Limited Liability Partnership

STRUCTURE OVERVIEW
Definition
Meaning & Objectives
• LLP is a partnership formed under LLP Act (A hybrid of partnership and company).
• It is a new form of corporate for carrying out business and profession with perpetual succession
• Important vehicle to cater to the needs of professionals, small scale sector and venture capital funds as well as innovative
business models which would lead to setting up of multi-disciplinary partnerships.

Nature of LLP
• Ministry of corporate affairs is the administrative ministry and ROC is the administrative authority.
• LLP is a body corporate having perpetual succession and is a legal entity separate from its partners. Any change in the
partners shall not affect the existence, rights or liabilities of LLP.
• One partner is not responsible or liable for another partner’s misconduct or negligence.
• Minimum of 2 partners and no maximum.
• Should be ‘for profit’ business.
• The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the
flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as
provided in the law.
• Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the
partner, except in cases of fraud.
• LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25
lakhs or annual turnover exceeds Rs.40 lakhs.
Advantages
Advantages
• A LLP is indeed advantageous because of comparatively lower cost of formation, lesser compliance
requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of
minimum capital contributions, partners are not liable for the acts of the other partners and importantly
no minimum alternate tax (as of date). But, LLP cannot raise money from the public.

Process of Incorporating
The process for incorporating a LLP is pretty simple as follows:
• The Registrar of Companies (ROC) is the authority having jurisdiction over the incorporation. The steps
required are:
• Decide on the Partners and the Designated Partners
• Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate.
• Decide on the name of the LLP and check whether it is available.
• Draft the LLP agreement
• File the LLP Agreement, incorporation documents and obtain the Certificate of Incorporation.
Structure Comparison
Features Company
Registration Compulsory registration
required with the ROC.
Certificate of Incorporation is
conclusive evidence.
Name Name of a public company to
end with the word “limited”
and a private company with
the words “private limited”
Capital contribution Private company should have
a minimum paid up capital of
Rs. 1 lakh and Rs.5 lakhs for a
public company
Access to Capital Markets Yes after meeting certain
compliances
Partnership firm LLP
Not compulsory. Unregistered Compulsory registration
Partnership Firm will not have required with the ROC
the ability to sue.
No guidelines. Name to end with “LLP””
Limited Liability Partnership”
Not specified A partner can contribute to
the capital of LLP either in the
form of money, property or
contract for services
No LLP might not be a choice due
to certain extraneous reasons,
for example, DOT would
approve the application for a
leased line only for a
company; Angels / VCs would
be comfortable investing in a
company.
Structure Comparison (contd.)

Features Company Partnership firm LLP

Legal entity status Is a separate legal entity Not a separate legal entity Is a separate legal entity

Liability Limited to the extent of unpaid Unlimited, can extend to the Limited to the extent of the
capital. personal assets of the partners contribution to the LLP.

No. of shareholders / Minimum of 2. In a private 2- 20 partners Minimum of 2. No maximum.

Partners company, maximum of 50
shareholders

Foreign Nationals as Foreign nationals can be Foreign nationals cannot form Foreign nationals can be
shareholder / Partner shareholders. partnership firm. partners.

Taxability The income is taxed at 30% + The income is taxed at 30% + Not yet notified.
surcharge+cess surcharge+cess

Meetings Quarterly Board of Directors Not required Not required.

meeting, annual shareholding
meeting is mandatory

Annual Return Annual Accounts and Annual No returns to be filed with the Annual statement of accounts
Return to be filed with ROC Registrar of Firms and solvency & Annual Return
has to be filed with ROC
Structure Comparison (contd.)
Features Company
Audit Compulsory, irrespective of
share capital and turnover
Credit Standpoint High creditworthiness, due to
stringent compliances and
disclosures required
Dissolution Very procedural. Voluntary or
by Order of National Company
Law Tribunal
Partnership firm LLP
Compulsory Required, if the contribution is
above Rs.25 lakhs or if annual
turnover is above Rs. 40 lakhs.
Creditworthiness depends on Credit worthiness perception is
goodwill and credit higher compared to that of a
worthiness of the partners partnership but lesser than a
company. The credit assessment
process remains as in the company.
Creation of charge under purview of
ROC as the administrative authority.
By agreement of the Less procedural compared to
partners, insolvency or by company. Voluntary or by Order of
Court Order National Company Law Tribunal or
no. of partners below 2 for more
than 6 months, default in financial
disclosure, failure to honor debt
obligations
 THANK YOU

Saraf & Chandra

Chartered Accountants
Suite # 501, Ashoka House, 5th Floor
3A, Hare Street, Kolkata 700 001

Tel No: +91 33 22317108

Fax No: +91 33 22317109
www.sarafchandra.com
saraf@sarafchandra.com