Establishing an LLP in India / Article / VibrantFinserv -

Establishing an LLP in India

Introduction

A Limited Liability Partnership (LLP) is a popular business structure in India, combining the benefits of a partnership with limited liability protection. Governed by the Limited Liability Partnership Act, 2008, LLPs provide flexibility, tax benefits, and ease of operation. This article provides a step-by-step guide to establishing and incorporating an LLP in India, covering its benefits, limitations, applications, and frequently asked questions.

Definition of LLP

A Limited Liability Partnership (LLP) is a legal entity where partners have limited liability, protecting their personal assets from business debts and liabilities. Unlike traditional partnerships, an LLP enjoys perpetual succession and is considered a separate legal entity.

Step-by-Step Procedure to Establish an LLP in India

Obtain Digital Signature Certificate (DSC)
- Every designated partner must obtain a DSC to sign electronic documents.
- Issued by certified agencies such as eMudhra or NSDL.
Apply for Director Identification Number (DIN)
- All designated partners must apply for a DIN through the Ministry of Corporate Affairs (MCA) portal.
Reserve LLP Name
- Apply for name approval through the MCA’s “RUN-LLP” service.
- The name should be unique and comply with MCA naming guidelines.
Draft LLP Agreement
- Defines roles, rights, and responsibilities of partners.
- Must be executed on stamp paper and filed with MCA.
File Incorporation Documents
- Submit Form FiLLiP (Form for Incorporation of LLP) on the MCA portal.
- Attach required documents such as identity proof, address proof, and LLP agreement.
Obtain Certificate of Incorporation
- Upon approval, MCA issues the Certificate of Incorporation with LLPIN (Limited Liability Partnership Identification Number).
Apply for PAN and TAN
- LLP must obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
Open Bank Account
- Open a business bank account using the LLP’s Certificate of Incorporation and PAN.
Register for GST (If Applicable)
- Required if annual turnover exceeds ₹20 lakhs (₹40 lakhs for some states).
Compliance and Annual Filings
- File LLP Annual Return (Form 11) and Statement of Accounts & Solvency (Form 8) annually.

Benefits of LLP in India

Limited Liability Protection – Partners’ personal assets remain protected.
Separate Legal Entity – LLP has its own legal identity distinct from its partners.
Less Compliance Burden – Fewer regulatory requirements compared to private limited companies.
Perpetual Succession – LLP continues to exist regardless of changes in partners.
Flexible Management – No strict corporate governance rules, allowing operational flexibility.

Usage of LLP

Startups and SMEs – Ideal for businesses seeking liability protection without rigid corporate structures.
Professional Services – Common among law firms, accounting firms, and consulting agencies.
Investment Firms – Used for asset management and venture capital operations.

Limitations of LLP

Not Suitable for Public Listings – LLPs cannot raise funds through the stock market.
Higher Tax Rate – LLPs are taxed at a flat 30% rate without dividend distribution tax benefits.
Limited Fundraising Options – Cannot issue shares like private limited companies.

Comparative Table: LLP vs. Private Limited Company

Feature	LLP	Private Limited Company
Legal Status	Separate legal entity	Separate legal entity
Liability	Limited to contribution	Limited to shareholding
Minimum Partners/Directors	At least 2 partners	At least 2 directors and shareholders
Compliance Requirements	Low	High
Fundraising Ability	Limited	Can raise funds from investors
Taxation	Flat 30%	25% (turnover up to ₹400 crores)

Conclusion

LLPs provide a flexible and cost-effective business structure, particularly for professionals and startups. While they offer numerous advantages, they also have certain limitations, especially in terms of fundraising and taxation. Understanding the registration process and compliance requirements ensures a smooth incorporation journey.

10 Frequently Asked Questions (FAQs)

What is the minimum capital requirement for an LLP?
- There is no minimum capital requirement for LLP registration in India.
Can an LLP have a single partner?
- No, an LLP requires at least two partners.
Is it mandatory to appoint a designated partner in an LLP?
- Yes, at least two designated partners must be appointed.
Can an LLP be converted into a Private Limited Company?
- Yes, but it requires compliance with the Companies Act provisions.
What is the validity of an LLP?
- LLPs have perpetual succession and continue to exist until dissolved.
Are LLPs required to audit their financial statements?
- Audit is required only if turnover exceeds ₹40 lakhs or contribution exceeds ₹25 lakhs.
Can NRIs or foreign nationals become partners in an LLP?
- Yes, foreign nationals can become LLP partners, subject to FEMA regulations.
Is LLP registration online?
- Yes, the entire LLP incorporation process is conducted through the MCA portal.
Can an LLP own property?
- Yes, an LLP can own property in its name as a separate legal entity.
What happens if an LLP fails to comply with MCA regulations?