FAQ – Frequently Asked Questions about Limited Liability Partnerships in India
1. What is a Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) is a unique business structure that combines the advantages of a partnership and a corporation. It offers limited liability protection to its partners and allows them to have flexibility in management while providing the benefits of a separate legal entity.
2. How is an LLP different from a traditional partnership?
One significant difference between an LLP and a traditional partnership is that in an LLP, the partners are not personally liable for the debts and obligations of the business. Their liability is limited to the amount they have invested in the LLP. In a traditional partnership, partners have unlimited liability, and their personal assets may be at risk.
3. Can any business form register as an LLP?
No, not all business forms can register as an LLP. Only the entities defined under the Limited Liability Partnership Act, 2008, such as partnerships, companies, and individuals, can form an LLP in India. Professionals, including architects, lawyers, and accountants, can also establish LLPs.
4. How many partners are required to form an LLP?
To form an LLP in India, a minimum of two partners is required. However, there is no upper limit on the number of partners. LLPs can have both individual partners and other corporate bodies as partners.
5. What is the process to register an LLP?
The process of registering an LLP involves the following steps:
a. Obtain a Digital Signature Certificate (DSC) for the designated partners.
b. Obtain a Director Identification Number (DIN) for the designated partners.
c. Obtain a Unique Name Approval (RUN) from the Ministry of Corporate Affairs.
d. File an incorporation document called Form 2, along with the necessary fees.
e. File a Limited Liability Partnership Agreement (LLP Agreement) within 30 days of incorporation.
6. How is an LLP taxed?
LLPs are treated as separate legal entities for taxation purposes. They are subject to a flat rate of 30% on their profits. However, the partners are not taxed on the profits distributed to them. LLPs are also exempt from the dividend distribution tax.
7. Can an LLP convert into a private limited company?
Yes, an LLP can be converted into a private limited company under certain conditions. The conversion is subject to compliance with the regulations prescribed by the Ministry of Corporate Affairs. The partners must obtain approval from the concerned authorities and follow the prescribed procedure for conversion.
8. What are the annual compliance requirements for an LLP?
An LLP is required to file an Annual Return (Form 11) within 60 days of the closure of the financial year and a Statement of Accounts and Solvency (Form 8) within 30 days from the end of six months of the financial year. The LLP is also required to maintain its books of account and have them audited, if applicable.
9. Can foreign nationals or Non-Resident Indians (NRIs) be partners in an LLP?
Yes, foreign nationals, as well as NRIs, can be partners in an LLP, subject to certain conditions. At least one designated partner must be a resident of India, meaning an individual who has stayed in India for at least 182 days in the previous calendar year.
10. What are the advantages of forming an LLP?
Some advantages of forming an LLP include limited liability protection for partners, flexibility in management, ease of transferability of ownership, tax benefits, and reduced compliance requirements compared to a private limited company. Additionally, the LLP structure is increasingly favored by professionals and small businesses.
Remember, this FAQ is a general guide and not legal advice. It is always recommended to consult with professionals or legal experts for specific inquiries related to Limited Liability Partnerships in India.