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Limited Liability Partnership (LLP Registration)
Overview
Many entrepreneurs prefer forming a Limited Liability Partnership (LLP) as it is inclusive of the beneficial features of both a partnership firm and company. LLPs in India are governed by the Limited Liability Partnership Act of 2008.
A minimum of two partners is necessary for the formation of an LLP while there is no limit on the maximum number of partners.
Of the partners in an LLP, there must be at least two individuals serving as designated partners with one of them being resident in India. The terms of the LLP agreement arrived at will govern the rights and responsibilities of these designated partners. The designated partners shall be responsible for compliance with all the provisions of the Limited Liability Partnership Act, 2008 along with those defined in the LLP agreement.
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The Procedure to be Followed for Registering an LLP
Step 1: Applying for the Digital Signature Certificate of the proposed LLP’s designated partners
Step 2: Applying for the Director Identification Number (DIN) of the proposed LLP’s designated partners
Step 3: Checking for available names on the name search facility of the Ministry of Corporate Affairs portal and filing the LLP-Reserve Unique Name (LLP-RUN) form for reserving a desired name for the proposed LLP. This application is processed by the Central Registration Centre.
Step 4: This stage involves the incorporation of the LLP
- An integrated form named the FiLLiP (Form for incorporation of Limited Liability Partnership) form is filed with the jurisdictional Registrar of the relevant state from where the LLP would operate
- The applicable registration fee as prescribed under Annexure A is deposited with the registering authority
- Since FiLLiP is an integrated form, it also provides the option to apply for a Designated Partner Identification Number (DPIN). Therefore, through this form, the DPIN also can be obtained in case a designated partner does not possess one. Only the two individuals that are appointed as the designated partners must apply for allotment of DPIN.
- Being an integrated multi-purpose form, FiLLiP allows for applying to reservation of names also. Therefore, the name of the proposed LLP firm may alternatively be reserved through this form. If the name specified gets approved, then it may be submitted as the LLP’s proposed name.
Step 5: In this step, an LLP agreement is concluded by the concerned partners. This agreement establishes the mutual rights and responsibilities of the partners under the LLP.
Mandatory Documents for the Registration of an LLP
i) Documents to be submitted by Partners
ID Proof of the Partners
All partners must submit their PAN during LLP registration. Here, the PAN of the partners will serve as their primary ID proof.
Partners’ Address Proof
As proof of address, partners may submit any one of the following: Aadhar, Passport, Voter ID, and Driving License. The names on PAN and address proofs must match each other.
Copies of the latest bank statement/electricity bill/telephone bill/mobile bill/gas bill may also be submitted as proof of address
Passport (if the Partners in an LLP are Foreign Nationals/NRIs)
If foreign nationals or NRIs want to become a partner in an Indian LLP, they must mandatorily file a copy of their passport which is appropriately notarized/apostilled by relevant authorities. In addition to their passports, foreign nationals must also file a copy of another proof of address such as the latest bank statement, driving license, residence card, or any government-issued ID proof displaying the address; if these documents happen to be in a language other than English, their translated version which is notarized/apostilled must be filed.
ii) LLP-firm related Documents
Address Proof of Registered Office
Within 30 days of an LLP firm’s incorporation, the address proof of its registered office must be filed with the MCA.
- If the registered office is going to operate from a rental property, copies of the relevant rental agreement and the owner’s NOC must be submitted
- Additionally, copies of the latest utility bills such as electricity/gas/telephone bills displaying the business address and the owner’s name must be furnished
Digital Signature Certificate
The designated partners also must have their Digital Signature Certificates in place as all documents and applications would need to be signed by them as authorized signatories.
Benefits of Registering an LLP-firm
An LLP Enjoys the Status of a Distinct Legal Entity
Like companies, an LLP is treated as a distinct legal entity. Because of this fact, the stakeholders, customers, and suppliers find it easy to place their confidence in an LLP.
No Minimum Capital Contribution Requirement
An LLP firm may be incorporated even without any minimum capital. There is no compulsion on a minimum paid-up capital for the incorporation of an LLP.
Partners Enjoy Limited Liability
In an LLP setup, the liability of partners is limited only to the extent of the share of contributions made by them. This implies that in the event of any liability arising, the partners will be liable for paying only the amount of contributions made by them and cannot be held personally liable for any losses incurred in the business.
In the event that an LLP turns insolvent, only its distinct assets will be held liable for the clearance of its debts. The partners need not pay for such liabilities out of their own pockets.
Lesser Costs and Compliance Requirements
Incorporation of an LLP costs much lesser than the incorporation of companies. An LLP is devoid of obligations to fulfill too many compliance requirements and is required to file only the Annual Returns and Accounts and Solvency statements.
Downsides of an LLP
Raising Capital is Not Easy
Unlike a company, an LLP is not familiar with the concept of equities or shareholders. Rules related to LLP incorporation say that only the partners in an LLP can be its shareholders and that they will have to shoulder all the responsibilities of being a partner. This bars angel investors and venture capitalists from investing in LLPs as shareholders, thus inhibiting the LLPs’ ability to raise capital.
Heavy Penalties for Non-compliance
LLPs have minimal compliance requirements. However, non-compliance with those requirements leads to heavy penalties. Even if an LLP goes without any activity in a financial year, it must file its returns with the Ministry of Corporate Affairs, failing which, a heavy penalty will be imposed on it.
Dissolution of an LLP Due to Inadequate Partners
By rules, a minimum of two partners is a must to form an LLP. If the number of partners remains below two for 6 consecutive months, the LLP will have to be dissolved. The LLP may also be dissolved if it fails to repay its debts.
FAQs
1) How many days does the registration process of an LLP take to complete?
A) Usually, it takes about 10 working days to complete the registration process of an LLP.
2) Who is eligible to become a partner in an LLP?
A) Any individual (including a foreign national) except minors, persons of unsound mind may become a partner in an LLP. A company/body corporate is also eligible to become a partner in an LLP.
3) Does an LLP also have directors?
A) No, an LLP does not need to have directors or a board of directors. Only the partners manage all business in an LLP.
4) What denotes contribution in an LLP?
A) In an LLP, contribution refers to the partners’ shares by way of money, tangible or intangible assets, promissory notes, and movable or immovable assets that they may have contributed to the company.
5) IDo LLPs require MoA and AoA?
A) YNo, MoA and AoA are required only for companies. LLPs are governed by an LLP agreement.
6) What is the difference between an LLP and a Partnership Firm?
A) To be functional and carry out its business, an LLP must be mandatorily registered under the LLP Act and the liability of each partner in an LLP is limited only to the extent of contributions made by them. For a Partnership Firm, however, registration is only voluntary as provided in the Partnership Act, 1932, and all the partners in such a firm are personally held liable for its losses and debts.
An LLP enjoys recognition as a distinct legal entity – it can purchase assets/properties, litigate, and be litigated in its name.
On the other hand, partnership firms cannot buy properties, and they cannot litigate or be litigated in their names. Purchase of properties or any litigations must be in the names of the individual authorized partners since partnership firms do not enjoy the status of a distinct legal entity.