Incorporation of Limited Liability Partnership
Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. Limited Liability Partnership (LLP) has become a preferable form of organization among entrepreneurs as it combines the benefits of both partnership firm and company into a single form of organization.
Minimum Requirements for incorporation of a Limited Liability Partnership
Designated Partners: To incorporate a Limited Liability Partnership, a minimum of two people is required. A Limited Liability Partnership must have a minimum of two Designated Partners and the maximum partner can be 200. The pre-requisite is to have at least one Designated Partner who is a resident of India. However, the person should be of the age 18 years. This is to ensure that the person in LLP is not a minor and competent enough to enter a contract.
Digital Signature Certificate: DSC is mandatory for all the partners. Any form filed for incorporation of Limited Liability Partnership (LLP) in India online shall be submitted after affixing the DSC of the designated partner.
Essential Features for the incorporation of an LLP
- Separate Legal Entity: A Limited Liability Partnership is legally recognised as a separate entity. Hence, an LLP can have its PAN, bank accounts, licenses, approvals, contracts, assets and liabilities in its unique name.
- Limited Liability: Partners of the Limited Liability Partnership have limited liability to the extent of their contribution in the LLP and personal assets of partners cannot be utilized for the payment of the liabilities of the LLP under any circumstances.
- Lesser Compliance: Tax compliances are similar for both private limited company and LLP. However, when it comes to compliance relating to the Ministry of Corporate Affairs, LLP enjoys significant advantages. An LLP does not have to its accounts audited if the annual turnover of the LLP is less than Rs. 40 lakhs and the capital contribution are less than Rs. 25 lakhs. A private limited company on the other hand would have to file audited financial statements every year.
- Simplicity: The Process of forming the LLP and maintain it is very simple as compared to private limited company.
Documents required for company incorporation
- Copy of PAN Card of Designated partners
- Passport size photograph of Designated partners
- Copy of Aadhaar Card/ Voter identity card/ Driver’s license/latest bank statement as address proof
- Electricity/ Water bill/ Telephone Bill as proof of Registered Office (Business Place)
- Copy of Sale Deed/Property Deed (If owned property)
- Passport (in case of Foreign Nationals/ NRIs)
- Digital Signature Certificate
- Copy of Notarised Rental Agreement
- Copy of No Objection Certificate from the property owner
Process of a Limited Liability Partnership Incorporation
- Step-1: Acquire Digital Signature Certificate for Partners:
The first and foremost step to register a limited Liability Partnership is to acquire the Digital Signature Certificate (DSC) of the partners. Any e-form is filed with the Ministry after affixing the DSC of the Authorised Signatory for LLP Incorporation. Also, it is required for the application of DIN of the partners.
- Step-2: Name approval Application:
The next step in LLP registration involves making an application for reservation of name for the proposed LLP. The application is to be made in
“RUN-LLP”, where one can apply for maximum 2 names in order of the preference. One shall keep in mind that the names applied are not identical or nearly resembling with any existing Company or LLP or Registered Trademark. If none of the names is approved by the MCA, another chance is provided to apply two more names. Once the name is allotted for LLP, it is reserved for a period of 3 months from the date of approval.
- Step-3: Application for Certificate of Incorporation:
The form used for incorporation of LLP is FiLLiP (Form for incorporation of Limited Liability Partnership) which shall be filed with the Registrar who has a jurisdiction over the state in which the registered office of the LLP is situated. The form will be an integrated form. The most significant part is integration of DIN Allotment Application with incorporation application. Below mentioned are the features of the application:
- DPIN/DIN application for maximum 2 Designated Partners (DPs) can be made under the application. If there are more than 2 DPs who do not hold DIN, they can be added later by following respective filings of “Form-4”.
- With this form, the application for name reservation can also be made. However, that is kept at the option of the applicants. The applicants can either choose to reserve name through LLP-RUN or under this form.
The application is accompanied with required documents including the subscriber’s sheet and registered office address proof. The e-form will be attested by the partners through PAN based DSC and certified by the practicing professional (CA/CS/CWA).
The application will be processed for approval by Central Registration Centre (CRC). If the registrar finds it necessary to call for further documents or information, it may do so by directing for re-submission. Another opportunity of re-submission maybe provided after re-examination of application,
Upon approval of the application made for LLP registration online, the Certificate of Incorporation (CoI) will be issued in form 16 along with DPIN/DIN allotted to the Designated Partners. CoI will also consist of the Limited Liability Partnership Identification Number (LLPIN). The date of CoI will be the date of LLP incorporation since when it has come into legal existence. The business can now be commenced in LLP’s name.
- Step 4: Apply for PAN and TAN
Unlike the in case of company, the application for PAN and TAN is required to be made separately for LLP through offline or online mode. The applications are made directly to the Income Tax Department and processed by it. The applications are made in form 49A and 49B respectively with Certificate of Incorporation as supporting proof.
- Step 5: Drafting and Filing LLP Agreement
The next step will be to draft LLP Agreement carefully and based on the partners’ requirements. Step-4 and Step-5 both can be processed simultaneously, however, this step would take a little longer to complete than simply making the application. The name, business object, place of business and all other essential details of LLP will be placed in the Agreement. Other clauses will be capital, profit sharing ratio, rights and responsibilities of partners, etc.
Once the LLP Agreement is reviewed and agreed upon by the partners, it will be executed by payment of stamp duty. which depends on the respective State Stamp Act where the registered office of the LLP is situated. Then with signature by partners and attestation by the witnesses, the agreement will be executed.
This is filed in LLP form-3 which remained same as was in the erstwhile process. Further, the verification and approval are processed by the concerned State RoC instead of CRC as in case of previous steps. The agreement must be filed with MCA within 30 days of date of incorporation. The delay leads to penalty of RS 100 per day till the date of actual filing.
Post-Incorporation Compliances for a Limited Lability partnership
- Open a bank account: A separate bank account must be opened in the name of the LLP. Since LLP is a separate legal entity, it can open its own bank account. There are certain documents which are required to be submitted in order to open a bank account. Namely: Copy of the LLP agreement, Copy of the Incorporation document and Copy of the Resolution to open a bank account, and List of authorized person/s with the specimen signatures to operate the account duly attested by Designated Partners, Copy of PAN card. And all the above documents must be signed by designated partners and an LLP seal should be put on all the above documents.
- Depositing of contribution money into Bank Account: Once the bank account is opened in the name of LLP. All partners must be deposited the contribution amount in the LLP’s account within stipulated time.
- Filling of annual return. LLPs must compulsorily maintain their financials from 1st April to 31st March. LLPs need to file their annual return in “Form-11” within 60 days from the end of close of financial year. Also, the LLPs must file their Account & Solvency in “Form-8” within 30 days from the end of six months of the close of financial year. LLP must ensure that its annual returns are filed within the due date. Failure to do so would attract a fine of Rs. 100 per day till the date of actual filling.