Limited Liability Partnership

Limited Liability Partnership (LLP) is a flexible legal and tax entity that allows partners to benefit from an economic scale by working together while also reducing their liability for the actions of other partners. An LLP has overlapping characteristics of both the partnership firm and Private limited. In India, LLPs are regulated by The Limited liability Partnership Act, 2008. They are common in professional businesses like law firms, accounting firms, and wealth managers.

Benefits

Limited Liability
The liability is limited to the partners' contributions. If an LLP becomes insolvent, only the LLP assets are liable for clearing its debts. The partners have no personal liabilities, unlike sole proprietorship and partnership.
Separate legal entity
Similar to a private limited registration, an LLP is also a separate legal entity. Therefore, the partners' and the entity’s liabilities and assets are treated separately. It also helps protect each party’s property appropriately.
More straightforward Registration Process & Less compliance
The cost of forming and managing an LLP is low compared to incorporating a public or private limited company. The government enforces fewer restrictions and compliances on an LLP.
No minimum capital contribution
There is no requirement to have a minimum paid-up capital before incorporation. It can be formed with any amount of capital contributed by the partners.
Perpetual Succession
The Limited Liability Partnership is not affected by the partner's death, retirement, or insolvency. The LLP gets winded up as per provisions of the act of 2008.
No maximum limit to the Partners
There is no maximum limit to the partners in an LLP, so there can be abundant contributions from all the partners.

Limitations

Difficulties in raising capital
LLP often lacks the concept of equity or shareholders, thus making it difficult for Angel investors and venture capitalists to invest in the LLP as shareholders. It cannot come out with its IPO and raise money from the public.
Dissolution of LLP
In terms of business losses or debts, LLP can be dissolved if it doesn’t fulfil the minimum requirement of partners, i.e., two. If any of the Designated Partners in an LLP dies or pulls out of the venture and the number of partners in the LLP falls below 2, the lone remaining partner has the right to continue operations for a period of six months. If the sole partner continues to operate the business after the first six months, the LLP gets dissolved. The sole partner can either bring in another partner to continue being an LLP or register the firm with an appropriate business type like a sole proprietorship or One Person Company.

Documents Required

Partners' documents
a. PAN card
b. Address proof
c. Residence proof
d. Photographs.

2. The proof of Registered address of the Office.

Registration/ Incorporation Process

1. Obtain a Digital Signature Certificate (DSC)

A DSC is a digital method of verifying or attesting a document.
A class 2 or class 3 DSC can be obtained through any Government Certifying Agencies (CAs).
You can directly approach CAs for an Aadhar e-KYC-based verification or through the help of supporting documents like PAN, proof of Identity, address proof, etc.
The DSC is often issued with one year or two year validity. DSC is mandatory for all witnesses in the Memorandum of Association (MOA) and Articles of Association (AOA).
This link has details on all certifying agencies athorized to issue DSCs.

2. Obtain a Director Identity Number (DIN)

A DIN serves as a director's identification number.
There are two ways to obtain a DIN -
i. One can either file the eform DIR 3 to get a DIN allotment, or
ii. Apply for DIN through the SPICe+ form. A maximum of three directors can apply for DIN via the SPICe+ form.

c. One DIN is sufficient to serve as a director in any number of businesses.
d. Note: SPICe+ form is used to register your company. More information on the SPICe+ form is provided in the following steps. For additional information on obtaining DIN you can visit the link provided here.

2. Obtain a Director Identity Number (DIN)

A DSC is a digital method of verifying or attesting a document.
A class 2 or class 3 DSC can be obtained through any Government Certifying Agencies (CAs).
You can directly approach CAs for an Aadhar e-KYC-based verification or through the help of supporting documents like PAN, proof of Identity, address proof, etc.
The DSC is often issued with one year or two year validity. DSC is mandatory for all witnesses in the Memorandum of Association (MOA) and Articles of Association (AOA).
This link has details on all certifying agencies athorized to issue DSCs.

3. Name Approval

The LLP's name is reserved using the LLP-RUN form (Limited Liability Partnership - Reserve Unique Name) - a new web service used for the registration of LLPs.
The Central Registration Centre is the nodal authority for this function.
There is a provision for the LLP to have two proposed names.

4. LLP Registration

Fill out the FiLLiP (Form for Incorporation of Limited Liability Partnership - available here) and submit it to the Registrar in the state where the LLP's registered office is located.
A class 2 or class 3 DSC can be obtained through any Government Certifying Agencies (CAs).
You can directly approach CAs for an Aadhar e-KYC-based verification or through the help of supporting documents like PAN, proof of Identity, address proof, etc.
The DSC is often issued with one year or two year validity. DSC is mandatory for all witnesses in the Memorandum of Association (MOA) and Articles of Association (AOA).
This link has details on all certifying agencies athorized to issue DSCs.

5. Submit LLP Agreement

The agreement is designed to govern the mutual rights and responsibilities of the partners of the LLP.
The LLP agreement must be using the Form 3 on the MCA portal, within 30 days from the LLP being registered.

6. Follow-on Steps

The filed LLP Agreement has to be printed on stamp paper and kept on record.

Post-Incorporation Compliances

An LLP is mandated to file an LLP agreement within 30 days of incorporation. The penalty of Rs 100/day will be levied on the company if it fails to comply with this condition.
For an already existing company, DIN can be allotted through filing of form DIR 3.
The LLP needs to file two statements annually- Annual Return and Statement of Accounts and Solvency.
The Income Tax Return (ITR) must be signed, verified by the designated partner, and filed annually. The taxation is quite similar to that of Partnerships.
Every partner is required to deposit their contribution into the relevant bank account within the specified time frame depending on their shareholding capacity.
GST registration is a legal compulsion following the criteria set by GST Act.
LLPs are liable to audit their accounts through CAs if the company's annual turnover is over Rs 40 lakhs or the contribution surpasses Rs 25 lakhs of the threshold limit.

Closure of Limited Liability Partnership

Closure of an LLP is a tedious process compared to other partnerships and proprietorships. If you are trying to close the LLP, it must meet the following conditions:

The LLP should be inactive for at least one year, or it should be inoperative from the date of establishment.
The LLP should not have any assets on the date of application.

General Process to close or dissolve an LLP

Close the Bank Account of the LLP;
It is necessary to compile a report on the asset valuation of the organisation. Following this, the majority of partners must state that the LLP is either debt-free or that it will be able to pay off all obligations within a given time frame, which cannot exceed one year from the date of the company's winding up.
Sell the assets, and pay off the liabilities.
Obtain the written consent of all partners for strike-off.
Drafting of all the requisite documents like Affidavits, Account statements, Initial LLP Agreements, and detailed application for closure of LLP.
Fill out the E-form 24 to the concerned jurisdictional Registrar, where it undergoes verification and approval from the Registrar, provided there are no discrepancies. Once approved, the LLP gets successfully closed.