Limited Liability Partnership or LLP has become very popular for the past few years. Let’s learn more about it. We shall focus on the elements required and the process and steps involved in the LLP registration process in this article. The guidelines we are going to discuss below comes from the Limited Liability Partnership Act (LLP Act), 2008.
Elements Essential for the Incorporation of an LLP
In India, the given elements are necessary for LLP incorporation according to the LLP Act, 2008:
To electronically submit the completed document of Incorporation in the format prescribed with the Registrar.
To have 2 partners at least- individuals or body corporate
To have an office registered in India for to and fro communications.
To have appointed two individuals at least as designated partners and one of them has to be a resident of India. The partners stay responsible for getting everything done as deemed necessary by the LLP.
To have the Ministry of Corporate Affairs (MCA) allotted DPIN or Designated Partner Identification Number for each of the designated partners.
To have an agreement between the designated partners or between the designated partners and the LLP. In the absence of such an agreement, the provisions under Schedule 1 of the LLP Act, 2008 would apply.
To have a unique name for the LLP. It should not be a name that is already being used by another LLP or a Company or a Partnership firm. The name needs to be distinct.
Process for the Incorporation of an LLP
The following components are needed in the LLP incorporation procedure.
Deciding partners and designated partners.
Obtaining the Digital Signature Certificates (DSCs) and the Digital Partner Identification Numbers (DPINs).
Checking the availability and registering a unique name of the LLP. The applicant is allowed to indicate up to 6 choices of names.
Drafting the agreement for the LLP.
Filing of the necessary documents electronically.
Applying for and issuing the Certificate of Incorporation along with the Limited Liability Partnership Identification Number (LLPIN).
An LLP agreement constitutes the following:
Name of the Limited Liability Partnership.
Names and respective addresses of the partners and the designated partners.
The forms of the contributions and the respective interests on the contributions.
The ratio of profits to be shared amongst the partners.
The remunerations of the respective partners.
The rights and duties of the respective partners.
The business proposed.
The rules for the governance of the LLP.
Steps for the Incorporation of an LLP
Reserving the name for the LLP: The applicant first files the e-Form 1 to check the availability of the name and then register the name of the LLP. Once the name gets approved by the Ministry, it is reserved for the applicant for a duration of 90 days. If the LLP fails to be incorporated within the given frame of time, they let go of the reservation and make it available for other applicants.
Incorporating a new LLP: After the reservation of the name for the LLP, the applicant has to file e-Form 2 for the incorporation of the LLP. It carries all the details of the LLP proposed, plus all the details of the partners and the designated partners.
The partners and the designated partners have to give their consent to act in the respective decided roles.
Filing of the LLP Agreement has to be done with the Registrar in e-Form 3 within 30 days from the incorporation of the LLP. Execution of the LLP Agreement is mandatory as per Section 23 of the LLP Act, 2008.
The LLP Incorporation process is complete after obtaining the approval of the LLP Agreement.
FAQs on Incorporation of an LLP: Process and Advantages
1. What exactly is a Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) is a modern business structure that combines the flexibility of a traditional partnership with the benefits of a company. In an LLP, the partners' personal assets are protected from the business's debts, meaning their liability is limited to their agreed contribution to the business.
2. What are the main advantages of choosing an LLP structure?
Forming an LLP offers several key advantages for a business. The most important ones are:
- Limited Liability: Partners are not personally responsible for the business's debts.
- Separate Legal Entity: An LLP is legally separate from its partners, meaning it can own property and sue or be sued in its own name.
- Perpetual Succession: The LLP continues to exist even if partners change, leave, or pass away.
- Lower Compliance Cost: Compared to a private limited company, the legal and compliance requirements are simpler and less expensive.
3. What is the step-by-step process to incorporate an LLP in India?
The incorporation process generally involves these key steps:
- Step 1: Obtain DSC and DPIN: All designated partners must have a Digital Signature Certificate (DSC) and a Designated Partner Identification Number (DPIN).
- Step 2: Reserve a Name: An application is filed to reserve a unique name for the LLP, which must be approved by the Registrar.
- Step 3: File Incorporation Documents: The FiLLiP form (Form for incorporation of Limited Liability Partnership) is filed with the Registrar of Companies (ROC).
- Step 4: Draft and File the LLP Agreement: After incorporation, an LLP agreement outlining the rights and duties of partners must be filed within 30 days.
4. What are the essential documents needed for LLP incorporation?
To incorporate an LLP, you will generally need documents for both the partners and the registered office. Key documents include:
- For Partners: PAN card, address proof (like an Aadhaar card or passport), and photographs of all designated partners.
- For the Registered Office: Proof of ownership or a rental agreement for the office premises, along with a No Objection Certificate (NOC) from the property owner.
5. Who can be a designated partner in an LLP?
An LLP must have at least two designated partners, who must be individuals. A key requirement is that at least one of these designated partners must be a resident of India. These partners are responsible for ensuring the LLP complies with all legal requirements under the LLP Act.
6. How is an LLP fundamentally different from a traditional partnership firm?
The main difference lies in liability and legal status. In a traditional partnership, partners have unlimited liability, meaning their personal assets can be used to pay business debts. It also has no separate legal existence from its partners. An LLP, however, provides limited liability to its partners and is a separate legal entity, just like a company.
7. What does 'limited liability' actually protect the partners from?
Limited liability protects a partner's personal assets (like their house, car, or personal savings) from being seized to pay off the business's debts or losses. If the LLP faces a financial loss or is sued, a partner's liability is only limited to the amount of capital they agreed to contribute to the business. It does not protect a partner from liability arising from their own fraud or misconduct.
8. Why would a small business choose to be an LLP instead of a private limited company?
A small business might prefer an LLP over a private limited company primarily due to simplicity and lower costs. LLPs have fewer compliance requirements, no mandatory board meetings or statutory audits (below a certain turnover), and a more flexible management structure defined by the LLP agreement. This makes it easier and cheaper to run day-to-day.
9. What is the role of the LLP Agreement, and what happens if one is not created?
The LLP Agreement is a crucial document that defines the mutual rights, duties, and roles of the partners, as well as the profit-sharing ratio and overall management of the LLP. If no LLP Agreement is created, the relationship between the partners will be governed by the default provisions listed in Schedule 1 of the LLP Act, 2008, which might not be suitable for their specific business arrangement.
