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Advantages of LLP Registration
Company

Advantages of LLP Registration

A recent trend has been that many entrepreneurs are opting for Limited Liability Partnerships. However, what exactly is a Limited Liability Partnership? Before answering this question, there’s a need to discuss the reasons for the emergence of LLPs. Earlier, there were only two types of organizations:

  1. Limited Liability Organizations i.e. Companies
  2. Unlimited Liability Partnerships i.e. Partnership/ Proprietorship

Both of these types of organizations have advantages and disadvantages. The owners of a company have limited liability compared to Partnerships/Proprietorships, which are easy to form and operate, whereas, partnerships provide more flexibility and less compliance. The rapid expansion of the service sector created an environment and demand for a new type of organization. As a result, the concept of Limited Liability Partnership was developed, which combines the advantages of both corporations and partnerships.  

Also, read How to Convert Partnership Firm to LLP? Process and Benefits. 

WHAT IS LLP?

A LLP is a limited liability partnership. This type of entity has the features of both, a private limited company and a partnership. While the compliances are far lesser than that of a private limited company, the liability is limited.

FEATURES OF LLP:

  1. LLP merges the benefits of a company's limited liability with the flexibility of a partnership.
  2. The LLP does not depend upon its partners for its existence. It can continue to exist even if the partners change. It can enter into contracts and hold property in its name.
  3. The LLP is a distinct entity that is liable to the full extent of its assets. Still, the partners' liability is limited to their agreed-upon contribution to the LLP.
  4. Furthermore, no partner is liable for other partners' independent or unauthorized actions, so individual partners are protected from joint liability resulting from another partner's wrongful business decisions or misconduct.

TAXATION OF LLPs IN INDIA

Taxation for LLPs is same as that of partnerships. Tax will be levied on the LLP but the partners will be exempt from tax. Furthermore, because LLPs are taxed similarly to Partnership Firms, no tax is levied on the conversion of Partnership Firms into Limited Liability Partnerships.

The Income Tax Return must be signed and verified by the designated partner or any other partner in the absence of the designated partner.

You may also read Income Tax Verification: The checking of your filed taxes. 

LLP REGISTRATION PROCESS

A LLP must be registered on the Ministry of Corporate Affairs (MCA) portal. A LLP must be registered under the Limited Liability Partnership (LLP) Act to be a legally valid entity.

Step1- Obtain Digital Signature Certificate (DSC)- Before beginning the registration process, you must obtain the digital signatures of the designated partners of the proposed LLP. All LLP documents are filed online and must be digitally signed.

Step2- Apply for Director Identification Number (DIN)- You must apply for the DIN of all designated partners or those who intend to be designated partners in the proposed LLP. The application for DIN allotment must be made in Form DIR-3.

Step3- Name Approval- The LLP-RUN (Limited Liability Partnership-Reserve Unique Name) form is used to reserve the name of a proposed LLP, which is processed by the Central Registration Center under Non-STP.

Step4- Incorporation of LLP- The incorporation form is FiLLiP (Form for Incorporation of Limited Liability Partnership), which must be filed with the Registrar of the state in which the LLP's registered office is located. The form will be a combined form. Fees in accordance with Annexure 'A' must be paid. If an individual who is to be appointed as a designated partner does not have a DPIN or DIN, this form allows them to apply for one.

Only two people will be able to make an application for allotment. FiLLiP can also be used to make a reservation application. If the applied-for name is approved, this approved and reserved name will be used as the LLP's proposed name.

Step5- File Limited Liability Partnership (LLP) Agreement- The LLP agreement governs the partners' mutual rights and duties and the LLP's and its partners' mutual rights and duties. The LLP agreement must be filed online in Form 3 on the MCA Portal. Form 3 of the LLP agreement needs to be filed within 30 days of incorporation. A stamp paper is needed to print the LLP Agreement. Each state has a different value for Stamp Paper.

You may like reading Service Agreement Vs Contract - How They Compare & Differ?

ADVANTAGES OF LLP

Like a corporation, a separate legal entity-  LLP has its legal entity. The LLP differs from its partners. An LLP has the ability to sue and be sued in its own right.

Limited liability of the partners- The LLP's partners have limited liability. Their liability is to the extent of their contribution. This means that they are only obligated to pay the amount of their contributions and are not personally liable for any losses in the business. If an LLP becomes insolvent at dissolution, only the LLP's assets are liable for debt repayment. Because the partners have no personal liabilities, they are free to conduct themselves as credible businessmen.

Low cost and Low compliance- In comparison to incorporating a public or private limited company, the cost of forming an LLP is low. The LLP's compliance requirements are also minimal.

No requirement of minimum capital contribution- The LLP can be formed without a minimum capital requirement.

DISADVANTAGES OF LLP

Penalty on non-compliance- The compliance that LLP must adhere to is minimal. However, if these compliances are not completed on time, the LLP will be fined heavily. Even if the LLP has no activity during the year, it must file annual returns with the Ministry of Corporate Affairs (MCA). If it fails to file the returns, the LLP will face severe penalties.

Winding up and dissolution of LLP- A LLP must have a minimum of two partners. The LLP will be dissolved if the minimum number of partners falls below two for six months. If the LLP cannot pay its debts, it may be dissolved.

Difficulty to raise capital- The LLP, unlike a corporation, does not have the concept of equity or shareholders. Angel and venture capitalists do not prefer to invest in a LLP.

Service Agreement vs. Contract: How They Compare and Differ
Agreement & Contract

Service Agreement vs. Contract: How They Compare and Differ

In the realm of business, agreements and contracts are essential documents that define the terms and conditions of a deal or arrangement between parties. While both serve similar purposes, there are distinct differences between a service agreement and a contract. Understanding these disparities is crucial for businesses to ensure they choose the right legal instrument for their specific needs. In this blog post, we'll explore the disparities and similarities between service agreements and contracts to help you navigate the intricacies of business dealings more effectively.

1. Definition and Purpose

Service Agreement: A service agreement is a legally binding document that outlines the terms and conditions of a service provided by one party to another. It typically includes details such as the scope of services, payment terms, duration of the agreement, and any other relevant provisions specific to the services being rendered.

Contract: A contract, on the other hand, is a broader legal document that encompasses various types of agreements, including service agreements. It is a legally enforceable agreement between two or more parties that creates obligations and rights that are legally enforceable.

2. Formation

Service Agreement: Service agreements are often less formal than contracts and can sometimes be created orally or through a simple written agreement. However, it's advisable to have a written service agreement to avoid misunderstandings and disputes.

Contract: Contracts typically require more formality in their creation, often involving negotiation, drafting, and signing by all parties involved. They may also require consideration, which refers to something of value exchanged between parties, such as money, goods, or services.

3. Scope and Specificity

Service Agreement: Service agreements are usually more focused on outlining the specific services to be provided, including details such as the scope of work, timelines, deliverables, and any other relevant terms. They are commonly used for ongoing services like consulting, maintenance, or subscription-based services.

Contract: Contracts can cover a broader range of agreements beyond just services, including sales of goods, lease agreements, employment agreements, and more. They often contain more comprehensive terms and conditions that govern the entire relationship between the parties, including provisions related to dispute resolution, warranties, liabilities, and termination clauses.

4. Enforcement and Legal Standing

Service Agreement: While service agreements are legally binding documents, they may sometimes lack the same level of enforceability as contracts, especially if they are not as detailed or specific. However, parties can still seek legal recourse in case of breach or non-compliance with the terms outlined in the agreement.

Contract: Contracts carry a higher level of enforceability due to their formal nature and comprehensive terms. They provide a clear framework for resolving disputes and seeking remedies in case of breach by any party. Courts are more likely to uphold contracts and enforce their terms, provided they meet the necessary legal requirements.

5. Flexibility and Adaptability

Service Agreement: Service agreements are often more flexible and can be tailored to the specific needs of the parties involved. They allow for easier modifications or amendments to accommodate changes in circumstances or requirements during the term of the agreement.

Contract: Contracts may be less flexible than service agreements, especially if they involve complex transactions or multiple parties. Any changes or modifications to a contract typically require mutual consent and formal documentation to ensure legal validity.

6. Risk and Liability

Service Agreement: In service agreements, the risk and liability may vary depending on the nature of the services provided and the terms outlined in the agreement. Typically, service providers may have limited liability for certain types of damages or losses, as specified in the agreement.

Contract: Contracts often allocate risks and liabilities more explicitly, with provisions addressing issues such as indemnification, limitations of liability, and warranties. Parties may negotiate these terms to allocate risks in a manner that is acceptable to both parties.

Conclusion

In summary, while service agreements and contracts share some similarities in their purpose of defining the terms of a business arrangement, they also exhibit distinct differences in their formation, scope, enforceability, flexibility, and risk allocation. Choosing the right legal instrument depends on the specific needs and circumstances of the parties involved. Whether you opt for a service agreement or a contract, it's crucial to ensure that the terms are clearly defined, mutually beneficial, and legally enforceable to protect the interests of all parties involved.