LLP form is selected by many entrepreneurs who want to start a business in India due to its low cost, flexibility, low risk, and beneficial regulatory structure. LLP allows you to form a partnership with two or more people and enjoy the feature of limited liability.
There should be at least 2 partners to start an LLP. Limited liability, perpetual existence, and well-regulated business structure are making entrepreneur select LLP. Its also lighter on compliance and tax liability compared a private company.
However, the limited liability feature of LLP is not as comprehensive as that of a private limited. The limited liability offered by LLP cover liabilities created by the entity but not the liabilitied created by fellow partners. i.e the LLP is liable to make good the loss or liability created by if its partner in the course of the business by mistake, wrongful act or omission on his or her part.
Another drawback of LLP compared to a partnership is that the non availablility of presumptive scheme of taxation. Presumptive taxation scheme allows small tax payers to pay tax as a small percentage of total turnover and exempts them from the requirement of maintaining books of account.
We will help you figure out if LLP is the best business type for your business. We will evaluate your business requirement and compare the various options available to you before taking a decision to proceed with the LLP formation.
We can further help you, register the entity, get a permanent account number (PAN), tax deductions account number (TAN), set up a current account, draft various agreements and policies and put in place a process for accounting and compliance.
To form a LLP it is required to have at least two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India. A designated partner is a partner responsible for the management of LLP – day to day activities, finance, compliance, statutory filing etc.
Whereas a partner may not contribute to the management of the company.
Ground work: We will require a 30 minutes meeting or call with partners to understand the main objects for forming a LLP, collection of documents and understand the terms and conditions between partners.
This will followed with obtaining of Digital Signature Certificates (DSCs) for Designated Partners of the proposed LLP. Digital Signatures are mandatory to apply for Designated Partner Identification Number (DPIN) – an unique identification number issued to Designated Partners.
Name Approval process: The name approval is going to be the most time consuming process if you do not have an unique name to your business. Registrar may reject the names which are similar to existing name phonetically or in spelling. You may get a rejection if there are resembling trademarks or the name applied is generic in nature.
We recommend founders to do their homework on your LLP’s name and come up with at least 3-6 significantly different and unique names for an easy approval.
Finalising Partnership Deed: The partnership deed is the documents setting out the rights and liabilities, investments, roles and responsibilities of each partner. The partnership deed to be finalised on approval of the LLP name by the Registrar.
Filing Subscriber details: An e-Form (LLP Form 2) with details of partners and their contribution and willingness to form to be filed after the name approval.
LLP Registration: On receipt of the approval of form 2, the certificate of incorporation will be issued by the Registrar. You can now go ahead with the signing and executing the LLP partnership deed. The partnership deed has to be filed with the Registrar in e Form 3, within 30 days of incorporation of LLP. A per day penalty of Rs 100 is applicable, if you fail to do so.
Company PAN and TAN can be applied in parallel with the filing of Form 3. Usually an approval of PAN and TAN comes in a weeks’ time.
These are some important matters which requires your attention on incorporating a LLP:
Corporate tax: It is a form of direct tax on profits of LLP. Income of a partnership firm is taxed at 30%. In addition to this there is a 2% education cess and 1% secondary and higher education cess applicable.
Tax on LLP Partner Remuneration: Any income from the LLP to its Partners is taxed as business income in the hands of the Partner. Individual tax rates are applicable in this case.
Good and Services Tax (GST): Any business dealing in purchase and sales of goods and services in India comes under purview of Indirect Taxation. You have to enrol for GST as and when you reaches the turnover thresholds.
Statutory Audit is not mandatory for your LLP up to a certain turnover. However if the LLP turnover exceed INR 40 Lakh or the capital contribution from partners exceed INR 25 Lakh, they are required to annually get their accounts audited.
Annual reporting of financial position and operations of the LLP to Registrar of LLPs and Income Tax department is mandatory. There is a per day penalty if you miss the due dates.