What is LLP
LLP refers to Limited liability partnership and is governed by Limited Liability Partnership Act 2008. Limited Liability partnership provides advantage of limited liability to its owners and at the same time requires minimal maintenance. The directors of a private limited company have limited liability to creditors. In case of default, banks / creditors can only sell company’s assets and not personal assets of directors.
LLPs in India
Well, now that you know what an LLP basically is, let’s get into the things you need to know about starting one in India, including LLP registration.
LLPs came into existence in India when the official Gazette of India published the Limited Liability Partnership Act 2008 on January 9, 2009. It came into effect from 31 March, 2009. However, it covered just a few sections.
It was updated a few months later, by adding sections that mentioned how traditional partnerships and other companies can convert into an LLP.
The first LLP was registered in the first week of April, 2009, followed by many more over a short period of time.
Unlike some other countries, however, LLPs in India don’t need to have at least one mandatory member with unlimited responsibility. All the members are entitled for limited liability. So this basically means that their liability may be just limited to the amount of capital they have invested into the business.
Some of the salient features of an LLP in India include:
- An LLP has a separate legal status from its partners, and has perpetual succession
- It’s governed only by the separate legislation (LLP Act, 2008), and none of the provisions of the Indian Partnership Act, 1932 are applicable to it
- Every LLP should use “Limited Liability Partnership” or “LLP” as the last word of its name
- LLP is basically a mix of both a ‘corporate entity’ and a ‘partnership business’
- It’s mandatory for every LLP to have at least two partners, with one of them being a resident of India. The other partners shall be agents of the LLP, but not of other partners
- While an LLP agreement isn’t mandatory, the rights and liabilities of the partners will be determined according to the Schedule I of the LLP Act in the absence of one
- As the LLP is considered a separate legal entity, its partners and the LLP aren’t the same
- Unlike a company, there aren’t any minimum capital requirements when it comes to an LLP. This means that the members don’t need to bring in any amount of capital, unless of course if required by the LLP agreement
- Similarly, unlike the traditional partnerships, an LLP doesn’t even have any limit on the maximum number of members that can join it. It, however, does require a minimum of two partners for obvious reasons
- Unlike private and public companies, an LLP doesn’t require compulsory audits. However, there are exceptions to this rule, as if the total capital of the LLP exceeds Rs. 25 Lakhs, or if the annual turnover turns out to be over 40 Lakhs, it would be mandatory to get the audit done
So Choose LLP if you want;
- Dual advantages- Company and a Partnership
- No partner will be responsible for other partner’s misconduct
- Cheaper to incorporate than a private limited company
- Limits the liabilities of its partners
Requirements for LLP Registration
To make the things easier for you, we have listed here some mandatory documents for LLP registration. Minimum 2 partners are required for formation of LLP firm. Both the partners has to apply for the DSC and DIN number.
The documents for the LLP registration include the PAN card copy and the photo identity proof like Aadhar card or passport of both the partners. Also a “No Objection Certificate” for use of the premises Is required.
The procedure for LLP registration is simple compared to the company. an LLP, have less legal compliance than the private limited company
Steps To Register A LLP
To start an Indian LLP
Step 1: Digital Signature Certificate (DSC)
Before initiating the process of registration, you must apply for the digital signature of the designated partners of the proposed LLP. This is because all the documents for LLP are filed online and are required to be digitally signed.
So, the designated partner must obtain their digital signature certificates from government recognized certifying agencies. The cost of obtaining DSC varies depending upon the certifying agency. Also, you should obtain either class 2 or class 3 category of DSC.
Step 2: Director Identification Number (DIN)
You have to apply for the DIN of all the designated partners or those intending to be designated partner of the proposed LLP.
Earlier partners had to apply for DPIN (Designated Partner Identification). Now instead of DPIN, every partner who will be appointed as a designated partner has to apply for DIN.
The application for allotment of DIN has to be made in Form DIR- 3. You have to attach the scanned copy of documents (usually Aadhaar and PAN) to the form. The form must be signed by a Chartered Accountant, Company Secretary, Cost Accountant or Advocate.
Step 3: Reservation of Name
Form 1 is filed for the reservation of name of proposed LLP. But before quoting the name in the form, it is recommended that you use the free name search facility on MCA portal. The system will provide the list of closely resembling names of existing companies/LLPs based on the search criteria filled up. This will help you in choosing names not similar to already existing names. You need to provide six names in the order of preference in Form 1.
The registrar will approve the name only if the name is not undesirable in the opinion of the Central Government and does not resemble any existing partnership firm or an LLP or a body corporate or a trademark.
Step 4: Incorporation of LLP
Form 2 is the application form for the incorporation of the LLP. You must keep in mind following points while filing Form 2.
All the details in the form must be filled correctly like – total number of partners and designated partners, amount of partner’s contribution, etc.
You have to pay the prescribed registration fee based on the contribution of partners in the proposed LLP.
The form must be digitally signed by a person named in the incorporation document as a designated partner having DIN. Also, it has to be digitally signed by an advocate/Company Secretary/Chartered Accountant/Cost Accountant in practice.
On the submission of the form, if the registrar is satisfied, they will register the proposed LLP.
It takes 15-20 days for the registration of LLP subject to government processing time and submission of necessary documents.
Step 5: File LLP Agreement
LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners.
LLP agreement must be filed in form 3 online on MCA Portal
Form 3 for LLP agreement has to be filed within 30 days of the date of incorporation.
The LLP Agreement has to be printed on Stamp Paper. The value of Stamp Paper is different for every state.
Convert Partnership into LLP
Any existing partnership firm that is willing to get converted into LLP will need to apply through Form 17 (Application and statement for the conversion of a firm into LLP. Form 17 needs to be filed along with Form 2 (Incorporation document and Subscriber’s statement).
Convert Pvt ltd./ Unlisted public into LLP
Any private company/ unlisted public company that is willing to get converted into LLP need to apply through Form 18 (Application and Statement for conversion of a private company/ unlisted public company into limited liability partnership (LLP)). Form 17 needs to be filed along with Form 2 (Incorporation document and Subscriber’s statement).
Start a Foreign LLP
Any Foreign LLP can establish its place of business in India by filling Form 27 (Registration of particulars by Foreign Limited Liability Partnership (FLLP)). The eForm has to be digitally signed by authorized representative of the FLLP.
There is no mandatory requirement to apply and obtain DPIN or DIN for Designated Partners of FLLP but the DSC of the authorized representative is mandatory.
And Finally, When should you not register LLP
- If you are seeking investments, then a Private Limited Company is more preferred as it has more compliance in place and it gives investors more reasons to believe you
- If you want more Legality and other Compliances like Regular Audit in your business
- If you are thinking to convert into Private Limited in the future, then you need to reconsider your choice as you cannot directly convert into Private Limited
- If you need High Credibility
- If you want Board Meetings and Annual General Meetings
Frankly, you can register LLP yourself and with the help of Google but it makes a whole lot of difference when you hire professionals to do the job.
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