporated and you start operations of the Company, you will need to file a Certificate for Commencement of Business to the MCA informing you that you have commenced the company’s business.
That’s all! You are all set to launch your business now. However, consulting an expert is advised for personalized guidance.