How to incorporate the Limited Liability Partnership?

Saptaparni Raha
Dec 23, 2022
3 min read

Written by Saptaparni Raha, Lawyer

Introduction

In India, Limited Liability Partnership registration is now an alternative form of business. The limited liability partnership provides the advantages of a company and is flexible for a partnership in a single organization. The limited liability partnership was enforced by the Limited Liability Partnership Act in 2008.

What are the merits of the Limited Liability Partnership?

There is no minimum capital threshold in the limited liability partnership. It may start with the least possible capital.
A minimum of two partners are required for setting up a limited liability partnership. There is no limit to the maximum number of partners.
Limited Liability Partnership can be registered with negligible cost. It doesn't require heavy investment like it is required to incorporate a private limited or a public limited company.
In a limited liability partnership, there are no such requirements for accounts to be audited as in other companies.
The income of an LLP is taxable under income tax. Consequently, the share of its partners is exempt.
There is an additional tax liability in the form of the dividend distribution tax of @15% with a surcharge and an education cess in case a company owner withdraws the profits from the company. There is no such requirement for a limited liability partnership.

What are the demerits of the Limited Liability Partnership?

A limited liability partnership is needed to file income tax returns each year. An annual return with the ministry of corporate affairs is also required to be filed. On failure to file the required returns within the stipulated time, a penalty of 100 rupees per day would be levied.
Private equity funds, venture capital, etc., cannot invest in a limited liability partnership as it does not have the concept of equity and shareholding in a company.
A limited liability partnership has a rate of tax of @30%, irrespective of the turnover.

Documents required for partners to incorporate the Limited Liability Partnership

A copy of the PAN card
A Copy of the Passport ( if someone is a foreign national)
A copy of the Voter identity card
A copy of the Ration card
A copy of my Driving license
A copy of the Electricity bill
A copy of the Telephone Bill
A copy of the Aadhar card
A copy of the Bank statement
Passport size photo
A copy of the Recent utility bill

Documents required for the Limited Liability Partnership

You need to submit proof of the registered office address
You need to submit the digital signature certificate

How to incorporate a Limited liability partnership?

To register an LLP, it is mandatory to register yourself on the official website of the ministry of corporate affairs. You can do this by visiting the official website of the ministry of corporate affairs.
Visit the homepage of the site and click on the "register" tab on the top right-hand corner of the page.
Fill up the registration form and upload the digital signature certificate.
On successful registration, the partners of the proposed LLP shall obtain a designation partner identification number and director identification number.
Apply for DPIN/DIN through the ministry of corporate affairs DIN website.
Next, log in to the LLP portal by clicking the "Login" tab on the top right corner of the homepage and enter your username and password.
Open Form-1 from the "E-Forms" link to reserve the name of your proposed LLP and fill up the necessary information required, and select the name of the proposed LLP.
Append a digital signature and submit the form.
Pay the requisite amount by credit card/visa.
Details of a minimum of two designated partners are required, out of which one should be from India.
Check the status of your application on the portal.

How to file an Income Tax for a Limited Liability Partnership?

A limited liability partnership can file its income tax return by using ITR 5 Form. The assessee needs to attach the digital signature of a designated partner. After filing the form, the partner should print two copies of ITR-5. One copy should be signed by the assessee and sent by ordinary post to the Electronic City Office, Bangalore. Another copy should be kept for the record.
For the financial year 2021-22 and the assessment year 2022-23, the limited liability partnership is taxable at 30% plus a surcharge of 7% if the total income exceeds Rs.1 crore.

Conclusion

The LLP agreement, which outlines the rights and duties of the partners, states that one partner is not responsible for the misconduct and negligence of the other partner.

References:

India Filings, LLP Advantages & Disadvantages (IndiaFilings)
India Filings, Income Tax Rate for LLP – AY 2019-20 (IndiaFilings)
India Filing, LLP Registration in India (IndiaFilings)
LegalDocs, Registration Process of Limited Liability Partnership (Legaldocs)