Home > Income Tax > Help Center > LLP - ExplainedLast Updated: Sep 10th 2022

Limited Liability Partnership (LLP) - Explained

One of the quickest, in-expensive way for a Company thru LLP

There are many different ways to form a business, and one of the more common ways is through a Limited Liability Partnership, or LLP. This type of business structure that involves two or more people coming together to own and operate a single business. There is a wealth of benefits to be enjoyed and reasons that people choose to go the limited liability partnership route for their business. Tax benefits and limited liability are two of the biggest. While there are many great reasons to choose an LLP, and also some significant draw backs in choosing this structure.

LLP means Limited Liability Partnership. It is a separate legal entity and business organisation that gives the benefit of limited liability of company and the flexibility of a partnership. LLP is new form of business entity with limited liability.

Limited Liability Partnership not only gives the benefits of limited liability at low compliance cost but allows its partners the flexibility of organising their internal structure as a traditional partnership. LLP will be liable for the full extent of its assets and the liability of partners will be limited.


Key Features of Limited Liability Partnership (LLP)

  • Limited liability protects the member’s personal assets from the liabilities of the business. LLP’s are a separate legal entity to the members.
  • Flexibility: The operation of the partnership and distribution of profits is determined by written agreement between the members. This may allow for greater flexibility in the management of the business.
  • The LLP is deemed to be a legal virtual person. It can buy, rent, lease, own property, employ staff, enter into contracts, and be held accountable, if necessary.
  • Corporate ownership: LLP’s can appoint two companies as members of the LLP. In a LTD Company, at least one director must be a real person.
  • Designate and non-designate members: You can operate the LLP with different levels of memberships.
  • Protecting the partnership name: By registering the LLP at Companies House you prevent another partnership or company form registering the same name.

Steps to Register a Limited Liability Partnership (LLP)

While EZTax.in will take care of the entire process in registering a company, below are few steps to understand the process.

  • Obtain Digital Signature Certificate [DSC] for the proposed Director(s).
  • Obtain Director Identification Number [DIN] for the proposed director(s).
  • Select suitable Company Name, and make an application to the Ministry of Corporate Office for availability of name.
  • New User Registration
  • Payment of Requisite fee to Ministry of Corporate Affairs [MCA] and also Stamp Duty.
  • Incorporate a LLP : Once the name is approved, the user has to file form FiLLiP with partners details, registered place of business, Contribution percentage, objectives of business etc. This form needs to be filled with MCA by paying applicable fees
  • File LLP Agreement : Once the LLP incorporation is done, LLP Agreement is required to be filed with the registrar in e form 3 within 30 days of Incorporation of LLP
LLP Registration Pricing

Starts from Rs 5,999/-


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Advantages of LLP

The following are the advantages of forming LLP

  • LLP is organized and operates on the basis of an agreement
  • It provides flexibility without imposing detailed legal and procedural requirements
  • LLP is easy to form
  • All partners of LLP enjoys Limited Liability
  • LLP has flexible capital structure
  • LLP has less compliance cost

LLP Annual Compliance

  • Annual Return (Form 11): Every LLP should file Annual Return within 60 days from the closure of financial year. The Due date for filing Form 11 is May 30 every year It must be signed by the designated partners of LLP.
    Penalty: The Penalty for non-filing of Form 11 is Rs 100 per day
    Note: If the turnover of LLP exceeds Rs 5 Crores or contribution of partners of LLP exceeds Rs 50 Lakhs, Form 11 should be certified by Company Secretary in full time practice
  • Statements of Accounts and Solvency (Form 8): Form 8 should be filed within 30 days from the end of 6 months from the end of Financial year. The Due date for Form 8 is 30 th Oct every year
    Form 8 Consists of 2 parts ie.. Part A- Statement of Solvency and Part B-Statement of Accounts, Statement of Income and Expenditure
    Penalty: The Penalty for non-filing of Form 8 is Rs 100 per day
    Form 8 Should be signed by the designated partners and it should be certified by Chartered Accountant, auditor or accountant of LLP
  • Director KYC : Every Designated partner of LLP must file Director KYC every year before Sep 30. Unless DIN will be deactivated. The Penalty for activation of DIN is Rs 5000
  • Income Tax: Every LLP should file the Income Tax Return in ITR 5 every year. The due date for Filing Income tax returns for LLP’s (Non Audit) is July 31 and LLP (Audit) is Sep 30
  • Audit: Audit is required for LLP’s whose contribution exceeds Rs 25 lakhs or whose turnover exceeds Rs 40 lakhs per year

Maintenance of Books of Accounts: The LLP should maintain such proper books of accounts like Bank book, cash book, ledgers, expenses , incorporation certificate, Annual returns etc which is related to its affairs for each year of its existence at its registered business place on case basis or accrual basis

Rates of Income applicable to Limited Liability Partnership (LLP): LLP’s are required to pay flat 30% on total Income (profit). Surcharge @ 12% is levied if the LLP total income exceeds Rs 1 Crore.

Example: Let’s Consider the following example with 2 income slabs

Tax TypeTotal Income is 10 lakhsTotal Income is 1 crore
Income TaxRs. 3,00,000Rs. 3,00,0000
SurchargeRs. 0Rs. 3,60,000
Education cess @ 4%Rs. 12,000Rs. 1,34,400
Total Income TaxRs. 3,12,000Rs. 34,94,400

FAQs

1.How to convert existing partnership firm into LLP?

Any existing partnership firm that is willing to get converted into LLP will need to apply through Form 17 (Application and statement for the conversion of a firm into LLP. Form 17 needs to be filed along with Form 2 (Incorporation document and Subscriber’s statement).

2.How to convert an existing private company/ unlisted public company into LLP?

Any private company/ unlisted public company that is willing to get converted into LLP need to apply through Form 18 (Application and Statement for conversion of a private company/ unlisted public company into limited liability partnership (LLP)). Form 17 needs to be filed along with Form 2 (Incorporation document and Subscriber’s statement).

3.How to start a Foreign Limited Liability Partnership (FLLP)?

Any Foreign LLP can establish its place of business in India by filling Form 27 (Registration of particulars by Foreign Limited Liability Partnership (FLLP)).

The eForm has to be digitally signed by authorized representative of the FLLP.There is no mandatory requirement to apply and obtain DPIN or DIN for Designated Partners of FLLP but the DSC of the authorized representative is mandatory.

4.What are the qualifications for becoming a partner?

Any individual or body corporate may be a partner in a LLP. However an individual shall not be capable of becoming a partner of a LLP, if—

  1. he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;
  2. he is an undischarged insolvent; or
  3. he has applied to be adjudicated as an insolvent and his application is pending.
5.What are the requirements in respect of “Designated Partners”?

Appointment of at least two “Designated Partners” shall be mandatory for all LLPs. “Designated Partners” shall also be accountable for regulatory and legal compliances, besides their liability as ‘partners, per-se”.​

6.Who can be a “Designated Partner”?

Every LLP shall be required to have atleast two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India. In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners.

7.What is the minimum and maximum number of members required for formation of LLP?

The minimum number of partners required to form LLP is 2 members and there is no limit for maximum number of partners.

8.What is the liability of partners in LLP ?

The Liability of partners is limited to the extent of agreed contribution except in case of intention is wilful fraud

9.Can the Foreign Nationals become partner in LLP?

Yes, Foreign Nationals can become partners on LLP

10.Can the Minor become partner of LLP?

No, the Minor cannot be admitted as partners of LLP.

11.What is the difference between LLP and Partnership Firm?

There are several differences between LLP and Partnership Firm

  1. Separate Legal Entity: LLP has separate legal entity where Partnership Firm don’t have any separate Legal entity
  2. Registration: LLP registration is mandatory where it is optional for partnership Firm
  3. Liability: Liability of each partner is limited to the extent of agreed contribution whereas In partnership, Liability of partners is unlimited
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