This article is written by Arush Mittal, a student currently pursuing B.A. LLB. (Hons) from Hidayatullah National Law University. This is an exhaustive article which deals with the Limited Liability Partnership in India and its registration.
Table of Contents
Introduction
The concept of limited liability partnership was introduced in the year 2000 with the introduction of the Partnership Act 2000 which provided limited liability, which was only available to companies earlier. The Rajya Sabha had introduced the LLP Bill on 15th December 2006 for the combination of the tax model of a partnership business with the limited liability of its partners.
Actual LLP was introduced in India from the financial year starting from 1st April, 2009. To start a business with a Limited Liability Partnership, the partnership has been registered under the provision of the Limited Liability Partnership Act, 2008. The rights and duties of the partners are governed by this Act and are directly responsible for compliance with the provisions of this Act.
LLP is an alternate corporate business that gives the benefits of a limited liability company and the flexibility of a partnership. It continues its existence irrespective of the changes in partners. No other partner is liable on the account of the independent actions of other partners and this is how they are protected from the joint liability that is created by another member’s misconduct.
This article throws light on how to register an LLP in India. Nowadays it has become an important form of business as many entrepreneurs opt for it. LLP is not just prevailing in India but is also seen in countries like the United Kingdom, Australia, etc.
Limited Liability Partnership
A Limited Liability Partnership, as the name suggests, is a partnership in which all or some of the partners have limited liabilities. In this type of partnership, each partner is not responsible for another partner’s misconduct or negligence as they have limited liability. A minor can also be a partner in an LLP. It is a separate legal entity that is different from its partners which have perpetual succession. Thus death or alteration of partners does not affect the identity of the partnership or its liability.
A reading of the Limited Liability Partnership Act, 2008 tells us that there should be a minimum of two designated partners that are individuals and out of them at least one of them should be a resident of India to incorporate an LLP.
Although, LLP does not cease to exist if it is carried on only with one partner. In such a case, if the business is carried on for more than 6 months, the liability will be on the lone surviving partner. The upper limit has not been provided on the number of partners. LLP is governed and regulated by the contractual agreement between the partners and the Limited Liability Partnership Act, 2008 and the provisions of the Indian Partnership Act, 1932 do not apply to it.
Each and every partnership which is of limited liability must use the words “Limited Liability Partnership” or the acronym “LLP” as the suffix of the name.
An LLP provides the benefits of a limited liability company at a low compliance cost and also allows the members the flexibility of organizing their internal management, just like a partnership firm.
On comparing an LLP to a partnership business structure, in an LLP, there are more administrative duties and the individuals have lower liabilities to debts arising from the business. An LLP type of format is useful for small and medium enterprises in general. Instead of the individuals being liable for the liability, the Limited Liability Partnership itself is liable for the debts in the business and therefore LLPs are recommended for profit running businesses.
Importance of an LLP
A Limited Liability Partnership should be registered in India as it provides with various benefits such as:
- The LLP is deemed to be a legal entity. It can own, rent, buy, lease a property; employ staff, enter into contracts with other parties and even be held responsible for any fault as the situation may be.
- An LLP shields the personal assets of the member from the liabilities arising out of the business. For a member, LLP is a separate legal entity.
- By registering an LLP, it prevents any other partnership or company from registering the same name. It protects the name of the LLP.
- A written agreement determines the operation of the partnership as well as the profit distribution in an LLP. Hence registering allows for greater flexibility in the operation of an LLP.
Process of Registration
There are certain documents that are required for the process of registration to form an LLP. These documents can be divided into documents of partners and documents of LLP. This is mentioned in Section 11 of the LLP Act, 2008.
- Important documents of partners are PAN Card/ ID Proof, Residence Proof, Address Proof, Photograph of the partners, Passport if the partners are from Foreign Nationals or an NRI.
- The documents required by the LLP are Proof of Registered Office Address and Digital Signature Certificate. Approximately 15 days are required to go from the step of obtaining a DSC certificate to Filing Form 3.
The process of registration of LLP requires the fulfilment of the following steps:
Obtaining the Digital Signature Certificate
Before beginning the entire process of registration, every individual who wants to be appointed as a partner of an LLP must apply for the Digital Signature Certificate. This is to be done as all the documents of the LLP are required to be filed online and must be signed digitally. A DSC is mandatory to sign all forms digitally which are filed electronically on the MCA portal.
The DSC can be obtained only from government recognized certifying agencies. The cost of obtaining DSC depends on the Certifying Authorities. The Certifying Authorities grants a license to issue a digital signature certificate by Section 24 which is entailed under the Indian IT Act, 2000. Some of such CAs are National Informatics Center, IDRBT, CDAC, NSDL, etc.
Apply for Director Identification Number
Once the DSC is obtained, the designated partners must make an application in Form DIR-3 to obtain the Designated Partner Identification Number (DPIN). While filing Form DIR-3, the partner must also attach a proof of identity and proof of residence. There should be an application for the DIN of all the designated partners or those intending to be a designated partner of such proposed LLP.
A scanned copy of Aadhar and PAN card must be attached to the form. This form shall be signed by a Company Secretary who is employed as a full-time employee of the company or by MD/CEO/CFO/Director of such an existing company.
Reservation of LLP Name
An applicant must get a name reserved for any conversion of a company/firm into an LLP or incorporating a new LLP. To reserve a proposed name, an application must be filled through the MCA Portal.
Such an application can be made by the filing of Form Reserve Unique Name – LLP. After the name reservation request is submitted, it is approved by the Central Registration Centre (CRC)under Non-STP. The applicant would receive a mail from the CRC regarding the outcome of the name reservation request.
Before quoting the name on the form, it is recommended that a free name search is used on the MCA Portal that helps in providing a list which has similar kinds of names of the companies that already exist. This helps in choosing names that are not similar to the already existing names. The registrar would approve the name only if he is satisfied with that particular name and if it does not resemble an already existing partnership firm or LLP.
Once a name is approved to the applicant, he can begin to apply for incorporation of the LLP, before the expiry of the validity of the approved name. The validity of expiry is three months from the date of approval. The guidelines regarding the Reservation of Name are mentioned in Section 16 of the LLP Act.
Incorporation of LLP
After the reservation of a name, an LLP Integrated Incorporation form needs to be filed by the member through MCA Portal. This FiLLiP (Form for Incorporation of LLP) requires details and documents such as particulars of the approved or proposed name of the LLP, the proof of address of the office registered under the LLP, the activity that the LLP is going to carry out, details of designated partners with their DPIN, subscriber’s sheet which includes consent, total contribution by the partners of the LLP with their monetary value, etc. Section 11 of the LLP Act talks about the incorporation document of an LLP. The FiLLiP form has to be filed with the particular fee along with the Stamp Duty which is mentioned on the MCA Portal:
LLP with a contribution less than 1 lakh, a fee of Rs. 500.
LLP with contribution between 1 lakh and 5 lakh, a fee of Rs. 2,000.
LLP with contribution between 5 lakh and 10 lakh, a fee of Rs. 4,000.
LLP with a contribution of more than 10 lakh, a fee of Rs. 5,000.
Incorporation of application
After successfully registering the LLP, the Registrar of Companies (RoC) issues a Certificate of Incorporation in Form 16 under the seal of the Registrar. This Registrar has jurisdiction over the state where the office which is registered under the LLP is situated. The certificate contains the LLP Identification Number (LLPIN).
Only two individuals are allowed to make the application for an allotment. If the name that has been applied gets approved by the concerned authorities then that particular name becomes the name of the LLP. Section 12 of the LLP Act has the guidelines for incorporation by registration under an LLP.
Filing of LLP agreement
The LLP Agreement is an important document that, in simple terms, explains the relationship among the partners and also defines their duties and rights relating to the LLP. After the registration of the LLP, the partners can enter into an agreement.
An LLP Agreement basically lays down those necessary terms and conditions which deal with the admission and removal of partners, sharing of profit and loss, consequences of the death of a partner, partners’ duties and responsibilities, dispute resolution, etc.
The partners of the LLP have to ratify the agreement after registration if this agreement has been executed before incorporation. After this ratification, Form 3 has to be filed with the RoC within 30 days of its incorporation.
The LLP would be governed by the First Schedule of the Act in case no agreement has been executed. The Agreement of an LLP is printed on a Stamp Paper which has a certain fee structure. The fee structure mentioned on the MCA Portal is mentioned as follows:
- LLP with a contribution less than 1 lakh, a fee of Rs. 50.
- LLP with contribution between 1 lakh and 5 lakh, fee of Rs. 100.
- LLP with contribution between 5 lakh and 10 lakh, fee of Rs. 150.
- LLP with a contribution of more than 10 lakh, a fee of Rs. 200.
Conclusion
A Limited Liability Partnership is a business organization that allows the individual partners to be restricted from the joint liability of the other partners in that firm and they are only liable for their share as their liability is limited, it does not take into account the personal assets of the members. How shareholders in a corporation have limited liability, the same way some partners in an LLP have a form of limited liability.
LLP also differs from a corporation in the sense that partners in an LLP manage the business directly whereas in case of a company shareholders elect a board to carry out the important tasks. For the purpose of taxation, LLPs are treated like any other partnership firm.
LLP is exempted from various taxes and the rate of tax is lesser than the tax rate of a company. The passing of the LLP Act, 2008, has definitely made a remarkable difference in the company laws in India.
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