Limited Liability Partnership (LLP) Incorporation

LLP: A Detailed Guide

A Limited Liability Partnership (LLP) is a body corporate with a legal identity separate from its partners and perpetual succession, meaning changes among partners do not affect its existence. It is governed by the LLP Act, 2008, and the mutual rights and duties of the partners are set out in the LLP Agreement. Crucially, one partner is not personally liable for the wrongful acts or misconduct of another partner, and each partner’s liability is limited to the contribution they have agreed to make. This makes the LLP a hybrid that offers the operational freedom of a partnership while protecting personal assets like a company.

Advantages of an LLP

An LLP offers a strong balance of protection and flexibility:

• Limited Liability: Each partner’s liability is limited to their agreed contribution; personal assets are protected.
• Separate Legal Entity: The LLP can own property, sue, and be sued in its own name, with perpetual succession.
• Lower Compliance than a Company: No mandatory board or general meetings, and fewer statutory filings.
• No Minimum Capital: An LLP can be formed with any amount of contribution.
• Flexible Structure: Internal rules, profit sharing, and management are governed by the LLP Agreement.
• Audit Relief for Smaller LLPs: Audit is required only above prescribed turnover or contribution limits.

Disadvantages of an LLP

An LLP also has a few limitations to consider:

• Cannot Raise Equity: An LLP cannot issue shares, so it is less suited to venture capital or angel funding.
• Penalties for Late Filing: Even dormant LLPs must file annual returns, and delays attract a daily penalty.
• Less Investor-Friendly: Most institutional investors prefer the share structure of a Private Limited Company.
• Partner Dependence: An LLP must always have at least two partners; falling below this for six months creates liability.
• Public Disclosure: Certain filings are part of the public record on the MCA portal.

Minimum Requirements for Incorporation

To incorporate an LLP, the following are required:

• Partners: A minimum of 2 partners, with no maximum limit; individuals or bodies corporate can be partners.
• Designated Partners: At least 2 designated partners (individuals), of whom at least one must be resident in India.
• Residency: Under the LLP (Amendment) Act, 2021, a resident is a person who has stayed in India for at least 120 days in the financial year.
• DSC and DPIN: Digital Signature Certificates for designated partners; DPIN/DIN is allotted through the FiLLiP form.
• Name: A unique name ending with ‘LLP’ or ‘Limited Liability Partnership’.
• Registered Office: A valid address in India with supporting proof.
• No Minimum Capital: There is no minimum contribution requirement.

Eligibility Criteria

Almost anyone competent to contract can form an LLP:

• At least two persons are needed to act as partners; there is no upper limit.
• At least two designated partners who are individuals, with at least one resident in India.
• Indian nationals, NRIs, foreign nationals, and bodies corporate can be partners, subject to FDI rules.
• Partners must be at least 18 years of age and competent to contract.

Governing Law and the FiLLiP Process

An LLP is governed by the LLP Act, 2008 (as amended by the LLP (Amendment) Act, 2021) and administered by the Ministry of Corporate Affairs (MCA) through the Registrar. Incorporation is done on the MCA V3 portal using the FiLLiP form (Form for Incorporation of Limited Liability Partnership), which combines name reservation, DPIN allotment for up to five designated partners, and incorporation in one filing. The name can also be reserved separately through RUN-LLP. On approval, the Registrar issues the Certificate of Incorporation (Form 16) with the LLPIN, and PAN and TAN are allotted. The LLP Agreement must then be filed in Form 3 within 30 days of incorporation.

Documents Required

For Partners and Designated Partners:

• PAN card and Aadhaar card of all partners.
• Identity proof (Voter ID, Passport, or Driving Licence) and address proof not older than two months.
• Passport-size photographs; for foreign nationals, a notarised or apostilled passport.
• Consent of designated partners and details of their contribution.

For the Registered Office:

• Proof of address (latest utility bill, not older than two months).
• No Objection Certificate (NOC) from the owner.
• Rent or lease agreement, if the premises are rented.

LLP Registration Process

LLP incorporation is fully online and follows these steps:

1. Obtain Digital Signature Certificates (DSC) for the designated partners.
2. Reserve the LLP name through RUN-LLP, or directly within the FiLLiP form (the name must end with ‘LLP’).
3. File the FiLLiP form with partner and registered-office details; DPIN is allotted for up to five designated partners through the same form.
4. ROC verification, after which the Certificate of Incorporation (Form 16) is issued with the LLPIN, PAN, and TAN.
5. Draft and file the LLP Agreement in Form 3 within 30 days of incorporation.
6. Complete post-incorporation steps such as GST registration (if applicable) and opening a current bank account.

Register your LLP with Samkhya

Registering your LLP with Samkhya Corporate Services is simple. Just follow these easy steps:

• Tell us about your LLP: Share the proposed name, partners, and business activity.
• Confirm the structure: We help you finalise designated partners, contribution, and the agreement.
• Fill the form: Complete our online form and upload partner documents.

From there, our team handles name reservation, the FiLLiP filing, and drafting and filing of the LLP Agreement.

Annual Compliances of an LLP

An LLP has a simple but mandatory annual compliance cycle:

• Form 11 (Annual Return): Filed with the MCA by 30 May each year.
• Form 8 (Statement of Account and Solvency): Filed by 30 October each year.
• Income Tax Return: Filed annually; a tax audit applies only if turnover exceeds Rs. 1 crore (or the limit applicable under the Act).
• Audit of Accounts: Required only if turnover exceeds Rs. 40 lakh or contribution exceeds Rs. 25 lakh.
• TDS on Partner Payments: From 1 April 2025, Section 194T requires 10% TDS on partner remuneration or interest above Rs. 20,000 in a year.
• Penalties: Late filing of Form 8 or Form 11 attracts Rs. 100 per day, so timely filing is important even for dormant LLPs.

Tax Implications for an LLP

An LLP is taxed as a firm at a flat rate of 30%, plus applicable surcharge and a 4% health and education cess. There is no dividend distribution tax, and a partner’s share of profit is exempt in the partner’s hands under Section 10(2A). Remuneration and interest paid to partners, where authorised by the LLP Agreement, are deductible subject to the limits prescribed under the Income-tax Act. From 1 April 2025, Section 194T requires the LLP to deduct 10% TDS on such partner payments once they exceed Rs. 20,000 to a partner in a financial year. Unlike a company, an LLP is not subject to Minimum Alternate Tax in the same form, but an Alternate Minimum Tax can apply where certain deductions are claimed.

Business Structure Comparison Table