Advantages and Disadvantages of LLP

October 30, 2024 by Team Instabizfilings

What is a Limited Liability Partnership (LLP)

A‍‌‍‍‌‍‌‍‍‌ Limited Liability Partnership Registration is one of the most widely used business structures that usually provide the advantages to people that they have in two different worlds: ominf, decidability, and the capacity to expand, but still no personal liability. It is a flexible business organisation which has the characteristics of a Private Limited Company a conventional partnership, and a limited liability company; therefore, it attracts profiled ‍‌‍‍‌‍‌‍‍‌businesses.

Procedure of obtaining LLP Form

Step 1: Check Name Availability

Before‍‌‍‍‌‍‌‍‍‌ submitting the LLP incorporation application, verify the LLP name in the MCA database to make sure that the name has not been taken and that it is not too similar to any existing company, including Limited Liability Partnership (LLP). The name must not be identical or very similar to any of the already registered companies. By filing an application with the Registrar of Companies under RUN, a name can be ‍‌‍‍‌‍‌‍‍‌reserved.

Step 2: Get a Digital Signature Certificate

A‍‌‍‍‌‍‌‍‍‌ Certified authority it is with whom one must register so as to be able to get a DSC or Digital Signature Certificate. This is the first and foremost thing for e-filing of documents with the MCA. If‍‌‍‍‌‍‌‍‍‌ a person intends to submit LLP documents and also create a user account for filing the requirements, then that person needs to contact a government website for the MCA (Ministry of Corporate Affairs) at (www.mca.gov.in). Basically, it is a hybrid model that takes the best features from a Private Limited Company a traditional partnership and a limited liability company, thereby, it turns out to be quite a versatile and widely used as a first choice by commercial companies and ‍‌‍‍‌‍‌‍‍‌firms.

Step 3: Create an MCA Portal Account

On‍‌‍‍‌‍‌‍‍‌ the MCA portal (www.mca.gov.in), file LLP registration documents by creating a user account. This account will be used for signing in and conducting all your LLPs' online filings as well as keeping track of your application ‍‌‍‍‌‍‌‍‍‌progress.

Step 4: Filing of LLP Registration Document

Get‍‌‍‍‌‍‌‍‍‌ ready the documents required such as:

Subscriber's‍‌‍‍‌‍‌‍‍‌ Statement is a document that indicates the description of LLP and its subscribers very shortly.
Information‍‌‍‍‌‍‌‍‍‌ about the Designated Partner(s) and the Consent of the Designated Partner in FiLLiP form
BIHAR RENT AGREEMENT FORMAT (Agreement created and mutually signed by the partners) IN FORM – ‍‌‍‍‌‍‌‍‍‌3

Put these documents on the internet at the local office of the registrar of companies via the MCA ‍‌‍‍‌‍‌‍‍‌portal.

Step 5: Pay Registration Fees

It‍‌‍‍‌‍‌‍‍‌ is a must that charges for registration be paid and the details of the capital contribution of each member be provided prior to the completion of the registration.

Step 6: Wait for Approval

First,‍‌‍‍‌‍‌‍‍‌ obtain the LLP's registration approval from the ROC. Following that, the ROC will verify the documents and conduct a background check on the partner company.

Step 7: It is advisable for you to apply for a certificate of incorporation

After that, the ROC will issue a Certificate of Incorporation. The certificate will also indicate a LLPIN (Limited Liability Partnership Identification Number); in a similar way to a private company, it will have limited liability, be acknowledged as a single legal entity, and shares will not be allowed to ‍‌‍‍‌‍‌‍‍‌‍‌‍‍‌‍‌‍‍‌transferred.

Step 8: Get PAN and TAN

A‍‌‍‍‌‍‌‍‍‌ PAN and TAN must be obtained if one wants to meet the tax regulations set by the Income Tax department. These papers are not only vital for the adherence to the city's regulations but also for the submission of the required returns.

Step 9: Open a Business Bank Account

Manage the LLP's finances better through the establishment of a business bank account. The rule should be observed during the business activities as well as in the financial ‍‌‍‍‌‍‌‍‍‌transactions.

Step 10: File LLP Agreement

Within‍‌‍‍‌‍‌‍‍‌ the initial 30 days after incorporation, partners are required to associate their LLP with the GST Common Portal or GST Suvidha Kendra (if necessary) and the Income Tax Department for PAN and TAN. This should be done only after mentioning the place of business (PoB) of the partnership. These documents need to be submitted for the Raipur Municipal Corporation purposes as well as for filing tax ‍‌‍‍‌‍‌‍‍‌returns.

Step 11: Obtain Other Registrations

Make sure you have the additional registrations required for your unit:

GST Seva Kendra (or GST Suvidha Kendra)
Professional tax registration (only applicable in some places)
Registration of a shop and establishment (if it exists) must be done along with the legal business name.

Step 12: Satisfy Ongoing Regulation

Be‍‌‍‍‌‍‌‍‍‌ certain that you are adhering to all the necessities that are going on simultaneously, such as:

In a discreet manner delivering your annual returns form 11 to the Registrar of Companies
Therefore, accounting records and financial statements should be kept perpetually up to date.
Correctly filing your yearly income tax returns and loyally following the regulations that go along with ‍‌‍‍‌‍‌‍‍‌them.

Benefits Of The Limited Liability Partnership (LLP)

Separate legal entity : An‍‌‍‍‌‍‌‍‍‌ LLP is a separate legal entity and as such is similar to a company in that respect. The organizational status of the LLP is that it is a separate unit from its member contributors. As such the LLP has the rights to sue and be sued under its own business name. The LLP is using its name to enter into agreements which is a great way to gain the trust of stakeholders and at the same time attract clients and suppliers that are willing to do business with the ‍‌‍‍‌‍‌‍‍‌LLP.

Limited liability of the partners : In the list of members of a LLP, they are liable financially only up to their investment. One each member of the partnership will be liable only to the extent of the amount of his initial capital contribution to the partnership. The amount, with which the partners contribute, is their maximum liability as they are still protected from personal financial liability for business losses. If such an entity is closed, the situation will be that its assets will be used for paying off the business accounts, while the partners will keep their limited financial ‍‌‍‍‌‍‌‍‍‌exposure.
Low cost and less compliance : The expenses involved in the formation of an LLP are still lower when compared to the establishment of a public or private limited company. An LLP is required to meet only a few compliance obligations. The two essential yearly documents make up the filings of the LLP: Annual Return along with Statement of Accounts and ‍‌‍‍‌‍‌‍‍‌Solvency.
No requirement of minimum capital contribution : to establish an LLP, there is no minimum capital required. Any kind of company can go ahead with registration without the need for a minimum paid-up capital. A limited liability partnership may be created from any level of capital contributed by the ‍‌‍‍‌‍‌‍‍‌partners.

Disadvantages of Limited Liability Partnership (LLP)

Penalty on non-compliance : The least standards of conformity established for LLP organizations are their principal load. Delay in fulfilling the necessary activities results in major monetary sanctions being levied against legal entities of LLPs. Even every year those LLPs which are without any business activities have to file annual returns with the Ministry of Corporate Affairs (MCA). The government will issue heavy fines to the LLP which avoids filing its returns that are ‍‌‍‍‌‍‌‍‍‌compulsory.
Winding up and dissolution of LLP : LLPs need at least two partners to establish their operations. A decline in the number of partners below two for six consecutive months will lead to an automatic dissolution of the company.
Difficulty to raise capital : The Limited Liability Partnership (LLP) removes the features of a company structure that are present in the shareholder constructs but differs transactionally from other Single Source Units (SSU) entities. A venture capitalist together with an angel investor cannot be a shareholder in a Limited Liability Partnership (LLP) structure. Any one of the shareholders must be a partner in the LLP so as to get the full rights of a partner which, apart from the rights, also include all the obligations of a partnership. The reason of capital funding challenges for business entities that use the LLP structure is the preference by angel investors and venture capitalists of investing in companies rather than in ‍‌‍‍‌‍‌‍‍‌LLPs.

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