What is a Limited Liability Partnership?
Limited Liability Partnership is a balanced organization structure, carrying benefits conventional partnership and still limiting personal liabilities of the partners. LLPs are regulated as a contractual agreement between the partners under the Limited Liability Partnership Act, 2008. It is a popular choice for services and professional firms like Chartered Accountants, recruiting firms, consulting businesses, etc.
LLPs are similar to Private Limited Companies with respect to compliance and operational requirements. As it is recognized to be a separate legal entity than the partners, it can contract or involve in any legal proceedings in its own name. That enables the partners of an LLP to separate business liabilities or debts being recovered from their personal assets. Compliance requirement for LLPs are greater than regular partnership firms. However, Compared to a private limited company structure, LLPs have lesser compliance requirements and it is an economical option to incorporate and maintain.
As a shortfall, transfer of ownership of an LLP is not as easy as a company. Neither an LLP can issue ESOP. For the reason, LLP is not an ideal choice for startups who want to hyper-grow, seek seed investor or venture capital funding, or issue share capital to its employees.
The process of LLP Registration in India is revamped by the Ministry of Corporate Affairs. A quicker process of LLP incorporation is made available on 2nd October 2018 as part of the ease of doing business initiative by the government.
What are the key benefits of starting a business as an LLP?
Which documents are required for registering an LLP?
LLP name structure
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What is the Right Business Structure for You?
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|Private Limited Company||One Person Company||Limited Liability Partnership||Partnership Firm||Proprietorship Firm|
|Act||Companies Act, 2013||Companies Act, 2013||Limited Liability Partnership Act, 2008||Indian Partnership Act, 1932||No specified Act|
|Registration under Companies Act is mandatory||Registration under Companies Act is mandatory||Registration under LLP Act is mandatory||Unregistered partnerships are legal, but registered entity enjoys certain advantages||There is no registration criteria prescribed. But, registration is recommended|
|Number of members||2 – 200||Only 1||2 – Unlimited||2 – 50||Only 1|
|Minimum 2 and not more than 200 shareholders||Only an individual,and an Indian resident can be the shareholder||No bar on maximum number of partners, but minimum 2 Designated Partners are required||It is formed with minimum 2 partners, but not exceeding 50||Proprietor is the only owner of the firm|
|Separate Legal Entity||Yes||Yes||Yes||No||No|
|It is a separate entity and can own assets in its name||It is a separate entity and can own assets in its name||It is a separate entity and can own assets in its name||It does not have any separate identity from its partners||Proprietor and business are considered the same|
|Limited up to the total value of shares subscribed||Limited up to the value of shares subscribed||Limited up to the capital amount agreed to introduce||Partners are jointly and severally liable to pay the debts of the Partnership Firm||Proprietor’s liability is to pay-off all the debts and obligation of the firm|
|Statutory Audit||Mandatory||Mandatory||Dependent||Not mandatory||Not mandatory|
|Auditor must be appointed within the 30 days of incorporation||Auditor must be appointed within the 30 days of incorporation||Applicable when turnover exceeds INR 40 Lakh or contribution exceeds INR 25 Lakh||Statutory audit not applicable. Tax audit may be applicable based on turnover||Statutory audit not applicable. Tax audit may be applicable based on turnover|
|Shares can be transferred with the consent of other Shareholders||Shares are not transferable easily||Ownership can be changed with consent of other partners||Ownership is not transferable easily, clause of partnership deed should be referred||Firm is no different from proprietor and so ownership is not transferable|
|Perpetual existence as the management and owners are different. Ownership is easily transferable||Perpetual existence.|
The nominee will take place of member
|Change in Partners or Designated Partners does not affect the existence of LLP||Change in partner leads to dissolution or formation of another partnership firm||Death or insolvency of proprietor directly affects the firm|
|Foreign Participation||Allowed||Not Allowed||Allowed||Not Allowed||Not Allowed|
|Foreign national are allowed to invest under the Automatic Route||Member, nominee and director must be an Indian resident||Foreign nationals are allowed, subject to FDI Guidelines||Foreign nationals are not allowed to be a partner||Foreign Nationals cannot commence proprietorship business|
|Tax rate applicable for small companies is reduced to 25%, dividend distribution tax applicable||Tax rate applicable for small companies is reduced to 25%, dividend distribution tax applicable||With tax rate of 30% on business profit, no tax on income distribution to partners||With tax rate of 30% on business profit, no tax on income distribution to partners||Tax rates of individual applied to Proprietorship Firm|
|Companies have to meet high compliance requirements||Companies have to meet high compliance requirements||Lesser compliance requirements compared to companies||Separate ITR of partnership is filed, else there is no filing requirement||No compliances and no requirement to file a separate ITR|
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