Procedure for forming a limited liability partnership in India

In this blog, we have discussed about the procedure for forming a limited liability partnership (LLP) in India in a user friendly manner.

Chiefly, LLP stands for limited liability partnership. The Parliament of India passed the Limited Liability Partnership Act in 2008 to govern LLP businesses in India. According to Section 2 of this law, an LLP is a partnership registered under the Act. Further, an LLP agreement refers to a written agreement between an LLP’s partners or between the LLP itself and its partners. This agreement defines the rights, liabilities, duties, and powers of the partners. The procedure for forming an LLP is very easy.

Since the Limited Liability Partnership Act, 2008 specifically governs limited liability partnerships in India, the provisions of the Indian Partnership Act, 1932 are not applicable to LLPs. They only apply to traditional partnership firms.

Procedure for LLP formation:

Moreover, the LLP can be restricted to raise fund from public by issuing securities or by debts. The LLP can get the funding by its partners or through the banks in the form of loans. The partners cannot take any actions without the consent of majority partners in the LLP. One partner should seek the approval of other partners for doing any activity.

However, LLP doesn’t have more creditability as compared to other companies. People always prefer these types of company for investing the money and running their business under the name of private limited company or public limited company. The LLP is easy to attract the investors and business expansion is easy compared to all other type of company.

Procedure for the eligibility of LLP:

PARTNERS:

Although, minimum two designated partner is required to register the LLP. Both the partner should have Designated Partner Identification Number (DPIN). There is no maximum limit for the partners and designated partners, but every person who wants to become a designated partner in the LLP must have the DPIN. Both partners and designated partners can directly take part in the LLP,likewise the LLP registration requires only the designated partners.

NAMING PROCEDURE:

Consequently, the name of the Limited liability partnership must have the word “LLP” at the end of the name. For example: “XYZ marketing LLP” here the XYZ denotes the name of the company and marketing signifies that the LLP is indulging in the business of marketing and LLP word shows the business format.

REGISTERED OFFICE:

In fact, the LLP must have a registered office and it should mentioned in the LLP agreement. If any of the partner wants to change the registered office then firstly he should take the consent of all designated partners and after seeking the approval he can intimate about the changes to the registrar of the companies.

CAPITAL:

No minimum capital requirement for the LLP registration. The partners and designated partners can start LLP by investing any amount of money.

 Advantages of LLP:

Specifically, the LLP is a partnership entity with company features. But, as a company LLP is also separate legal entity and both LLP and its partners will differ from each other. All partners and the designed partners have limited liability. They are likely to contribute only the amount which they agree to provide as per LLP agreement. The LLP formation is straightforward and very cheap.

Moreover, the registration of partnership firm is not mandatory for the partners, but they may not register their partnership firm by mutual consent. So, registering LLP at first prevents certain risks. The LLP has the legal identity.In particular, the LLP is easily transferable. As the LLP is distinct from its partners and it is also a separate entity, therefore, it is easy to transfer the LLP.

Distinct Features of an LLP

A limited liability partnership contains the following peculiar features:

1. Procedure for separate legal entity

 In essence, Limited liability partnerships are treated as separate legal entities. This means that LLPs can own assets and incur liabilities in their own names. They can also enter into contracts and sue and be sued in their own names.

2. Limited liability of partners

However, the liabilities of partners are separate and limited. Their personal assets will not liable to attachment in case the LLP registration is winding up or suffering certain legal consequences of repayment of debt.

Partners’ liabilities, however, can become unlimited in cases of offenses like fraud, the commission of an offense, or any other wrongful and illegal act.

3. Procedure for Sharing of profits

In the same way, all the partners of limited liability partnerships should share profits of business like partners of regular firms. However, they can freely decide the share profits ratio.

4. Partners of LLPs

Moreover, LLP partners can be natural persons, i.e. individuals, or even body corporate. Furthermore, an individual cannot be a partner if he suffers from unsoundness of mind or he is insolvent.

LLPs must have a minimum of two partners at all times. The maximum number of partners is unlimited, regular partnership firms it is restricted for 50 partners.

Procedure for LLP Company Registration in India

1. Digital Signature Certificate (DSC)

The documents for LLP are filed online and digitally signed for LLP Registration, the partner must obtain their digital signature certificates.

2. Director Identification Number (DIN)

Form DIR- 3 should be filled .Attach the scanned copy of documents (Aadhaar and PAN) to get the DIN of all the designated partners.

3. Reservation of Name Procedure:

In particular, you should also provide six names in the order of preference in Form 1 among which the one is being approved

4. Incorporation of LLP

Form 2 must be filled for incorporation of the LLP. It contains the information like the total number of partners and designated partners, their names and amount of partner’s contribution etc. It takes nearly 15-20 days for the registration of LLP.

5. Limited Liability Partnership Agreement

After the acceptance of the application, the incorporation certificate will be issued by the Registrar. After the issuance of incorporation certificate, the LLP will be considered to be registered. Further, the application for PAN and TAN can be made according to the procedure. Moreover, within the 30 days’ time, the Partners have to file the Partnership Agreement with the MCA. LLP company registration agreement describes about the rights and duties of the partners. It must be filed in Form 3 and has to be printed on Stamp Paper.

LLP Agreements include certain provisions

First and foremost comes the Name of the LLP which should always end with LLP or Limited Liability Partnership. There are a few post registration compliance for LLP to ensure smooth running of an LLP.

Date and Agreement of the partnership certain procedure and details of the future name changes, initial partners, new partners admission, business activities and their scope, power of LLP, duration, management, accounting, auditing, etc.

Profit, capital and Interest sharing ratio; the contribution ratio of partners in terms of capital, interest on contribution, profit sharing ratio as well as the time period after which the capital can be withdrawn by any of the partners is necessary.

Allocation and Distribution clarifies the method of profit-sharing among partners and distribution including interim distribution or final distribution in the LLP.

Terms and Conditions describes when the partners can withdraw or disassociate from the LLP. The Agreement explains the procedures, rights of the existing partners, and rights on assets after disassociation, as well as notice to existing partner.

Partnership Rights which include the admission of a new partner and their rights thereafter. Re-admission or withdrawal of any of the partners, the rights of existing partners, and rights on assets after disassociation, as well as notice to existing partner.

The Agreement includes the name of the person/partner responsible Management, Meetings of partners, fiduciary duty, etc.

Documents Required For LLP Company Registration

Documents of Partners:

• Passport-size photographs
• PAN Card/ ID Proof of the Partners
• Address Proof of Partners (Voter’s ID/Passport/Driver’s license/Aadhar Card)
• Residence Proof of Partners (Latest bank statement/telephone bill/mobile bill/electricity bill/gas bill)
• Passport (in case of Foreign Nationals/ NRIs)

Documents of LLP:

• Proof of Registered Office Address(Notarized Rental Agreement in English/NOC from property owner/Utility bill)
• Digital Signature Certificate

Comparison of LLP’s with other business structures:

Private limited company	LLP Registration	OPC Registration	Sole proprietorship
Easy to Raise funds, Easy to expand	Good for small business	OPC is for artists, small-medium enterprises	Good for small business
More Agreements	Less compliances	More compliances	Regular compliances
No personal Liability	Limited liability	Limited liability	Unlimited liability in sole proprietorship
Difficult to exit in private limited company	Easy to dissolve	Easy to dissolve	Easy to dissolve
No bar on turnover	No bar on turnover	Compulsory conversion into private limited over turnover of 2 crores	No bar on Turnover
Recognized under startup scheme	Recognized under startup scheme	Not Recognized under startup scheme	Not Recognized under startup scheme
Foreign National can Invest	Foreign National can Invest	Foreign National cannot start OPC in India	Foreign National cannot start in India
Audit is mandatory	In LLP, Audit is required only if the turnover exceeds 40 lakhs and capital exceed 25 lakhs	Audit is mandatory	Audit is not Required

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