The Ultimate Guide to Understanding Limited Liability Partnerships

In this popular world of business there are many types of business but choosing the right business plays an important role to make more profit and less loss. In the market of choices, having the blend of both partnership and corporate benefits helps them to make your business work smoothly just like a limited liability partnership. In India limited liability partnership was enacted on December 12th ,2008 by the parliament of India and received an assent on January 7th, 2009 by the president of India after that the act came into force on 31st March 2009.

Features of limited liability partnership

Liabilities are limited

This is the most important or basic feature in a limited liability partnership. In this the liability of the partners are limited and they are responsible for their liability not for others.

Own legal entity

Limited liability partnership has its own entity other than its partners and it has its own property, makes contracts and it can be sued by others and can sue others.

Avoiding double taxation

When profit and loss is directly divided among partners in limited liability partners then each partner shares their profit and losses on their personal tax shares. By this it will be taxed at one time only not the two times in the corporate.

Make agreement

Limited liability partnership also contains a partnership agreement. In this agreement it contains some terms and conditions in which all the partners are mutually satisfied like profit sharing ratio, how it will run and the responsibilities of the partners.

Continuity

LLP run continuously whether one person leaving the company or either joining the company it does not show any effect on the business.

Easily maintain and setup

It is generally easier than another corporation because it does not need any complicated meetings of the board of directors and has basic rules and regulations and less paperwork.

Advantage of limited liability partnership

Profit sharing

In a limited liability partnership, the profit should be divided between the partners as per the partnership deed.

Dynamic in nature

It is very important for them to adapt to the different environment easily and make changes in the environment without any legal procedure.

No formalities like corporate

They do not require any formality like the corporate organizations such as formal meetings, records etc.

More investment

In a limited liability partnership it is very easy to raise the capital for more investment by adding new partners with limited liability.

Easy decision making

Limited liability partners have direct control, so it is quite easy for them to make decisions without needing any approval from the board of directors.

Specialization

Partners can handle the different parts of the business in which they are best as per their quality which helps them to work effectively.

Drawbacks

Expensive

It is expensive and very complex in nature to set up the firm in comparison to others like sole proprietorship, one person company etc.

Limited profession

It is limited to certain firms and is not used in every profession like law firms, consulting firms etc.

Various laws

It contains different types of rules which they must follow like fees payment and filing the annual reports which are very time-consuming.

Privacy problem

They have to show their financial information to the public which is the biggest reason for privacy disclosure.

Higher personal taxes

While avoiding double taxation they share the profit to the partners, but sometimes due to personal tax they are higher than the corporate tax.

Process

Step 1: Obtain a Digital Signature Certificate (DSC)

All LLP applications are submitted online and must be digitally signed. Therefore, selected partners must obtain a DSC valid for 2 years. To get DSC you need:

• Your PAN card
• Passport size photo
• Proof of Address

Step 2: Reserve LLP Name

Use RUN -LLP (Reserve Unique Name - Limited Liability Partnership) website request for your LLP name. If it is not approved, you will have the opportunity to send 2 more names. And the fee for the application is about 1000 rupees. Once your LLP name is approved, you need to collect and prepare the following documents:

• Proof of address (such as rental agreement or lease)
• NOC (No Objection Certificate) Owner
• Electricity bill (not older than 2 months)
• Confirmed registration by partner
• Identity and address of partner without DIN
• Digital signature of all selected partners
• Participating partners Details of other company or LLP
• If there are restricted words in the LLP name, Approval of Central Company is required.

Step 4: Join LLP and apply for DIN

Submit Form for incorporation of Limited Liability Partnership form which replaces the old LLP Form 2.

If more than 2 partners need DIN, you can add them later. Business partners must sign using PAN as DSC and the form must be approved by a specialist (CA/CS/CWA). They will ask you to return within 15 days for more information. Partner. The LLP is now legally formed and can start doing business. (for PAN) form 48A and form49B (for TAN) are sent directly to the Income Tax Department along with the Membership Certificate as supporting documents.

Then you have to make the draft of the limited liability partnership agreement and file the agreement within 30 days.

Conclusion

In this world of competition having the right business helps us to make more profit with limited liability. As we all know, that limited liability partnership is the mixture of both the partnership and the corporate benefits. Also known for its limited liability and having a separate legal entity. These are some of the benefits which make them different from others and while having the proper understanding of the characteristics, merits and the step-by-step process of limited liability partnership which help them to increase the profit and running the business smoothly.