What Should Tech Businesses Consider When Forming an LLP?

The Limited Liability Partnership (LLP) business structure is becoming popular in India due to the benefits it offers. An LLP is a combination of a corporation and a partnership and offers operational efficiency, flexibility and limited liability.

An LLP is the best business structure for startups, professionals and small to medium-sized businesses. An LLP requires a formal written agreement between the partners. The responsibilities, profit-sharing and rights of the partners are set through the LLP agreement. If an LLP agreement is not made, then rights, profits and responsibilities are divided equally between the partners. One partner cannot be held liable for the deeds and mistakes of another partner.

The LLP Act, 2008, governs the registration of LLPs in India and is regulated by the Ministry of Corporate Affairs (MCA). Once you register your LLP, it gets the status of a legal entity. An LLP can operate as an independent entity and is completely liable for the assets it owns.

Why should an LLP be registered?

• Registering an LLP gives it a separate legal status for its partners. As it is legally recognised, it can own assets, enter into contracts and participate in legal proceedings in its name. Opening an LLP without registration is illegal and can lead to penalties.
• The main reason for LLP registration is to ensure limited liability for its partners. In case the LLP incurs losses, the personal assets of the partners stay safe. Each partner’s liability is limited to the contribution made in the LLP.
• A registered LLP will have more credibility in the market as it is a legally recognised entity. It shows that the business follows the regulations and operates transparently and will attract partners, investors and clients.
• A registered LLP can get better access to funding options like banks, subsidies, government grants and from close circles. Investors trust a registered LLP as it has a formal structure and complies with legal standards.
• When compared to other business structures, an LLP enjoys a favourable tax structure. It is best suited for individuals who want to withdraw profits periodically. An LLP does not have to pay Dividend Distribution Tax (DDT) and benefits from lower tax on income. This makes an LLP an ideal option for those looking to optimise tax liabilities.
• Compared to companies, LLPs offer more operational flexibility. An LLP agreement sets the responsibilities, roles and profit-sharing arrangements. This gives control over the structure and management of the business.
• When you register your LLP, it provides transparency and also ensures that the business is operated and managed according to the legal norms.

Registering an LLP in India

Prerequisites for registering an LLP

1. a) An LLP should have at least two partners, and they should be at least 18 years old.
2. b) At least one of the partners should be an Indian resident. Foreign nationals can be made partners in an LLP if they obtain a DPIN.
3. c) An LLP should have a valid office address in India, and if the office is owned by a third party, then a ‘No Objection Certificate’ is required.

• For the registration, you will have to get a Digital Signature Certificate (DSC) for all the partners. The documents have to be signed digitally.
• Decide on the name of your LLP and fill out the required form. The availability of names can be checked using MCA’s online tool. The name of your LLP should be unique and should not match any existing company names to avoid rejection.
• Fill out the right form on the MCA portal with the required details. You will need the name of the LLP, the registered office address and the information about the partners. The required documents have to be attested and submitted.
• After submitting the registration form, you have to pay the registration fee. The fees depend on the investments made in the LLP agreement.
• The MCA verifies the forms and the documents submitted. If valid then the MCA will issue the Certificate of Incorporation for your LLP, which is its formal registration.
• Within 30 days of the incorporation, the LLP agreement with the required details like the responsibilities, roles, rights, duties and profit-sharing between the partners and between LLP and its partners must be signed and submitted to the MCA.