An LLP must have at least two members, one of whom must be a person, while the other can be an individual or a company. Law firms often favour the LLP structure for the extra protection it offers. If membership falls to only one member and the LLP continues business for over 6 months, the benefits of limited liability are lost.
Key Requirements and Guidelines for LLPs
- LLPs are required to maintain a minute book to record minutes of partner and managing/executive committee meetings. There is no provision for regular LLP member meetings.
- LLPs must have accounts audited by a Chartered Accountant if annual turnover exceeds Rs. 40 lakhs or contribution exceeds Rs. 25 lakhs.
Formation and Membership of LLPs
- When an LLP incorporates, it must have at least two designated members. If the number of designated members drops to one, all members become designated members. LLP members are partners.
- An LLP agreement outlines rights, duties, responsibilities, and liability of each member. Although not legally required, having an LLP agreement is strongly recommended.
- Initial LLP members are notified to Companies House on incorporation. Additional members can later join.
An LLP can have only one person if membership falls to one, although at least two members are needed initially. Benefits of limited liability are lost if a one-person LLP operates over 6 months. LLP members are partners. You need two members to register an LLP, and two must be ‘designated’ handling tasks like accounts.
Maintenance and Transition Guidelines for LLPs
- To maintain a one-person LLP, a carefully worded agreement sets key member responsibilities. The LLP needs at least two total and two designated members with extra duties like preparing accounts and maintaining records.
- Members can be removed if the LLP Agreement allows, by filing Form 4.
Conversion and Structure of LLPs
- LLPs don’t have shareholders, directors, or shares. The income passes to the owners instead of LLPs paying taxes.
- An LLP must be converted from a proprietorship by closing it then registering the LLP or including another person as a partner first. Private limited companies can convert to LLPs if no assets have security interests and LLP partners are the shareholders.