Advantages Of Formulating LLP In India For MSMEs

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Deciding on the business structure is one of the key decisions that any entrepreneur will need to take. While the choices are aplenty, opting for LLP brings its own share of benefits for MSME.

This blog highlights the major advantages you can avail by forming a limited liability partnership in India. Are you looking to opt for an LLP registration? If not, you might be tempted to do so after reading this.

Understanding the basics of LLP

LLP is known as a limited liability partnership. It is a type of legal entity where some of all partners will have limited liability. There are plenty of various business types of entities in India; the primary difference betwixt LLP and traditional partnership is that one partner will not be responsible for another partner’s negligence or misconduct. LLP conjoins the limited liability of the company and offers flexibility in the partnership with limited compliance costs.

Which type of business should you opt for LLP?

LLP can be helpful for small and large enterprises generally. Still, specifically for service-based industry or sector including professionals like architects, web designers, for instance, that does not need equity funding.

LLP is one of the most accessible forms of registration that can be formulated easily than a private limited company that is not obliged to hold meetings or record minutes.

As LLP itself will be liable for debts run-up. At the same time, the functioning of the business rather than individual partners in the firm; thus, the LLP is predominant in the market for profit-making business. Nonetheless, one should keep in mind that if one needs to raise funds, then registering for LLP is not a suitable option. Instead, one can set up a private limited company, or a one-person company should be preferred.

Minimum requirements have been given below to form the LLP in India;

– Minimal two partners (individual or body corporate).

– Minimal two designated partners who are individuals, and one has to be an Indian resident.

– Name of the LLP.

– DSC (digital signature certificate).

– LLP agreement.

– Registered office.

Benefits of opting for LLP in India

Separate legal entity – as an individual character of the entity, you will have the power to take action against the LLP but not on your partners. LLP can file a lawsuit and can be sued by others. And one partner will not be responsible for the other’s negligence or misconduct.

Perpetual existence – as the LLP acts as a separate legal person, LLP existence will be intact and unaffected in case of any partner’s demise. An LLP persists to remain unchanged even after changes in proprietorship.

Less compliance – the LLP needs minimal compliance. Compliance is only required for companies whose turnover is less than Rs. Forty lacs or capital contribution less than Rs. 25 lacs. That’s why LLPs are suitable for more start-ups and small businesses that are just initiating their operations and aspire to have minimum regulatory compliance concerned with formalities.  

Transfer of ownership will be easy – LLP’s proprietorship can be transferred easily to another person by inducting them as an LLP partner.

Possessing the property – the LLP being an artificial legal person, can obtain, possess, enjoy and sell, property in its name. No partner can claim the LLP’s property so long as the LLP is a going concern.

Wind up can be easy – one can easily opt for dissolution of LLP compared to a private limited company. LLP’s winding up might take close to 2-3 months that is less, compared to winding up of the private limited company.


What is the LLP’s DIN (directors identification number)?

It is a permanent number allocated by the registrar of companies as a special identification number to the designated partners of the LLP. No person will hold an office of the designated partner unless he/she has the DIN. For getting DIN, an application has to be made to MCA with photo, attested ID and address proof duly attested by CS, CA, or CMA.

Who is eligible to become a designated partner in the LLP?

Any person, or even a company or an LLP, can become a partner. Nonetheless, only a person can become a designated partner in the LLP.

What can initiate the LLP?

A group of people with money to invest in a business can initiate the LLP. An investor or person becomes a partner, as per the LLP agreement, as given in the act of 2008. Partners and investors are owners of the business initiated under the LLP.

What is the LLP agreement?

LLP’s partners join themselves related to their mutual rights and responsibilities and obligations, capital contribution ratio and profit-sharing ratio in a document that can be called LLP agreement. Once the LLP incorporation is done, partners will have to implement the same and submit a copy with RoC within one month of incorporation, failing of which can lead to a penalty of Rs. 100 a day for each day delay.

In conclusion.

Formulating LLP is easy compared to others in India, as you have seen from the above steps. And can use primary residential mortgage for loans. LLP can be suitable for those businesses who make a profit and want limited liability on them.