Enquiry

A-207, Knox Plaza, Near Sheetal Banquet, Chincholi Bunder, Malad (W), Mumbai - 400 064

Blog

blog

LLP – Introduction, Features, Benefits and Conversion

Introduction


A Limited Liability Partnership or LLP is a corporate business form combining features of both Company and traditional partnership firms. It offers the benefits of a limited liability to the partners. The concept of LLP was emerged and got place in statutes in 2008 while the concept of private company is much older than. 


Salient Features of LLP


LLP is a body corporateIt is a legal entity separate from its partners.


Perpetual Succession; Unlike a partnership firm, a LLP can continue its existence even after the retirement, or death of one or more partners. 


Separate Legal Entity and the Limited liability of the partners;


LLP Agreementthe rights and duties of all partners are governed by an agreement between them. Also, the partners can devise the agreement as per their choice. If such an agreement is not made, then the Act governs the mutual rights and duties of all partners.


Artificial Legal PersonLLP is an artificial legal person. It is created by a legal process and has all the rights of an individual. It is invisible, intangible and immortal but not fictitious since it exists.


Minimum 2 partners and 2 individuals as designated partners; There is no maximum limit on the number of maximum partners in the entity.


Management of Businessthe partners of the Limited Liability Partnership can manage its business. However, only the designated partners are responsible for legal compliances.


E-Filing of DocumentsAll the e-forms need to be digitally signed by designated partner using digital signature.


Benefits of LLP


  • The fee for incorporation of LLP is lower than the fees for incorporation of private limited company. The process is also involves less documents and is less cumbersome.
  • Audit is not required for a LLP having annual turnover less than Rs.40 lakhs and capital contribution less than Rs.25 lakhs. Whereas, for a Private Limited Company, audit is mandatory irrespective of turnover or capital.
  • There is no dividend distribution tax applicable for LLPs. Whereas, for a Private Limited Company, dividends are taxed at the rate of 15%.
  • In LLP, there is no concept of Board Meetings or Annual General Meetings. So annual compliances relating to meetings, minutes, directors’ report, maintenance of registers etc. need not to be followed.


Drawbacks of LLP


  • LLPs do not have the concept of shareholding So, Venture Capitalists and Private Equity Investors who want to actively participate in the management of the business do not prefer LLP. 
  • Foreign Direct Investment (FDI) in a private limited company is under the automatic route whereas FDI in LLP is under the approval route. Therefore, foreign or NRI promoters prefer incorporation of a private limited company mostly.
  • Bankers and other FIs prefer to lend Companies than to LLPs so Companies have better borrowing capacity.


For whom LLP is best?


It is suitable for the startups which need Limited Liability in business; Want to save incorporation expenses, annual compliance expense and audit expenses, Don’t want to raise the funds from Angel Investor or Venture Capital firms in the initial phase; Don’t want to issue shares to employees as ESOP.


For whom Company is best?


It is suitable by the startup when they want need funding from investors and VCs; Offer shares to employees as ESOP; Need borrowings from Banks and FIs; Need foreign funding etc.


Conversion of LLP into Company


LLP Act, 2008 does not cover the provision of conversion of LLP into Company but Section 366 of the Companies Act, 2013 and Company (Authorized to Register) Rules, 2014 allows LLP to convert into a Company as per the provisions contained therein. Many Limited Liability Partnerships (LLPs) are now converting itself into a Private Limited Company for more growth and for infusing equity capital.


Pre-condition


  • LLP must have at least 2 partners; approval from all the partners is required.
  • Advertisement in newspaper, in form URC-2, in a local and a national newspaper.
  • No Objection Certificate (NOC) is required from the ROC where such LLP is registered.


Process of Conversion of LLP into Company


  • Publish newspaper notice in form URC-2


A notice seeking objections for conversion of LLP into Company must be published in form URC-2 in at least 2 newspapers one in local and other in English.


  • File RUN 


Name Approval has to be obtained from the ROC by submitting an application in RUN. Object clause of Company must be attached. 


  • Filing form No. URC – 1 & SPICe


After getting the approval of name from Registrar of Companies and after 21 days from the publication of newspaper advertisement, the applicant should file the form No URC-1 & SPICe along with the following documents.


Attachments to URC-1


  1. List of the members with details viz. names, address, occupation, shares held by them appropriately, etc.
  2. List of the first directors of the private company with details viz. names, address, the DIN etc.
  3. An affidavit from every person proposed as first directors, that he is not banned to be a director under section-164 
  4. A list including the names & addresses of partners of LLP 
  5. A copy of LLP agreement & certificate of registration duly verified by two designated partners 
  6. A statement indicating the following specifications q) the nominal share capital of firm & the number of shares into which it is separated b) the number of shares taken & the amount paid for every share c) the name of the firm, with the addition of word Limited or private limited is required.
  7. A written consent of all partners of LLP
  8. A written consent or No objection certificate from all creditors.
  9. Copy of newspaper advertisement, 
  10. Statement of accounts of the company which must not be 30 days preceding the date of the application and it must be duly certified by the auditor.
  11. A copy of latest income tax return
  12. Undertaking by proposed first directors with regard to compliance with Stamp Act


Attachments to SPICe


  1. Memorandum of Association
  2. Article of Association
  3. ID Proof and Address Proof of Directors
  4. Consent & Declaration by first Directors in DIR-2
  5. Self-Declaration by first directors and subscribers in INC-9
  6. Resolution of Partners for conversion
  7. Proof of regd. Office like Rent Agreement/Sale deed
  8. Latest Electricity bill


  • Issue Share Certificates to the members


Companies with turnover upto Rs. 250 crore attract Income tax @ 25% while LLPs attract tax @ 30%. So, Many existing LLPs planning to convert itself into Companies for multiple reasons like reducing tax rates, receiving foreign investment, attracting VCs and HNIs, borrowing from banks and FIs etc.