Apart from Private Limited Company Registration, which is the most popular form of setting up business in India, Limited Liability Partnership(LLPs) is the second most popular form of business set up in India.
Although LLPs are relatively new concept in India, however, it has gained immense popularity in recent years. It is best suited for both Indian companies and foreign companies who are into service industry, as well as small & medium scale enterprises. Further, it is also preferred by professionals who want to do partnership with fellow professionals or professionals from different service streams.
Conditions to be fulfilled for setting up LLPs in India
- Minimum 2 partners are required for registration of LLP. Atleast one partner shall be resident in India and Indian Citizen.
- There is no upper limit on the maximum number of partners of LLP.
- Among the partners, there should be minimum two designated partners who shall be individuals, and at least one of them should be resident in India.
- The rights and duties of designated partners are governed by the LLP agreement. They are directly responsible for the compliance of all the provisions of LLP Act 2008 and provisions specified in LLP agreement.
- All the partners need to contribute capital to the LLP in proportion of their profit sharing ratio.
- In case of foreign partners including foreign companies, any capital contribution by them would be considered as FDI in India and prior approval of RBI/FIFP would be reqired.
Legal Status
- Legal status of LLP is Indian Partnership.
- In LLP, the liability of partners is limited to amount of capital introduced in LLP.
- An LLP has perpetual succession & separate legal existence from its members.
- Thus, an LLP is a corporate structure that combines benefits of both, a company & a partnership firm.
Activities Allowed for foreign companies making investment in Indian LLPs
Any foreign company can also become partner in Indian LLP by contributing to capital of Indian LLP and participating in business operations and sharing profit and loss in Indian LLP.
While opting for foreign company registration in India in form of LLP, following points shall be kept in mind:
- LLPs can do any business activities which are prescribed under its LLP agreement subject to FDI guidelines. There is some prohibited list of business in FDI guidelines.
- FDI in LLPs are allowed only in those sectors where 100% foreign investment is permitted under automatic route with no FDI-linked performance conditions. There are certain other conditions also, as specified by Government, which needs to be fulfilled.
- There are some prohibited lists of business in FDI guidelines. It means LLPs cannot be engaged in prohibited business activities.
Therefore, this is an important aspect to be kept in mind before registration of LLPs in India.
Approvals Required
- For setting up business in form of LLPs in India, prior approval of ROC/MCA is required. Also, approval of RBI, AD Banker and FIFP may be required in case of government approval route.
- Further, if the activities of the Indian Limited Liability Partnership falls under Government approval route, then the approval from the Government has to be obtained. Government approval can be taken by filing online application with Foreign Investment Facilitation Portal (FIFP)
- Besides above, LLPs need to comply with all the laws, rules & regulations as applicable, including but not limited to Companies Act, 2013, Foreign Exchange Management Act, 1999, Shops and Establishment Act, Income Tax Act etc., failing which may result in heavy interest and / or penal implications.
Cost of running and maintaining expenses of LLP is slightly less as compared to wholly owned subsidiary and require expert professional guidance all the time.
Tax Applicability
LLPs are liable to tax on global income @30% plus surcharge and education cess. Further, LLPs are liable for alternate minimum tax @18.5% on its book profits. Therefore, tax rates of LLPs are slightly higher than wholly owned subsidiary company which is taxed at 25% plus surcharge and education cess.
Repatriation of Profits
For repatriation of profits out of India, there are no restrictions. No approvals required. Only procedural compliance to be done. LLPs can repatriate profits out of India subject to payment of taxes in India and uploading of Form 15CA and 15CB.
Exit out of India
It is a complex procedure. Also, time consuming. Depend upon exit strategy adopted. . Exit can be either by sale of interest or by dissolution.
Therefore, from above, it may be inferred that LLPs are very good option of business set up in India and has advantage of lower compliance cost as compared to wholly owned subsidiary, however, it has slightly higher tax rate as compared to wholly owned subsidiary.