Limited Liability Partnership (LLP) – Legal Provisions & Taxation

1
Limited Liability Partnership (LLP) Legal
Provisions Taxation
2

• A Limited Liability Partnership (LLP) is a
  partnership firm that provides the benefits of
  limited liability to its owners while retaining
  the flexibility of a traditional partnership. LLP
  is a popular business structure in India as it
  offers the best of both worlds the protection of
  limited liability and the ease of doing business
  in a partnership. In India, LLPs were introduced
  by the Limited Liability Partnership Act, 2008.
  This act was passed by the Indian Parliament to
  provide a legal framework for LLPs and to enable
  entrepreneurs and professionals to form LLPs.
  LLPs are governed by the Registrar of Companies
  (ROC) and Ministry of Corporate Affairs (MCA) in
  India. Limited Liability Partnership (LLP) is a
  relatively new form of business entity in India,
  which was introduced in 2008 through the Limited
  Liability Partnership Act, 2008. An LLP is a
  hybrid form of business that combines the
  features of both a partnership firm and a limited
  liability company. In an LLP, the partners have
  limited liability, which means they are not
  personally liable for the debts and obligations
  of the LLP. At the same time, the LLP is taxed as
  a partnership firm, and the partners have the
  flexibility to manage the business as per their
  agreement.In this article, we will discuss the
  salient features of an LLP in India, its
  formation, and registration process, advantages,
  and disadvantages, and the compliances required
  to be followed.

3

• Salient Features of an LLP
• 1. Separate Legal Entity An LLP is a separate
  legal entity from its partners. It can enter into
  contracts, own assets, and sue or be sued in its
  own name.
• 2. Limited Liability The liability of partners
  in an LLP is limited to the extent of their
  contribution to the LLP. In case of any default
  or negligence, the personal assets of the
  partners are not liable to be attached to pay off
  the liabilities of the LLP.3. No Minimum
  Capital Requirement There is no minimum capital
  requirement for the formation of an LLP. The
  partners can contribute any amount of capital as
  per their agreement.
• 4. Perpetual Succession The LLP has perpetual
  succession, which means that the LLP continues to
  exist even if the partners change or retire. The
  rights and liabilities of the LLP are not
  affected by the changes in the partners.
• 5. Flexibility in Management The partners of an
  LLP can decide on the management and operations
  of the LLP through an LLP agreement. The
  agreement can provide for the roles and
  responsibilities of the partners, the
  profit-sharing ratio, and the decision-making
  process.
• 6. Easy to Form and Maintain An LLP is
  relatively easy to form and maintain as compared
  to a company. There are fewer compliance
  requirements and formalities.
• 7. Tax Benefits LLPs enjoy tax benefits in
  India. They are taxed at a lower rate as compared
  to companies, and there is no dividend
  distribution tax.

4

• Benefits of LLP in India
• Limited Liability Protection One of the key
  advantages of an LLP is that it provides its
  partners with limited liability protection. This
  means that the personal assets of the partners
  are protected in the event of any legal action or
  debt incurred by the LLP.
• Tax Benefits LLPs in India are taxed at a lower
  rate compared to companies. Additionally, the
  partners of the LLP are taxed as per their
  individual tax slabs, which can result in
  significant tax savings.
• Flexibility LLPs are more flexible compared to
  companies when it comes to management and
  ownership. The partners can decide the terms of
  the partnership and the allocation of profits and
  losses.
• Less Compliance LLPs in India have less
  compliance requirements compared to companies.
  They are not required to maintain minutes of
  meetings or hold annual general meetings.
• Registration Process for LLP in India
• 1. Digital Signature Certificate (DSC) The
  first step in registering an LLP is to obtain a
  digital signature certificate (DSC) for all the
  partners.
• 2. Director Identification Number (DIN) Next,
  the partners need to obtain a director
  identification number (DIN) from the Ministry of
  Corporate Affairs.
• 3. Name Approval The partners need to choose a
  unique name for their LLP and get it approved by
  the ROC.
• 4. LLP Agreement The partners need to prepare
  an LLP agreement that outlines the terms and
  conditions of the partnership. 5. Filing of
  Forms Once the LLP agreement is signed, the
  partners need to file the required forms and
  documents with the ROC. 6. Certificate of
  Incorporation If all the documents are in order,
  the ROC will issue a certificate of
  incorporation, and the LLP will be
  registered.

5

• Compliance Requirements for LLP in India 1.
  Annual Return Every LLP needs to file an annual
  return with the ROC. 2. Statement of Accounts
  Every LLP needs to file a statement of accounts
  with the ROC. 3. Income Tax Returns Every LLP
  needs to file income tax returns. 4. Audit LLPs
  with a turnover of more than Rs. 40 lakhs or
  capital contribution of more than Rs. 25 lakhs
  are required to get their accounts audited by a
  chartered accountant. Ownership and Management of
  LLP An LLP in India is required to have at least
  two partners, and there is no limit on the
  maximum number of partners. The partners can be
  individuals or companies. Unlike a traditional
  partnership, the liability of the partners in an
  LLP is limited to their agreed contribution to
  the LLP. The partners can agree to share profits
  and losses in any proportion they choose, and the
  LLP agreement must specify the same. The partners
  can also decide on the management structure of
  the LLP, and they can choose to have designated
  partners who are responsible for the day-to-day
  operations of the business.

6

• Advantages of LLP in India The following are the
  advantages of an LLP in India 1. Limited
  Liability The biggest advantage of an LLP is
  that it provides limited liability protection to
  its partners. This means that the personal assets
  of the partners are not at risk in case the
  business fails or is sued. 2. Separate Legal
  Entity An LLP is a separate legal entity and has
  its own identity. This means that it can own
  property, enter into contracts, and sue or be
  sued in its own name. 3. Flexibility An LLP is
  flexible in terms of ownership and management.
  There are no restrictions on the number of
  partners or their nationality, and the partners
  can decide how they want to manage the business.
  4. Easy to Form and Maintain An LLP is
  relatively easy to form and maintain as compared
  to a company. There are fewer compliance
  requirements and formalities. 5. Tax Benefits
  LLPs enjoy tax benefits in India. They are taxed
  at a lower rate as compared to companies, and
  there is no dividend distribution
  tax.

7

• Taxation of LLPs LLPs are taxed differently from
  traditional partnerships and companies in India.
  The income of an LLP is taxed at the flat rate of
  30 (plus surcharge and cess, as applicable) on
  the total income. However, the partners of an LLP
  are not taxed on the income that is earned by the
  LLP. Instead, the income is taxed in the hands of
  the partners only when it is distributed as
  profits or remuneration. Another advantage of
  LLPs is that they are exempt from dividend
  distribution tax, which is a tax that is levied
  on companies when they distribute dividends to
  their shareholders. Conversion to LLP In India,
  it is possible for a traditional partnership firm
  or a private company to convert into an LLP. The
  process involves obtaining approval from the
  shareholders or partners, obtaining clearance
  from the Income Tax Department, and filing the
  necessary documents with the ROC. Once the
  conversion is complete, the traditional
  partnership firm or private company becomes an
  LLP, and the partners or shareholders become
  partners of the LLP. Foreign LLPs in India
  Foreign LLPs can also operate in India, subject
  to certain conditions. They are required to
  register with the ROC and obtain a Permanent
  Account Number (PAN) and Tax Deduction and
  Collection Account Number (TAN) from the Income
  Tax Department.

8

• However, foreign LLPs are not allowed to engage
  in certain activities such as agricultural or
  plantation activities, print media, and real
  estate. They are also required to comply with the
  Foreign Exchange Management Act (FEMA) and the
  rules and regulations of the Reserve Bank of
  India (RBI). Conclusion LLP is a popular form of
  business structure in India due to its numerous
  advantages. It provides limited liability
  protection to its partners, is easy to form and
  maintain, and enjoys tax benefits. However, there
  are certain compliance requirements that need to
  be followed, and LLPs may not be suitable for all
  types of businesses. It is important to consult
  with a legal or financial professional before
  deciding to set up an LLP in India.
• The author i.e. Shahbaz Khan is a Company
  Secretary and can be reached at (M) 8982766623
  and (E) sbkkhan192_at_gmail.com
• Tags LLPRead more at https//taxguru.in/corpor
  ate-law/limited-liability-partnership-llp-legal-pr
  ovisions-taxation.htmlCopyright
  Taxguru.in