Setting Up A Small Business? LLP is the Way to Go!

by Tina Singh Professional Content Writer

Setting up a business entity resulting from a collaboration among multiple parties has become a common scenario in the present time. Professionals, often friends, peers, and acquaintances, join hands to develop and market a product or service to create an alternate and sustainable source of income owing to the volatile job market. While the general idea behind the organization is often clear among partners, it is often confusing to decide whether to register the company as an LLP or a Private Limited firm.

 

Limited Liability Partnership:

LLP or Limited Liability Partnership Firm registration was an instant hit at the time of its inception in 2009. It is governed by the 2008 Limited Liability Partnership Act that combines the benefits of a Limited Liability company with the benefits of a partnership. LLP has made it easy to establish an easily maintainable business and provides the owners with the benefit of limited liability.

Benefits of LLP Registration:

Partnership registration in the form of LLP has the core benefit of limited liability that ascertains that the members are only liable for a part of the debt incurred. This makes it different from general partnership and proprietorship where if the business goes bankrupt the assets of partners and directors come in jeopardy.

 

• Independent Legal Entity – An LLP organization is in itself independent from the partners who can sue each other in case of a dispute. Even with the absence of the partnership deed, an LLP has uninterrupted existence even if the partners leave. Terms of dissolution are to be agreed upon beforehand to dissolve the firm.

• Flexible – It is easy to incorporate a new member among the partners owing to the ease of transferring ownership in the LLP.

• Ideal for Small Businesses – LLP firms with a turnover lower than 40 lakhs or capital amount less than 25 lakhs need not have a formal audit making LLP registration ideal for start-ups. It is also easier for the business to acquire property which cannot be claimed by any of the members.

• Owner Remains to be the Manager – In an LLP firm, the owner and the director are the same, unlike a Pvt Ltd. company where the shareholder and director can be different.

 

Limited Liability Partnership Firm Registration Online:

LLP firms can be easily registered online without the need for partnership deed format, which is essential for registering a general partnership. Following are the steps and requirements for LLP registration:

• Basic identification and income documents of the partners involved
• Fill the online registration form with accurate information
• Apply for partner’s DIN and Digital Signature
• Prepare all the required legal documentation
• Apply for the proposed name of the LLP being registered
• Get all the documentation verified from respective authorities and government departments
• File the incorporation documents with the Registrar of Companies
• Acquire the incorporation certificate of LLP
• Draft the LLP agreement
• File the LLP agreement
• Apply for the companies TAN and PAN numbers after receiving the certification

Qualifications for LLP Registration India:

Your firm needs to fulfill certain conditions to become eligible for registration as an LLP:

• Minimum two partners
• In the case of the corporate body as a partner, one natural person should also be nominated
• Shared capital is not required but the contribution must be agreed upon
• Authorized capital of at least 1 lakh must be available to the firm
• At least one of the partners should be Indian
• DSC and DPIN for all designated partners
• Address proof of the registered office

Private Limited Company:

While setting up a start-up or a new business entity in India the inclination is always towards registration as a private limited firm. The reasons behind this are simple:

• A private limited company can have 2 to 200 members and also allow the possibility of having shareholders who can take a chunk from the profit but are not responsible for the management of the company and its actions. 
• For a Foreign Direct Investment (FDI) from NRI or foreign partners and promoters, the private limited company offers a direct route without the need for approval from government authorities.
• With an option available to support shareholders and ease of FDI, a private limited company is often the go-to option for start-ups that are planning to look for funding from private equity investors and venture capitalists.

Takeaway:

Ideal for small businesses, Limited Liability Partnership registration offers benefits for people who want a formal legal partnership but without jeopardizing their personal assets. If you are planning a small business that you expect will not generate a turnover of more than 40 lakh in the establishing years, then a Limited Liability Partnership is the ideal option. Not only will you get to set your own terms of doing business and partnership but will also save a lot of registration, compliance, and audit costs.

On the other hand, if you are looking to establish a start-up with an instantly scalable product and would require funding from investors to get the product successfully into the market, then your best bet would be a Private Limited Company. Since, the Companies Act, 2013 does not mention any rules for the conversion of an LLP into a private limited company, you cannot opt for enjoying the benefits of LLP for the first few years when the turnover is low and then shifting to Pvt. Ltd. status to look for funding.

Conclusion:

Setting up a business is not easy. It requires effort to cover all grounds, but it is often the legislative part where newly established companies often lack. Layout the groundwork for your partnership deed with the founding members, decide on who is going to make the most investment and who is going to put in the most effort. After the initial tasks are complete, you can contact an advocate and discuss your objective and available options or you can make contact with professional legal firms like VakilSearch that have an in-house team of advocates, attorneys, and legal experts to provide you with the legal counsel and take care of the entire registration process.

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Created on Jan 8th 2020 05:34. Viewed 735 times.

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