Why is LLP Registration More in Demand in India?

Why is LLP Registration More in Demand in India?. Due to consistent efforts taken by MCA towards Ease of Doing Business, the Incorporation of LLPs and companies is highest as compared to any of the previous financial years as of 14.02.2024

Source: PIB
LLP Act, 2008, is the legislation that regulates LLPs in India. LLPs are a hybrid business structure that combines elements of both partnerships and corporations. Over the past several years, the Ministry of Corporate Affairs (MCA) has undertaken significant measures to enhance the Ease of Doing Business (EoDB) in India. A key focus has been on simplifying and speeding up company incorporation, ensuring that businesses can enter the market swiftly and efficiently.
LLPs are ideal for:

Entrepreneurs seeking a separate legal entity with limited liability and perpetual succession.

Entrepreneurs are not intending to raise Venture Capital, Seed, or Angel Funding.

Although LLPs are a newer concept, they offer more flexibility compared to Private Limited Companies, making them suitable for small and medium-scale businesses.
Despite the growing popularity of LLPs, Private Limited Companies remain preferred by corporations. Many start-ups opt for Private Limited Company registration due to its eligibility for seed funding, making it the most popular legal entity in India. If seeking future funding, registering as a Private Limited Company is advisable. Conversely, if funding from Venture Capitalists is uncertain, LLP registration is a viable alternative.
LLP Registration process through Central Registration Centre (CRC):
The establishment of the Central Registration Centre (CRC) has been a pivotal step, dedicated to the centralized, expeditious, and transparent processing of applications for the incorporation of companies and Limited Liability Partnerships (LLPs) in Non-Straight Through Processing (Non-STP) mode, the initiative has substantially reduced the time required for incorporation.
Improved Incorporation Statistics:
The impact of these initiatives is evident in the substantial increase in the number of companies and LLPs incorporated over the years. In the fiscal year 2013-14, 1,02,063 companies and LLPs were incorporated. This number nearly doubled by the fiscal year 2022-23, with 1,95,586 incorporations, marking an impressive increase of about 92%.
As of February 14, 2024, the number of incorporations for LLPs and companies in the current financial year has surpassed the figures from the previous financial year 2022-23. This marks the highest incorporation rate compared to any previous financial year, reflecting the success of streamlined entry processes.

Streamlined Processes through MCA in Fillip
The MCA has introduced several streamlined processes and digital tools to facilitate quicker and more efficient company registration steps: -

Obtain a Digital Signature Certificate (DSC)

- Obtain a Class 2 or Class 3 DSC for the designated partners of the LLP.

Name Availability Search for LLP

- Use the Ministry of Corporate Affairs (MCA) facility to check the availability of names for the LLP.
   - Ensure the proposed name is unique and does not closely resemble existing companies/LLPs. Check trademarks to avoid conflicts.

Name Approval and Secure the proposed name for the LLP.

- File the proposed name of the LLP for approval through the RUN-LLP (Reserve Unique Name – Limited Liability Partnership) service.
   - Alternatively, this can also be done through FiLLiP (Form for incorporation of Limited Liability Partnership).

Filing FiLLiP form for Registration

The webform "Form FiLLiP" has been designed to streamline the incorporation of a Limited Liability Partnership (LLP) and its registration with the Registrar of Companies (CRC).
   - Fill and submit the FiLLiP form to the Registrar of Companies (RoC) for incorporation of the LLP.
  - For Foreign LLPs (FLLP), file Form 27. This form must be digitally signed, and the Designated Partner Identification Number (DPIN) must be obtained through FiLLiP. The following services can be availed by the user through this webform:
(a) Application for reservation of name
(b) Application for allotment of Designated Partner Identification Number (DPIN)
(c) Application for issuance of Limited Liability Partnership Identification Number/Registration of LLP with RoC
(d) Consent by a designated partner
(e) Application and statement in case of conversion of partnership firm into LLP
(f) Application and statement in case of conversion of private/unlisted public company into LLP
(g) Application for PAN/ TAN allocation Once the web form is processed and found complete, an LLP is registered, and PAN/TAN and LLPIN are allocated.
Also, DINs/DPINs get issued to the proposed designated partners (individuals and nominees of body corporate) who do not have a valid DIN/DPIN.

Approval by CRC

Once the web form undergoes processing and DIN/DPIN is generated, an acknowledgment email confirming the generation of DIN/DPIN is dispatched to the designated partner. Additionally, upon completion of the incorporation process or conversion, as applicable, the Certificate of Incorporation or Certificate of Registration is sent via email.

Form 3 Submission for LLP Agreements (Mandatory to file)

Filing Form 3, which includes details about the LLP agreement and any subsequent changes, is crucial within 30 days of incorporation. Unfortunately, many LLPs overlook this requirement. However, failing to file Form 3 has significant repercussions. Without this filing, LLPs cannot submit any other forms related to changes in the LLP deed. Moreover, closure procedures for LLPs become inaccessible until Form 3 is successfully filed.

State-Specific Registrations

- Check and complete any state-specific registrations required like Shop and Establishments, GST, Labour laws, etc. based on the location and nature of the business.
Notes: -
- Always refer to the latest provisions and updates from the MCA and relevant authorities.
- Ensure compliance with all applicable regulations to avoid penalties and legal issues.
By following these steps, you can successfully incorporate an LLP in India while ensuring compliance with the regulatory framework.
Following the cited process step by step ensures the smooth incorporation of an LLP. The Ministry of Corporate Affairs (MCA) has played a pivotal role in enhancing the Ease of Doing Business (EoDB) in India. Simplified procedures for both incorporation and exit processes for companies and LLPs have been introduced, contributing to a more business-friendly environment.
These initiatives by the MCA not only facilitate quicker incorporation but also provide a more efficient and expedited exit process for businesses, thereby enhancing the overall business environment in India.
FAQ on LLP Registration process and Compliances in India as per LLP Act 2008:
Q1. What is the Consent by Designated Partners/Partners required for Incorporation before filing the form with MCA?
Ans. Followings consent shall be given here under:
“We, the undersigned partners, hereby express our intention to form a Limited Liability Partnership (LLP) to conduct a lawful business to generate profit. We have either already entered into or agreed to enter into a written LLP agreement.
We individually commit to contribute money, property, benefits, or services to the LLP as per the terms outlined in the LLP agreement associated with our respective names.
By signing below, we provide our consent to act as partners/designated partners/nominees/nominees & designated partners of the LLP by Section 7(4)/25(3)(c) of the Limited Liability Partnership Act, 2008.”
Q2. What are the Basic Features of an LLP?
Ans. Followings features of LLP as: -

An LLP requires at least 2 Designated Partners/Partners.

There is no minimum capital requirement.

It offers advantages such as tax benefits, lower compliance, and flexibility.

Q3. LLP is Ideal for which business structure?
Ans. For: -

Entrepreneurs seeking a separate legal entity with limited liability and perpetual succession.

Those not intending to raise venture capital, seed, or angel funding.

Small and medium-sized businesses seeking flexibility and reduced compliance burden.

Q4. What are the Key Considerations before Registration of LLP?
Ans. You should consider the following factors:

While Private Limited Companies are popular for startups seeking funding, LLPs are preferable for those unsure about venture capital funding.

LLPs can be started with minimal capital, as low as Re 1/-, without any minimum capital requirement.

Partner authorities and responsibilities can be clearly defined through an LLP Agreement, custom-made to suit specific needs.

Q5. What are the advantages of a Limited Liability Partnership?
Ans. Advantages are: -
LLPs offer the significant advantage of limited liability, shielding partners from personal liability beyond their agreed capital contribution.
If the LLP faces losses, partners are only liable up to their agreed capital contribution, safeguarding personal assets.
Q6. What are the Tax Benefits and Compliance for LLP?
Ans. Many benefits you can enjoy after registering a business in the form of an LLP such as:

LLPs enjoy tax benefits, including the absence of Dividend Distribution Tax (DDT).

Compared to Private Limited Companies, LLPs have lower compliance requirements due to no compulsory meetings and fewer statutory registers to maintain.

LLPs offer notable tax benefits and reduced compliance burdens. To illustrate, consider the following tax comparison:
For a Private Limited Company with a net profit (NP) of 200:
  - Minus 30% income tax = 60
  - Minus 15% Dividend Distribution Tax (DDT) = 30
  - Net Profit after Tax = 110
For an LLP with a net profit (NP) of 200:
  - Minus 25% income tax = 50
  - Minus 0 DDT = 0
  - Net Profit after Tax = 150
In the given example, the Private Limited Company incurs a higher tax liability due to both income tax and dividend distribution tax. On the other hand, the LLP enjoys a lower tax burden without the imposition of dividend distribution tax, resulting in higher net profit after tax. Additionally, the LLP benefits from reduced compliance requirements, making it an attractive option for entrepreneurs seeking tax efficiency and lower administrative burden.
Q7. Do registers and Records need to be maintained by LLP?
Ans. No, since LLPs do not require compulsory meetings or maintenance of statutory registers, they have lower compliance requirements.
Q8. How to Select NIC Code for LLP?
Please refer to the below link to view the list of activity codes: “https://www.ncs.gov.in/Documents/NIC_Sector.pdf
Q9. How to process form Fillip and its mandatory details?
Ans. The Fillip Instruction Kit serves as a comprehensive guide, offering step-by-step assistance to users filling out the web form. It contains references to the relevant laws governing the web form, guidelines on accessing the application, and detailed instructions for completing each field of the web form. Moreover, the document includes important checkpoints to ensure accurate completion of the web form.
Q10. Can a partnership firm be a partner in an LLP?
Ans. No, per Section 5 of the LLP Act 2008 states that 'Any individual or body corporate may be a partner in a limited liability partnership.' However, the term 'body corporate' as defined in Section 2(d) does not explicitly encompass partnership firms. Since partnership firms are not considered body corporates, they cannot form an LLP.
Moreover, Department Circular No. 4/72 dated 09.03.1972 indicates that a firm, being a non-juristic entity, cannot be registered as a member of a company. As an LLP is also categorized as a body corporate, similar restrictions may apply to partnership firms.
Circular 2/2016 dated 15.01.2016 further clarifies that Hindu Undivided Families (HUFs), similarly not recognized as body corporates, cannot serve as partners or designated partners in an LLP.
Furthermore, the absence of the 'Partnership Firm' option in the Body Corporate dropdown suggests that partnership firms are not intended to be partners in an LLP.
Q11. What are Recent changes that come under the LLP Act 2008?
Ans. The major initiative under MCA21 slated for launch in Fiscal Year 2021-22 includes the introduction of 'Small LLPs definition, the initiative aims to establish a distinct category of LLPs known as 'Small LLPs,' akin to the concept of Small Companies.
Small LLPs will be subjected to reduced compliance requirements, lower fees, or additional fees, and lesser penalties in case of non-compliance, easy compliance process is designed to encourage unincorporated micro and small partnerships to transition into the structured framework of an LLP, thereby availing the associated benefits while minimizing the costs of compliance.
Furthermore, there is a proposal to amend Section 69 of the Act, aiming to decrease the current additional fee of Rs. 100 per day imposed for delayed filing of forms and documents. The anticipated reduction in additional fees is poised to encourage timely filing of records and returns by LLPs, in turn, is expected to contribute to maintaining an updated registry, facilitating effective regulation, and enabling informed policy-making processes.
Learn more about the amendment on LLP 
Q1.SBO Rule is also applicable in the case of LLP?
Ans. Yes, Limited Liability Partnerships (LLPs) are now subject to Significant Beneficial Ownership (SBO) compliances under the Limited Liability Partnership Act, 2008, since November 9, 2023, regulations, previously applicable only to companies under the Companies Act, 2013, were extended to LLPs to enhance transparency and accountability in ownership structures.
The initial compliance window for LLPs, which mandates action within 90 days, ends on February 7, 2024. LLPS must adhere to these requirements within the stipulated timeframe to ensure regulatory compliance. Non-compliance may result in penalties and legal repercussions.
LLPs must identify and disclose their significant beneficial owners, ensuring transparency in ownership and control. They should maintain accurate records of beneficial ownership and submit the necessary filings to the regulatory authorities.
By fulfilling SBO compliances promptly, LLPs demonstrate their commitment to regulatory compliance and uphold corporate governance standards, suggesting that LLPs connect with Compliance Calendar LLP, to get this compliance done as regulatory requirements and avoid potential risks or penalty provisions by adjudication through ROC.

Due to consistent efforts taken by MCA towards Ease of Doing Business, the Incorporation of LLPs and companies is highest as compared to any of the previous financial years as of 14.02.2024

Source: PIB

LLP Act, 2008, is the legislation that regulates LLPs in India. LLPs are a hybrid business structure that combines elements of both partnerships and corporations. Over the past several years, the Ministry of Corporate Affairs (MCA) has undertaken significant measures to enhance the Ease of Doing Business (EoDB) in India. A key focus has been on simplifying and speeding up company incorporation, ensuring that businesses can enter the market swiftly and efficiently.

LLPs are ideal for:

Entrepreneurs seeking a separate legal entity with limited liability and perpetual succession.
Entrepreneurs are not intending to raise Venture Capital, Seed, or Angel Funding.

Although LLPs are a newer concept, they offer more flexibility compared to Private Limited Companies, making them suitable for small and medium-scale businesses.

Despite the growing popularity of LLPs, Private Limited Companies remain preferred by corporations. Many start-ups opt for Private Limited Company registration due to its eligibility for seed funding, making it the most popular legal entity in India. If seeking future funding, registering as a Private Limited Company is advisable. Conversely, if funding from Venture Capitalists is uncertain, LLP registration is a viable alternative.

LLP Registration process through Central Registration Centre (CRC):

The establishment of the Central Registration Centre (CRC) has been a pivotal step, dedicated to the centralized, expeditious, and transparent processing of applications for the incorporation of companies and Limited Liability Partnerships (LLPs) in Non-Straight Through Processing (Non-STP) mode, the initiative has substantially reduced the time required for incorporation.

Improved Incorporation Statistics:

The impact of these initiatives is evident in the substantial increase in the number of companies and LLPs incorporated over the years. In the fiscal year 2013-14, 1,02,063 companies and LLPs were incorporated. This number nearly doubled by the fiscal year 2022-23, with 1,95,586 incorporations, marking an impressive increase of about 92%.

As of February 14, 2024, the number of incorporations for LLPs and companies in the current financial year has surpassed the figures from the previous financial year 2022-23. This marks the highest incorporation rate compared to any previous financial year, reflecting the success of streamlined entry processes.

Streamlined Processes through MCA in Fillip

The MCA has introduced several streamlined processes and digital tools to facilitate quicker and more efficient company registration steps: -

Obtain a Digital Signature Certificate (DSC)

- Obtain a Class 2 or Class 3 DSC for the designated partners of the LLP.

Name Availability Search for LLP

- Use the Ministry of Corporate Affairs (MCA) facility to check the availability of names for the LLP.

- Ensure the proposed name is unique and does not closely resemble existing companies/LLPs. Check trademarks to avoid conflicts.

Name Approval and Secure the proposed name for the LLP.

- File the proposed name of the LLP for approval through the RUN-LLP (Reserve Unique Name – Limited Liability Partnership) service.

- Alternatively, this can also be done through FiLLiP (Form for incorporation of Limited Liability Partnership).

Filing FiLLiP form for Registration

The webform "Form FiLLiP" has been designed to streamline the incorporation of a Limited Liability Partnership (LLP) and its registration with the Registrar of Companies (CRC).

- Fill and submit the FiLLiP form to the Registrar of Companies (RoC) for incorporation of the LLP.

- For Foreign LLPs (FLLP), file Form 27. This form must be digitally signed, and the Designated Partner Identification Number (DPIN) must be obtained through FiLLiP. The following services can be availed by the user through this webform:

(a) Application for reservation of name

(b) Application for allotment of Designated Partner Identification Number (DPIN)

(d) Consent by a designated partner

(e) Application and statement in case of conversion of partnership firm into LLP

(f) Application and statement in case of conversion of private/unlisted public company into LLP

(g) Application for PAN/ TAN allocation Once the web form is processed and found complete, an LLP is registered, and PAN/TAN and LLPIN are allocated.

Also, DINs/DPINs get issued to the proposed designated partners (individuals and nominees of body corporate) who do not have a valid DIN/DPIN.

Approval by CRC

Form 3 Submission for LLP Agreements (Mandatory to file)

State-Specific Registrations

- Check and complete any state-specific registrations required like Shop and Establishments, GST, Labour laws, etc. based on the location and nature of the business.

Notes: -

- Always refer to the latest provisions and updates from the MCA and relevant authorities.

- Ensure compliance with all applicable regulations to avoid penalties and legal issues.

By following these steps, you can successfully incorporate an LLP in India while ensuring compliance with the regulatory framework.

Following the cited process step by step ensures the smooth incorporation of an LLP. The Ministry of Corporate Affairs (MCA) has played a pivotal role in enhancing the Ease of Doing Business (EoDB) in India. Simplified procedures for both incorporation and exit processes for companies and LLPs have been introduced, contributing to a more business-friendly environment.

These initiatives by the MCA not only facilitate quicker incorporation but also provide a more efficient and expedited exit process for businesses, thereby enhancing the overall business environment in India.

FAQ on LLP Registration process and Compliances in India as per LLP Act 2008:

Q1. What is the Consent by Designated Partners/Partners required for Incorporation before filing the form with MCA?

Ans. Followings consent shall be given here under:

“We, the undersigned partners, hereby express our intention to form a Limited Liability Partnership (LLP) to conduct a lawful business to generate profit. We have either already entered into or agreed to enter into a written LLP agreement.

We individually commit to contribute money, property, benefits, or services to the LLP as per the terms outlined in the LLP agreement associated with our respective names.

By signing below, we provide our consent to act as partners/designated partners/nominees/nominees & designated partners of the LLP by Section 7(4)/25(3)(c) of the Limited Liability Partnership Act, 2008.”

Q2. What are the Basic Features of an LLP?

Ans. Followings features of LLP as: -

An LLP requires at least 2 Designated Partners/Partners.
There is no minimum capital requirement.
It offers advantages such as tax benefits, lower compliance, and flexibility.

Q3. LLP is Ideal for which business structure?

Ans. For: -

Entrepreneurs seeking a separate legal entity with limited liability and perpetual succession.
Those not intending to raise venture capital, seed, or angel funding.
Small and medium-sized businesses seeking flexibility and reduced compliance burden.

Q4. What are the Key Considerations before Registration of LLP?

Ans. You should consider the following factors:

While Private Limited Companies are popular for startups seeking funding, LLPs are preferable for those unsure about venture capital funding.
LLPs can be started with minimal capital, as low as Re 1/-, without any minimum capital requirement.
Partner authorities and responsibilities can be clearly defined through an LLP Agreement, custom-made to suit specific needs.

Q5. What are the advantages of a Limited Liability Partnership?

Ans. Advantages are: -

LLPs offer the significant advantage of limited liability, shielding partners from personal liability beyond their agreed capital contribution.

If the LLP faces losses, partners are only liable up to their agreed capital contribution, safeguarding personal assets.

Q6. What are the Tax Benefits and Compliance for LLP?

Ans. Many benefits you can enjoy after registering a business in the form of an LLP such as:

LLPs enjoy tax benefits, including the absence of Dividend Distribution Tax (DDT).
Compared to Private Limited Companies, LLPs have lower compliance requirements due to no compulsory meetings and fewer statutory registers to maintain.

LLPs offer notable tax benefits and reduced compliance burdens. To illustrate, consider the following tax comparison:

For a Private Limited Company with a net profit (NP) of 200:

- Minus 30% income tax = 60

- Minus 15% Dividend Distribution Tax (DDT) = 30

- Net Profit after Tax = 110

For an LLP with a net profit (NP) of 200:

- Minus 25% income tax = 50

- Minus 0 DDT = 0

- Net Profit after Tax = 150

In the given example, the Private Limited Company incurs a higher tax liability due to both income tax and dividend distribution tax. On the other hand, the LLP enjoys a lower tax burden without the imposition of dividend distribution tax, resulting in higher net profit after tax. Additionally, the LLP benefits from reduced compliance requirements, making it an attractive option for entrepreneurs seeking tax efficiency and lower administrative burden.

Q7. Do registers and Records need to be maintained by LLP?

Ans. No, since LLPs do not require compulsory meetings or maintenance of statutory registers, they have lower compliance requirements.

Q8. How to Select NIC Code for LLP?

Please refer to the below link to view the list of activity codes: “https://www.ncs.gov.in/Documents/NIC_Sector.pdf

Q9. How to process form Fillip and its mandatory details?

Ans. The Fillip Instruction Kit serves as a comprehensive guide, offering step-by-step assistance to users filling out the web form. It contains references to the relevant laws governing the web form, guidelines on accessing the application, and detailed instructions for completing each field of the web form. Moreover, the document includes important checkpoints to ensure accurate completion of the web form.

Q10. Can a partnership firm be a partner in an LLP?

Ans. No, per Section 5 of the LLP Act 2008 states that 'Any individual or body corporate may be a partner in a limited liability partnership.' However, the term 'body corporate' as defined in Section 2(d) does not explicitly encompass partnership firms. Since partnership firms are not considered body corporates, they cannot form an LLP.

Moreover, Department Circular No. 4/72 dated 09.03.1972 indicates that a firm, being a non-juristic entity, cannot be registered as a member of a company. As an LLP is also categorized as a body corporate, similar restrictions may apply to partnership firms.

Circular 2/2016 dated 15.01.2016 further clarifies that Hindu Undivided Families (HUFs), similarly not recognized as body corporates, cannot serve as partners or designated partners in an LLP.

Furthermore, the absence of the 'Partnership Firm' option in the Body Corporate dropdown suggests that partnership firms are not intended to be partners in an LLP.

Q11. What are Recent changes that come under the LLP Act 2008?

Ans. The major initiative under MCA21 slated for launch in Fiscal Year 2021-22 includes the introduction of 'Small LLPs definition, the initiative aims to establish a distinct category of LLPs known as 'Small LLPs,' akin to the concept of Small Companies.

Small LLPs will be subjected to reduced compliance requirements, lower fees, or additional fees, and lesser penalties in case of non-compliance, easy compliance process is designed to encourage unincorporated micro and small partnerships to transition into the structured framework of an LLP, thereby availing the associated benefits while minimizing the costs of compliance.

Furthermore, there is a proposal to amend Section 69 of the Act, aiming to decrease the current additional fee of Rs. 100 per day imposed for delayed filing of forms and documents. The anticipated reduction in additional fees is poised to encourage timely filing of records and returns by LLPs, in turn, is expected to contribute to maintaining an updated registry, facilitating effective regulation, and enabling informed policy-making processes.

Learn more about the amendment on LLP

Q1.SBO Rule is also applicable in the case of LLP?

Ans. Yes, Limited Liability Partnerships (LLPs) are now subject to Significant Beneficial Ownership (SBO) compliances under the Limited Liability Partnership Act, 2008, since November 9, 2023, regulations, previously applicable only to companies under the Companies Act, 2013, were extended to LLPs to enhance transparency and accountability in ownership structures.

The initial compliance window for LLPs, which mandates action within 90 days, ends on February 7, 2024. LLPS must adhere to these requirements within the stipulated timeframe to ensure regulatory compliance. Non-compliance may result in penalties and legal repercussions.

LLPs must identify and disclose their significant beneficial owners, ensuring transparency in ownership and control. They should maintain accurate records of beneficial ownership and submit the necessary filings to the regulatory authorities.

By fulfilling SBO compliances promptly, LLPs demonstrate their commitment to regulatory compliance and uphold corporate governance standards, suggesting that LLPs connect with Compliance Calendar LLP, to get this compliance done as regulatory requirements and avoid potential risks or penalty provisions by adjudication through ROC.