Understanding the Limited Liability Partnership (LLP) limitations / disadvantages would help the entrepreneur get the additional perspective of this structure. The entrepreneur needs to understand these things quite in details as it may create various stumbling blocks, which may delay breakthrough related to Start-up growth. Here in this article we would explore some of the limitations/disadvantages, that would help us avoid future hassles.
Limitation in the formation of LLP
As the basic structure or model of the LLP is similar to that of any partnership firm but it requires minimum two partners to form it. LLP cannot be formed by a single person. NRI/ Foreign national who want to form an LLP in India then at least one partner should be a resident of India. Two foreign partners cannot form LLP without having one resident Indian partner along with them.
It takes more days to form, as all the partners’ signatures are required for each and every document which is then to be attached to required e-forms. Therefore self attestation of each partner on documents is more as compared to the formation of any Private Ltd company.
Assets of LLP
Partners undertake to contribute some amount towards LLP firm which they contribute in the form of cash or assets, while executing the LLP agreement. Once cash or assets are contributed to LLP, it cannot be returned to the partners of an LLP unless there is any specific provision mentioned in LLP agreement.
Difficulty in transfer of ownership
Ownership rights are not transferable easily without obtaining consents of all partners of the LLP.
If any partner wishes to transfer some portion of ownership, he has to obtain consent of all partners. The resolution to be passed by majority in numbers of the partners in some of these cases – increase or decrease in contribution, increase or decrease of designated partners, alteration of working partners, amalgamation, shifting of the registered office of firm, opening or closing of bank account.
Admission of new partner
The supplementary agreement containing details of new partners and his contribution has to be created and then accordingly the existing partners need to revise or change the contribution held by them due to admission of new partners in the LLP agreement.
These changes have to be intimated to the concerned Registrar of Companies within whose jurisdiction registered office of the LLP is situated.
Offenses and penalties
LLP Act has provided the provisions of offenses and penalties. For default/ non-compliance on procedural matters such as delay in filing of e-forms, one has to pay default fee for every day for which the default continues.
Such default fee would be payable at the rate of rupee one hundred per day after the expiry of the date of filing (as prescribed in relevant provision) up to a period of three hundred days. The offense can result in either (i) through payment of fine or (ii) through payment of fine as well as imprisonment of the offender.
Permission of Foreign Direct Investment (FDI) in LLP
As per FDI Policy, FDI in LLP is allowed only through Government route, FDI in LLP under automatic route is not permissible.
Further FDI in LLP through Government route is allowed to only those sectors where 100% FDI is allowed under automatic route under the FDI policy.
Foreign company or individual can invest in LLP in India but it requires prior government approval.
Limitation in External Commercial Borrowing (ECB)
LLP is not allowed to raise External Commercial Borrowing (“ECB”). Thus LLP cannot take commercial loans from its foreign partners, FII’s (Foreign Institutional Investors), banks from outside India, any financial institution outside India or any other entity outside India.
As the basic structure or model of the LLP is similar to that of any partnership firm but it requires minimum two partners to form it.
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Legal Disclaimer:
Opened in llp in July 2016 & after two months decided to not start the business…bank account was also not opened,now want to close the company,.kindly suggest..thanks.
As per my opinion, you can apply for closing if you would like to close it. Please attach latest acknowledgment of Income tax return even though there is no operation or income, File NIL income tax return. Acknowledgment of IT return is compulsory for closing of LLP.
Mam,
We had converted a Pvt. Ltd. Company in to LLP in may 2016. then the documents like balance sheet, annual return is filled in which status – company or llp for the FY 2015-16. And also in which status i will be file income tax return as a company or llp for previous year.
You need to file Balance sheet, Annual return in the status of LLP and income tax also.
R/Sir,
what is basic difference between general partnership firm & LLP
Partnership firm is deed between two partners, the liability is unlimited. LLP is legal entity and liability of partners is limited.
Dear Madam,
I want to form first LLP for my Client Please help me out.
1) is Prior consent is the first step can It be taken without DIN
2) Can Name reservation be done In form 1 without prior consent that is to be obtained in form 9
3) after admission and retirement of designated partner in LLP is information is required to be submitted in form 4 and is LLP agreement is to be again drafted and is to be uploaded in Form 3
Please help its urgent
Sorry for late reply. For forming LLP, DIN should be approved. Consent of partners shall be obtained. File Form 1, 2 and 3 for name application, incorporation and LLP agreement.
Hello Madam,
We have incorporated LLP in Nov 2013 and our CS was travelling and was not available during the 30days of filing Form 3 and when he returned he mentioned it was not mandatory to file Form 3, is it true?
We did not file IT till date, when is the date for filing IT and submitting the P&L and Balance Sheet to ROC?
As per LLP Rules, 21 (1) For the purposes of sub-section (2) of section 23, every limited liability partnership shall file information with regard to the
limited liability partnership agreement in Form 3 with the Registrar within thirty days of the date of incorporation alongwith the fee.
Therefore it is mandatory to file Form 3 along with LLP agreement.
R/MAM,
LLP COMPANY CAN ACCEPT ADVANCES/ DEPOSITE AGAINST GOLD JEWELLERY FROM ITS SHAREHOLDER OR CUSTOMERS.
KINDLY REPLY THE SAME.
REGARDS
NO.
Hi ,me and my partner decided to start a LLP company , We are done with basic process of getting the LLP incorporated with ROC , Certificate of incorporation is in place ,
Ack for new Pan Card is in place ,
We have DIN nos in place.
LLP Agreement and Capital is not put in
Due to initial differences only I have decided to opt out . Please suggest me what would be the consequences of the same .
Can the LLP, be left at where it is and we can move on. Please suggest its really important
LLP agreement to be filed within 30 days from the date of incorporation. IF it was not filed earlier you may file it with additional fees.
I wish to understand a commercial space is required for a LLP, I work abroad and I am planning to host a website selling apparels.
Kindly advise about the legal requirements and Tax matters. Also Is it mandatory to own a commercial space for the same, as I read in some article that Business Premises Proof is required to get TIN#.Is it also possible to do business in other states apart from the state where the LLP was registered?, I would kindly request you to explain this aspect of LLP formation.
You can do business in other states apart from the state where you have incorporated LLP. it is not mandatory to own commercial space.
dear ma’am
can you pl provide a draft copy of detailed application required in filing form 24.
thanks in advance
For filing form 24 ( striking off LLP name) refer formats as per striking off company’s name
dear ma’am
can you pl provide a draft copy of detailed application required in filing form 24.
thanks in advance
Manish
To file application for striking off LLP you will have to file form 24 to concerned Registrar of Companies. Since LLP Rules or LLP Act have not provided any formats as per attachments to form 24,I would advise you to prepare formats to be used for striking off company under Fast Track Exit scheme.