What is LLP registration and why is important for business?
In India, limited liability partnerships (LLPs), which combine the benefits of partnerships and limited liability companies, are a common and widely accepted type of business formation. According to the Limited Liability Partnership Act of 2008, LLPs are registered in India. An application must be submitted to the Registrar of Companies (ROC) in order to LLP registration, and a certificate of incorporation must be obtained. It is also necessary to submit the LLP agreement with the ROC, which outlines the terms and conditions of the partnership between the partners. The LLP agreement can be altered or modified to suit the demands of the partners in order to fulfill their unique requirements.
LLP Registration Process
Steps involved in registering an LLP in India
The following steps are included in the LLP registration process in India:
- Obtaining DSC and DPIN for all partners who will be involved with the LLP is the initial step.
- Select a suitable name for the LLP and submit an application with the Registrar of Companies (ROC) for name reservation. The name must be distinctive and different from any other business or LLP name already in use.
- Documents for incorporation must be filed with the ROC, including the LLP Agreement, Form 2, and Form 3. The Indian Stamp Act must be followed while stamping the agreement.
- Pay the necessary payments to the ROC in order to file the incorporation paperwork.
- The ROC will issue a Certificate of Incorporation when the paperwork have been examined and the payments have been paid.
- Following receipt of the Certificate of Incorporation, the LLP must submit an application to the Income Tax Department for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN).
- Obtain the required business licenses and permissions before opening a bank account in the name of the LLP.
Documents required for LLP registration
The following documents must be submitted in order to register an LLP in India:
- The LLP partners must supply their PAN Card information.
- The partners must provide their address evidence, such as an Aadhaar card, passport, driver’s license, or voter ID.
- The partners must present identification documents, such as an Aadhaar card, passport, driver’s license, or voter ID.
- The LLP Agreement, which must be presented at the time of registration and contains the LLP’s rules and regulations, is required.
- The LLP must have a registered office, and address documentation must be provided. This documentation may take the form of an electricity bill, phone bill, or property tax receipt.
- The partners must get a Digital Signature Certificate (DSC) in order to sign and upload the papers online.
- A certificate of incorporation must be provided if one or more of the partners is a corporation or an LLP.
- To serve as partners in the LLP, the partners must submit a consent letter.
- Form 2: Form 2 is the LLP registration application, and it must be completed and submitted electronically.
- Form 3: Form 3 must be submitted online with Form 2 and provides information on the LLP agreement.
Cost of LLP registration
A wide range of variables, including the number of partners, the permitted capital, and the location of the registered office, affect how much it costs to create an LLP in India. Here is a list of all the expenses related to LLP registration:
- Each authorized partner of the LLP must get a digital signature certificate (DSC), which ranges in price from INR 500 to INR 1500 per person.
- Each approved partner must additionally get a Director Identification Number (DIN), which costs INR 500 per person.
- To reserve a name, you must submit an application to the Registrar of Companies (ROC). This service costs INR 1,000.
- Documents for LLP incorporation must be filed, and the cost is determined by the total capital commitment of the partners. It might cost anything between 500 and 5000 INR.
- In India, there are several stamp duties that apply to LLP agreements. It varies from 200 to 10,000 Indian Rupees.
Overall, based on the aforementioned considerations, the cost to create an LLP in India might range from INR 7000 to INR 15000 approximately.
Importance of LLP Registration for Small Businesses in India
Limited Liability Protection
The limited liability protection provided by an LLP registration ensures that the partners personal assets are kept separate from the LLP companies assets. The partners’ individual assets are not at danger if the LLP incurs any kind of legal or monetary responsibility. As a result, the partners are shielded from any LLP financial or legal obligations.
Separate Legal Entity
An LLP becomes a distinct legal entity in the perspective of the law once it is registered. This indicates that it is separate from its partners, who own and run the company, and has its own legal identity. As a result, the LLP is a separate legal entity that is able to negotiate, purchase, sell, and sue in its own name as well as engage in other legal actions.
A further implication of this separation of legal entities is that the partners’ personal assets are not subject to the LLP’s duties or liabilities. In other words, the partners’ private assets are not in jeopardy if the LLP accrues debt or is sued. One of the most important benefits of an LLP structure is the limited liability protection, which gives the partners peace of mind.
The LLP can also possess assets in its own name thanks to this separation of legal entities, which can be useful when applying for loans, grants, or other types of support. For small enterprises in India that seek to protect their personal assets and have a unique legal presence, the LLP’s characteristic makes it an appealing corporate structure.
Ease of Doing Business
The ease of conducting business is one benefit of incorporating an LLP in India. Entrepreneurs can save time and effort by completing the relatively easy LLP registration procedure online. Additionally, in comparison to other business formations, LLPs have less compliance obligations and reduced compliance expenses, which may be especially helpful for small enterprises with limited resources.
To make conducting business easier in India, the Indian government has launched a number of programs. For instance, the Limited Liability Partnership Act of 2008 has made it simpler for business owners to establish and run LLPs in India. The statute outlines the rights and obligations of partners as well as the creation, administration, and dissolution of LLPs.
With the establishment of online registration portals and a single-window clearance system, the government has further streamlined the registration procedure for firms. As a result, getting the many licenses and permits necessary to launch and operate a business in India has taken far less time and money.
In general, India is now easier to do business with, which has increased its appeal to businesspeople and foreign investors. LLPs are a well-liked option for small firms wishing to launch and expand in India due to their streamlined registration procedure and reduced compliance expenses.
Better Access to Funding
Because banks and other financial organizations are more willing to lend to registered firms, LLP registration can help small businesses get more access to funding alternatives. This is because LLPs are seen as being more trustworthy and reputable, and because they are treated as independent legal entities, it is simpler to evaluate their trustworthiness. Due to its legal structure and limited liability protection, an LLP may also attract additional investors and partners.
Although LLPs are taxed in India as a separate legal entity from businesses, the tax rate is lower. The LLP tax rate is 30% as of 2021, and it is applied to the LLP’s whole revenue. The corporation tax rate, in contrast, is 25% for businesses with yearly revenues up to INR 400 crore and 30% for those with revenues beyond that threshold.
The fact that LLPs are exempt from dividend distribution tax, which is a tax imposed on businesses that transfer dividends to their shareholders, is one of the main tax benefits of LLPs. Additionally, LLPs are exempt from the minimal alternate tax (MAT), which is levied against businesses with little to no taxable revenue.
The ability of partners to deduct any interest or compensation received from the LLP from their taxes is another tax benefit of LLPs. In other words, the revenue earned by the partners is taxed according to their personal income tax slab rates, which are often lower than the tax rate for corporations.
Overall, the tax benefits of LLPs in India may lead to considerable tax savings for the company and its partners, making it a desirable choice for small firms and startups.
As a result of its limited liability protection, status as a separate legal entity, convenience of doing business, improved access to capital, and tax advantages, LLP registration is essential for small enterprises in India. The registration procedure may be simple and inexpensive with the aid of a qualified service provider like Kanakkupillai. A seamless and effective registration is guaranteed by Kanakkupillai’s comprehensive LLP registration services and professional advice throughout the procedure. As a result, using Kanakkupillai’s aid to register as an LLP may be quite advantageous for small enterprises in India.