Limited Liability Registration In India

The Limited Liability Partnership (LLP) has gained popularity as a favoured organizational structure among Indian entrepreneurs. Combining the advantages of partnership firms and companies, an LLP is formed by a minimum of two partners who enter into an LLP agreement. Unlike traditional partnerships, the partners of an LLP have limited liability, and the LLP enjoys perpetual succession similar to a company.

In India, the concept of LLP Registration was introduced in 2008 and is regulated by the Limited Liability Partnership Act of 2008. An LLP requires a minimum of two partners, with no maximum limit on the number of partners. Among the partners, there must be at least two designated partners, who should be natural persons, with at least one being a resident of India. The rights and responsibilities of designated partners are determined by the LLP agreement, and they are directly responsible for complying with the LLP Act and the provisions specified in the agreement.

Key features of LLP include separate legal entity status similar to companies, a requirement of at least two partners, no upper limit on the maximum number of partners, a minimum of two designated partners (with at least one being a resident of India), limited liability for each partner, low formation costs, fewer compliance and regulations, and no minimum capital contribution requirement.

LLPs offer advantages such as a separate legal identity, allowing the LLP to enter into contracts and gain stakeholders’ trust. The partners enjoy limited liability, being liable only for their contributions and not personally responsible for business losses. The formation costs are low, and the compliance requirements are minimal, with only two annual filings. Additionally, there is no requirement for a minimum capital contribution.

However, LLPs also have certain disadvantages. Non-compliance with minimal compliance requirements can lead to heavy penalties. If an LLP remains inactive, it still needs to file annual returns with the Ministry of Corporate Affairs, and failure to do so incurs penalties. LLPs require a minimum of two partners, and if the number falls below two for six months, the LLP is dissolved. Furthermore, raising capital can be challenging as LLPs do not have the concept of equity or shareholders like companies. This limitation makes it difficult for angel investors and venture capitalists to invest in LLPs, as they would need to take up partnership responsibilities. As a result, they prefer investing in companies rather than LLPs, posing a hurdle for LLPs in raising capital.