Let’s register LLP for SME

LLP is Limited Liability Partnership. It has features of Company and Partnership firm where the liability is limited unto the partner’s contribution. There are designated partners in LLP like we have Directors in Company. It is best suitable business structure especially for SMEs since there are lesser compliances under LLP if the firm is small one.

Mostly SMEs are registered either in Proprietorship firm or Partnership firm. It is very well known that Partnership firms have unlimited liability which can become personal liability of partners at the time of fraud etc. LLP is business structure which has limited liability, so, it is advisable to go for LLP for SMEs. Not only SMEs, also manufacturing businesses can get benefits if they opt for LLP as business entity.

Benefits of LLP

  • LLP are easy to register
  • LLP is a body corporate, which means it has its own existence as compared to partnership firm
  • LLP exists as a separate legal entity from its partners.
  • Liability for repayment of debts and lawsuits incurred by the LLP lies on the LLP itself
  • LLP has perpetual succession and continue to exist till its wound up in accordance with the provisions of the relevant law
  • LLP is flexible to manage
  • LLP is not required to get its accounts audited, which is a mandatory requirement for company
  • LLP has relatively lesser compliance requirements as compared to company

Eligibility criteria for LLP Registration

  • Minimum two designated partners
  • The Designated partner/partner can be Individual or body corporate
  • “Body corporate” includes foreign company, foreign LLP, Indian company, Indian LLP.
  • In case the body corporate is a partner, it has to nominate a natural person as its nominee.
  • At least one of the designated partners should be resident in India.
  • Each partner should bring in some sort of contribution. Concept of contribution is just like share capital in company.
  • Each Designated partner must have DIN (Designated Partner Identification Number)
  • Each Designated partner must have DSC (Digital Signature)
  • Registered office address in India capable of receiving correspondences

Documents/ information required registering LLP

  • KYC of the partners including PAN, Aadhar and Bank statement alongwith the photo for each designated partner
  • Registered office proof
  • Description about the business activities

Steps to register LLP

  • Applying for Digital Signature Application for every Designated Partner
  • Applying for DIN of Designated Partners
  • Applying for name approval of LLP
  • Applying for incorporation of LLP with duly signed documents
  • Drafting LLP Agreement
  • Filing information regarding LLP Agreement in prescribed form
  • Filing PAN & TAN for the LLP

Taxation on LLP

  1. Income Tax

LLP are liable for tax at flat 30% on the total income plus Surcharge at the rate of 10% of such tax. Please note that surcharge is applicable where total income exceeds one crore rupees.

In addition to income tax and Surcharge, LLP are also liable to pay Health and education cess at the rate of 4% of income tax and surcharge.

  1. Alternate Minimum tax

Tax by LLP cannot be less than 18.5% of adjusted total income.