Limited Liability Partnership (LLP)

1. Meaning of Limited Liability Partnership—

Acorporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.

2. Process to Start LLP

3. Essential elements to incorporate LLP—

Under the LLP Act, 2008, the following elements are required to form a LLP.—

1. First step is obtaining name approval and second step is to file documents for incorporation in the term prescribed with the registrar of LLP. 
   

2. To have at least two partners for incorporation. 
   

3. To have registered office in India. 
   

4. To appoint minimum two persons as designated partners. 
   

5. To execute a partnership agreement between the partners.

4. Who can be partner in LLP—

Any individual and any body corporate can be a partner of LLP. Minimum. Two partners and no maximum limit of partners.

5. User Registration—

1. Register yourself on the website of Ministry of Corporate Affairs developed for LLP services i.e. This website may also be accessed through the website of the  ministry on the home page of the URL click “Register” tab on top right hand corner of the page.

2. Fill in the registration Form. Fields marked in the form are to be mandatorily filled. Select your user name and password.

3. Upload digital signature certificate.

4. On successful registration, system will give a message that you have been registered successfully.

6. Designated Partners and their role—

LLP must have two ‘designated partner’. Vacancy of designated partner shall be filed with registrar within 30 days of his retirement.

The partner has to give prior consent which is filed electronically in prescribed Form, to act as a designated partner he has to obtain DPIN from Central Government.

7. Filing of LLP agreement (Form-3) and Partners’ details (Form-4)—

Form 3 (Information with regard to LLP agreement and changes, if any made therein) and Form-4 (Notice of Appointment of Partner/Designate Partner, his consent etc.) may be filed with the prescribed fee simultaneously at the time of filing Form-2 or within 30 days of the date of incorporation or within 30 days of such subsequent changes.

8. Accounts, audit and returns—

Each LLP is required to maintain books of account. Every year within six months from close of F.Y. Accounts should be audited. LLP shall be exempt from audit if its turnover does not exceed Rs. 40 lakhs or its contribution does not exceed Rs. 25 lakhs. Annual return with Registrar of Companies within 60 days from close of Financial Year.

9. Conversion of existing firms, Companies and unlisted public company into an LLP—

First of all, application form for conversion from Partnership firm into LLP, Private Company to LLP, unlisted public company to LLP. In addition to form, incorporation documents are required and all partners of Firm/members of company are required to apply for such conversion.

After conversion, Registrar shall issue certificate of Registration. It can be filed in Form No. 14 within 15 days.

9(a). # Conversion of small company into LLP (Section 47(xiiib)]

The Finance Act, 2010, has now proposed to introduce a provision under which conversion of a small company (turnover/receipts of up to Rs. 60 lakh) into an LLP is not regarded as a transfer subject to satisfaction of certain conditions. Some of the conditions that should be satisfied for such conversion not being regarded as a transfer include:

• No consideration or benefit other than share in profit and capital contribution in the LLP will receive the partners whether directly or indirectly, and

• No amount is paid either directly or indirectly, to any partner out of the accumulated profit of the company for a period of three years from the date of conversion.

• The process of conversion is provided under the LLP Act, 2008, and, accordingly, it is a process under law whereby the assets and liabilities of the company invest in the LLP following such a conversion. Therefore, the same cannot be categorised as a transfer liable to tax.

One of the pre-requisites for a transfer to be taxed is that both the transferor and the transferee should continue to exist after the transfer. In the case of conversion of the company into LLP, the LLP Act clearly specifies that the company shall be deemed to be dissolved, effective from the date of registration of the LLP.

• Another pre-requisite for taxing a transfer is that the transferor should have received consideration. But when a company gets converted into an LLP, it does not receive any consideration. It is shareholders of the company who become partners in the LLP due to their shareholding.

• The aggregate of Profit sharing ratio of the shareholders of the company in the LLP shall not be less than 50%, at any time during the period of 5 years from the date of conversion.

10. Winding up and dissolution of LLP—

Winding up of LLP can be voluntary as by Tribunal. LLP can be wound up voluntarily if it can submit declaration of solvency. In such case, winding up can be done by LLP Liquidator.

11. Difference between LLP and Partnership—

Partners— 

• One of them should be resident in India if there are only two partners. 
  

• Both the partners should be designated partners.

12. Special provisions relating to certain limited liability patnerships— [Inserted bythe Finance Act, 2011, w.e.f. 1.04.2012].

(i) Payment of tax by certain LLP —

Where the regular income tax payable for a previous year by a LLP is less than the alternate minimum tax payable forsuch previous year, the adjusted total income shall be deemed to be the total income of such LLP and it shall be liable to pay income tax on such total income @18.5 percent.

(ii) Tax Credit for alternate tax credit —

Tax credit shall be allowed to the extent of the excess of the alternate minimum tax paid over the regular assessment year for which such credit becomes allowable.