In this blog post, Sunidhi, a student of the Rajiv Gandhi National University of Law, Patiala has written about the advantages of forming an LLP. The blog post explains the procedure to form an LLP in India.

Introduction

The Limited Liability Partnership (LLP) was introduced in India in 2008 by enacting the Limited Liability Partnership Act, 2008. This form of business organization is renowned in the world, and now it is establishing its roots in India.

This form of a business organization has mixed features of a Company and a Partnership firm. It is an effort to inculcate advantages of both a company and a partnership firm but to avoid disadvantages of both.  An LLP agreement governs the rights and duties of all the partners. In case there is no LLP agreement then the business organization can adopt the framework laid down in Schedule 1 of the said Act.

An LLP has a separate legal entity, i.e., an identity different from the partners. Also, it has perpetual succession; its existence is not affected by the dissolution of a partnership, i.e., a partner leaves the business; a new partner is admitted, etc. The liability of an LLP is not more than the assets of the firm, and the liability of partners is also limited to the amount they have agreed to contribute to the business.

There is no maximum limit on the number of partners to form an LLP, but minimum two members should be there to form an LLP. All the partners hold an equal share in the business. All the partners share profits & losses equally and have an equal say in the management of the business. In this form of business organization, there is no mutual agency, i.e., one partner is not liable for an unauthorized act of another partner. In case any partner of the firm indulges in fraudulent practices against customers then the partner(s) who indulged in such activities will bear unlimited liability for such acts. Also, the other partners cannot be sued for the fraudulent acts of defaulting partners. They are secure from legal action against other partners.

Benefits Of Forming An LLP

The LLP accommodates advantages of a company and a partnership firm. The benefits include:

• The partners do not have unlimited liability. Their liability is limited to the extent stated in the LLP agreement formed by the partners.
• One partner cannot be sued for fraudulent activities of another partner if he/she was not involved in such activities.
• The formation cost is low, and the procedure is neither too complex nor very lengthy.
• The restrictions imposed on an LLP are less than those imposed on a company by the Government.
• The LLP has a separate identity from its partners. Therefore, the partners are not liable to be sued for dues against the LLP.

The only disadvantage of an LLP is that it cannot raise capital by issuing shares to the public.

Process To Start An LLP

Step 1: Acquire DSC

Digital Signature Certificate (DSC) is a simple digital signature required to obtain DPIN. The applicant can apply online to obtain DSC (https://india.gov.in/apply-online-director-identification-number).  The documents required to acquire it are:

• DSC Application Form
• 1 Passport size photograph
• Address Proof
• Identity Proof

All these documents should be self-attested.

Step 2: Acquire DPIN

The pre-requisite to form an LLP is Designated Partner Identification Number (DPIN). If the applicant already has a Director Identification Number (DIN), it will serve the purpose. A DPIN can be acquired online as well. To acquire a DPIN, the identity and address proof need to be submitted along with a DPIN form. Also, a passport size photo needs to be affixed on the form, and the applicant has to sign across the photograph. All the documents should be self-attested.

In the case of a foreign applicant, he/she needs to submit passport copy and address proof. These documents should be notarized by Foreign Public Notary or Company Secretary in full-time employment / CEO/ Managing Director of the Indian Company in which he/she proposed to be a director / Consulate of Indian Embassy.

Step 3: Check Name Availability

The applicant needs to submit six names for the LLP. The applicant needs to fill an e-form (Form 1) to check name availability. He/she is also required to specify the meaning and significance of each word proposed for the name of the LLP. The main object of the firm has to be submitted along with the names. The Ministry of Corporate Affairs (MCA) has issued few guidelines for name availability that need to be adhered to by the applicant.

Step 4: Document Submission for Incorporation

If the names have been approved by the Registrar of the companies, then the applicant is required to submit Incorporation Form and Subscription Statement online. The applicant has to register the company within 60 days of name approval. The documents required for submission of Form and Statement are:

• An LLP agreement needs to be drafted and after being approved by all the promoters, It should be duly stamped. The LLP agreement should be printed on a stamp paper. The amount of stamp paper required varies from state to state.
• Statement by Promoter (Form 2).
• Information Regarding the LLP agreement (Form 3).
• Notice of Consent & appointment of designated partners along with their personal details (Form 4 & 9).
• Subscription sheet signed by promoters.
• Proof of Address of Registered Office.

Once all the documents have been acquired by the applicant these need to be submitted to the Registrar of Companies (RoC) and, the fees for registration need to be paid. If the government is satisfied with the authenticity of the documents, then the Certificate of Incorporation will be issued or the demand for some more proofs may be made to ensure the authenticity of documents. Once all the requirements have been met the Certificate of Incorporation will be issued.

The Certificate of Incorporation is the proof that the company has been registered. Once the firm is registered with the ROC, then the LLP formed can apply for its PAN number and open a current bank account.

The Limited Liability Partnership Firm is legally born and ready to start its operation.