Limited Liability Partnership (LLP) - An Overview

A Limited Liability Partnership or an LLP is a legal entity that is registered under the Limited Liability Partnership Act, 2008. In a traditional Partnership, the liability is unlimited. In contrast, in LLP the liability is limited. It acts as a middle ground between a Company and a Partnership as it gives you the advantages of a Company with the flexibility of a Partnership.

An LLP is registered as per the guidelines of the Ministry of Corporate Affairs aka MCA.  Recently, it has become one of the most preferred forms of legal entities in India.

Eligibility Criteria

To be eligible for registering as an LLP, the following criteria must be met:

• At least two partners are required to form an LLP (no upper limit)
• If a body corporate is a partner, a natural person must be nominated to represent it
• Each partner must have an agreed contribution towards the shared capital
• LLP should have an authorized capital of at least ₹1 lakh
• At least one designated partner should be an Indian resident.

Benefits of LLP Registration in India

The main benefits for LLP Registration in India are as follows:

• Limited liability of its partners
• Separate legal existence similar to companies
• Low cost of formation in comparison to Pvt Ltd Company
• Lesser number of compliance compared to companies
• No formal Audit is necessary if the capital contribution is below Rs. 25 lacs and annual turnover is below Rs. 40 lacs.

Factors to consider while picking a name for your LLP

The various factors which you should keep in mind while picking a name for your company are as follows:

• The name should have the words ‘LLP’ at its end
• The name must be distinctive and unique
• The name should be suggestive of the LLP’s business
• The name should follow the guidelines of MCA

LLP v/s Private Limited Company

The Pros of opening an LLP are as follows:

• Cheaper to start
• Fewer Compliances

The Cons are:

• No Venture Capital Funding
• No ESOPs

Due to the above cons, start-ups who want to fund from VCs prefer Private Limited Company. If you have no such requirements, then you should go for LLP incorporation.