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Introduction

The Limited Liability Partnership (LLP) is a hybrid form of business where LLP enjoys the benefit of partnership and Private Limited Companies. The partners of LLP are only liable for the portion of shares they own and no partner is responsible for the carelessness and wrongdoing of the other partner. The most important question is - How do partners of Limited Liability Partnership(LLP)receive income? The answer to this will be discussed in this blog.

What is a Limited Liability Partnership (LLP)?

A Limited Liability Partnership (LLP) is a partnership firm in which some or all of the partners have limited liability. Moreover, it has the characteristics of both companies and partnerships. In an LLP, no partner is responsible or liable for the bad behavior and negligence of another partner. The partners are only liable for the shares they own.

Partners are eligible for remuneration and maximum remuneration

The LLP agreement specifies that which partners can receive returns and which cannot. If the percentage of the profit or interest of a partner is clearly stated in the  LLP agreement then they should be provided that amount regardless of whether the partner is working, inactive, sleeping, or not working. However, the Income Tax Act, 1961restricts the amount of remuneration LLP can pay-out to its partner. The maximum limits allowed on the remuneration of partners are as follow:

• On the first Rs. 3 lakhs of book profit or, in the event of a loss, Rs. 1,50,000 or 90% of book profit, whichever is greater; on the remainder of the book profit – 60% of book profit.

• The annual interest rate due to partners shall not exceed 12%.

Remuneration allowed to LLP

The LLP agreement also contains provisions for salaries and wages because it is an essential part of running a business. As a result, each partner wants maximum returns for the work done, and the partner should know the types of returns available in order to balance the agreement properly. The below are the three most common types of returns available to partner of LLP.

1. Interest in the capital

This is a payment method that is directly related to the capital of the partners that was put in when the company was just getting started. It has no relation to the present project going on in the company. When the partnership was formed, each partner is required to contribute a portion or percentage to the total share capital. Therefore, the interest return they received will be from the percentage of the amount they investe.  

2. Remuneration on salary

This term refers to everything from incentives and commissions to a partner's or employee’s total compensation. It is given to the partners who work hard to assist the LLPs to grow and prosper. It is a remuneration system based on the amount of work completed and little on the capital contributed at the outset of the partnership.

3. Profit sharing

The return in the profit sharing becomes available when the LLP starts making profit. This return considers both the amount of work that has been put in and the capital that has been invested. As soon as the LLP begins to earn profit, that profit is reviewed, divided into pieces as per the amount of work performed, and capital is distributed among the partners as required.

Conclusion

The designation of partners and the provisions included in the LLP agreement filed during LLP partnership firm registrations and later through modifications determine eligibility for returns and remuneration of the partners in LLP. The partners must carefully analyze the designation and rights of each LLP member, before forming an LLP agreement. In addition, it should highlight that the Income Tax Act governs the tax ability of returns, LLP profits, and remuneration of partners regardless of the provisions and limitations on remuneration in the LLP Agreement.

 Introduction

LLP stands for Limited Liability Partnership. It is a hybrid corporate business form that gives the benefits of both limited liability like a company and flexibility of a partnership. As per Limited Liability Partnership(second Amendment) Rules, 2022, an LLP can  be incorporated with 5 designated partners instead of 2 designated partners (without DIN). The registration process and other regulations are governed by the Limited Liability Partnership Act, 2008. In this blog we will discuss the registration process of LLP.

What is Limited Liability Partnership (LLP)?

A Limited Liability Partnership (LLP) refers to the partnership in which partners have limited liability. It has the features of both partnership as well as company. An individual partner in an LLP is not answerable or liable for the wrongdoings or negligence of any other partner. It can hold property in its own name and enter into contracts.

Benefits of registering LLP

• An LLP enjoys the status of separate legal entity.

• The partners of LLP are only liable to pay for the agreed contribution to company.

• The existence of the LLP is not affected by the death of any partners.

Requirement of registering LLP

• LLP can have 5 designated partner instead of 2 designated partner (without DIN) at the time of incorporation.

• One of the designated partners should be an Indian resident.

• Each partner of LLP should have agreed contribution towards the share capital.

• An LLP must have an authorised capital of at least INR 1 lakh.

LLP Registration process in India

The LLP registration process includes following steps:

• Get a digital signature (DSC)

The documents required for the registration of LLP is submitted online and are required to be digitally signed. Therefore, you should apply for a digital signature of all the designated partners for the proposed LLP.

• Apply for the Director Identification Number (DIN)

DIN is another necessary document for all the designated partners of LLP. After you get the DSC, you should apply for DIN for all the partners.

• Apply for name approval

The LLP has to file LLP-RUN (Limited Liability Partnership- Reserve Unique Name) Form on MCA portal. This form is filed to reserve name for the proposed LLP.

• File the FiLLiP Form for incorporation of LLP

The next step would be to file the form for incorporation of LLP  i.e. FiLLiP (Form for incorporation of Limited Liability Partnership) which shall be filed with the Registrar who has a jurisdiction over the state in which the registered office of the LLP is located. This form also provides for applying for allotment of DPIN if an individual who is to be appointed as a designated partner does not have a DPIN or DIN. Also, PAN and TAN Application can now be applied with the Incorporation Form itself (with the introduction of LLP (Second Amendment) Rules, 2022).

• Draft the LLP Agreement

Once you incorporate LLP, the next step would be to draft and file an LLP agreement which governs the mutual rights and duties amongst the partners and also between the Limited Liability Partnership(LLP)and its partners. The LLP agreement is to be filed in Form 3. It should be printed on Stamp Paper and the value of Stamp Paper differ from state to state.

Documents required for registration process

• Photograph of all the Partners.

• PAN Card of all the Partners.

• ID Proof of all the Partners (Voter ID/ Driving license/Passport.)

• Electricity Bill or any other utility bill of Registered office for the address proof.

Introduction

One problem that arises when you consider launching a new company -- how much capital should be issued? The promoters who are also looking for online registration of a Company in Indiaare not excluded by this. The minimum capital requirements for a Private Limited Company with share capital are a constant source of confusion for the promoters.

The conflict starts when a nominal amount of money is required for the intended business. The amount of money needed to incorporate in this case is never clear, especially if the co-founders have limited resources.

Therefore, we will now talk about how much capital is needed to form a private limited company in India, OPC, Section 8 companies etc (except LLP). The Indian Companies Act, 2013, specifies the required for share capital to establish Private Limited Companies. The above-mentioned Act eliminates the need for a minimum paid-up capital, when the authorized capital is specified as Rs. 100,000. It is in the promoter’s best interest to be aware of these terms and types of capital before forming a company.

Types of capital

There are three categories—authorized capital, subscribed capital, and paid-up capital, which are used to classify the company's capital.

1. Authorized capital of a company

The total sum that a company can raise via the issuance of shares, both during registration and after incorporation, is known as the authorised capital of a Company.

• The capital clause in the company's Memorandum of Association contains information about the authorised capital of any company.

• During its existence, the company cannot raise capital by issuing shares in surplus of the specified number.

• The Companies Act, 2013 mandate to maintain Rs 100,000 as authorised capital for incorporation of company in India.

The authorised capital may also be raised at anytime for Private Limited registration by complying with provision of the Companies Act, 2013. The approved capital determines the stamp duty and government fees that must be paid for a Private Limited Company, as well as any applications or documents that the company must submit. Therefore, it's advisable to avoid maintaining your company's authorised capital at a high level because it can change in the future.

2. Paid-up capital of a company

A company's paid-up capital is the real sum of money that is raised by issuing shares to the investors. As the company cannot issue shares over the allowed capital, the paid-up capital is always less than the authorised capital. The paid-up capital thereby acquired is frequently used to control the company's expenses.

When it comes to a Private Limited Company's minimum paid-up capital, earlier there used to be a requirement that it must have a capital of Rs.100,000. This would mean that the shareholders should spend at least 100,000 on buying the shares in order to start the company. However, the Companies Amendment Act, 2013 eliminated this requirement, making it possible for business owners to incorporate Private Limited companies without any obstacles.

3. Issued share capital of a company

A company can obtain capital from a variety of sources during its service life by issuing shares. The shares that are issued to offer allotment and subscription are considered part of the company's issued share capital. It is to be noted that the total number of shares "to be" issued and "already" issued will not exceed the authorised capital specified in the MOA's capital clause.

Conclusion

The type of company and operational needs determine how much capital is required for a company. Both the authorised capital and the paid-up capital must be declared during the online registration process of a Company in India.

Introduction

A Private Limited Company is a separate legal entity from its directors or shareholders. For it to remain operational, it needs to be kept in check by submitting regular paperwork to the Ministry of Corporate Affairs (MCA).

The Annual General Meeting must be conducted within 6 months from closure of the financial year i.e., 30th March every year. Once the AGM is concluded, the Private Limited Company in Indiamust file annual returns, financial statements, DIN eKyc and any other compliance with Registrar of Company.

Annual Compliance for Private Limited Company

1. Annual general meeting: Companies should hold their AGM within six months from the closure of the financial year. The AGM should be conducted with the purpose of preparing financial statements, annual returns, director's report etc.

2. Appointment of auditor: All companies to appoint a statutory auditor within 15 days from the date of AGM and submit the ADT-1 Form with the auditor's information. The fine for delay of filing this form depends on the days of delay like if up to 30 days then fine is 2 times of normal fees or more than 30 days and less than 60 days then fine is 4 times of normal fees and so on.

3. Financial statements:For submitting the company's financial statements, the AOC- 4 Form must be filed within 30 days of the date of AGM. Failure to file it will result in a penalty of Rs. 100 per day.

4. Annual returns:For submitting the company's annual returns, the MGT-7 Form must be filed within 60 days of the date of AGM. Failure to file it will result in a penalty of Rs. 100 per day.

5. DIN eKYC: It must be filed for each and every director of the company. The Director must include a separate mobile number and a personal email address in DIR-3 eKYC. Failure to submit DIN eKYC will lead to a fine of Rs 5000.

6. Director's report:All the information required by Section 134 will be included in the preparation of the Director's report.

7. Income tax return: According to the Income Tax Act of 1960, all companies are required to file ITR-6. It must be filed on or before 30th October (for the year 2022). It should be noted that the ITR-6 deadline is constantly shifting and is announced by the authorities each year.

Conclusion