Limited Liability Partnership or LLP in India is increasingly preferred by entrepreneurs. This is because it provides the combined benefits of partnership and company form of business structures.
So, let’s try to understand the meaning of LLP and how to get registered as an LLP in India.
What is LLP?
As per the Limited Liability Partnership (LLP) Act, 2008, an LLP is a body corporate formed and incorporated under this Act. It is a legal entity separate from its members.
In other words, an LLP provides benefits of the Limited Liability. At the same time, it gives its members leeway to organize the internal structure as Partnership.
So, let’s have a look at its characteristics in order to better understand the meaning and benefits associated with an LLP.
Characteristics of LLP
1. Separate Legal Entity
LLP is a body corporate having legal entity separate from its members.
2. Perpetual Succession
The life of an LLP is unaffected by the death, retirement or insolvency of any of its partners. In other words, LLP would be dissolved only as per the provisions of the LLP Act.
3. Governed By LLP Act, 2008
LLP in India is governed by LLP Act, 2008. Thus, the provisions of the Partnership Act, 1932 would not apply to it.
4. Using LLP in the Name
Every LLP is required to use the words “Limited Liability Partnership” or “LLP” towards the end of its name.
5. Formation of LLP Agreement
An LLP is an outcome of an agreement between its partners. Such an agreement outlines the mutual rights and duties of the partners subject to the provisions of the LLP Act, 2008.
6. Limited Liability of the Partners
Since an LLP is a separate legal entity, the liability of the partners is limited only to the extent of the amount of capital contributed by them. That is, the personal assets of each of the partners would not be liable to pay off any of the outstanding debtors.
7. Minimum Two Designated Partners Required
There must be at least 2 designated partners in order to form LLP. Further, one out of the two designated partners must be a resident of India.
8. Maintaining Annual Accounts
An LLP is required to maintain annual accounts in order to show its true state of affairs. It is required to prepare the statement of accounts and solvency each year and file the same with the Registrar.
9. Dissolution of an LLP
An LLP can be dissolved voluntarily or via the tribunal established under the Companies Act, 2013 just like a company form of business structure.
Steps For Registration of LLP
1. Obtaining Digital Signature Certificate
The only way to incorporate a Limited Liability Partnership (LLP) form of organization is to register online. Therefore, a valid digital signature is required that can be affixed on all the documents that are submitted electronically. This ensures that the documents furnished are authentic and secured.
Furthermore, such a certificate needs to be acquired from licensed certified authorities. Such authorities are granted a license to issue a Digital Signature Certificate (DSC). The government listed agencies such as NIC, e- MUDRA, NSDL, CDAC etc have been authorized by the controller to issue DSC.
Also, there are two types of DSCs – Class II and Class III. In case of Class II type of DSC, the identity of the person is verified against a trusted pre – verified database. Whereas under Class III type of DSC, the person needs to present himself in front of the registration authority and prove his identity.
2. Obtaining Director Identification Number (DIN) or Designated Partner Identification Number (DPIN)
Every individual intending to be appointed as Designated Partner of the LLP or is a Designated Partner in an existing LLP is required to take DIN or DPIN. DIN is a unique number. It is necessary for the designated partners of an LLP to obtain DIN/DPIN for filing certain e-forms. The application for the allotment of DIN is made in the e-Form DIR-3. e-Form DIR-3 is required to be signed by the:
- applicant and
- either by a practicing professional or company secretary in whole time employment or director of the existing company
Furthermore, a fixed fee of Rs 500 is to be paid for e-Form DIR-3. Such a payment can be made only via online modes such as credit card or internet banking. Also, all the necessary documents need to be scanned and attached in the e-Form DIR-3. Hence, following are the documents that need to be filed along with DIR-3:
- Proof of Identity of the applicant
- Applicant’s proof of residence
- Copy of verification by the applicant
3. Reserving Name of the LLP
There are two ways through which an individual can reserve the name of an LLP:
1. Reservation of Name via RUN LLP
Ministry of Corporate Affairs (MCA) of India initiated Ease of Doing Business Reforms to introduce simplified and integrated procedures. This was done in order to ease the registration procedures of various types of business entities in India. One such reform was the introduction of Reserve Unique Name LLP (RUN LLP) web service.
What is RUN LLP?
RUN web service is a simple and easy to use service that is used for reserving a name of new LLP or changing the name of the existing LLP. It is a post login service.
Procedure To Reserve Name Via RUN LLP
You first need to be an account holder on MCA portal in order to avail the RUN LLP service.
Then, you can simply log into the account and click on the RUN LLP icon under the head MCA services. This is possible only if you have an account on MCA portal.
In doing so, you will be presented with a form that needs to be filled. Then, you need to submit such a form to the Registrar for reserving a name for a new or an existing LLP along with a prescribed fee.
Next, the Registrar may reserve a name for a period of three months. This happens once the registrar is satisfied that such a name is not prohibited on any grounds.
Also, you need to submit such an application to the registrar whose jurisdiction includes the place of registered office of the LLP.
Now, the Registrar either approves or rejects the application. This happens only after allowing re-submission of such application within 15 days. Such a re-submission is made for making changes in the errors identified at the time of first submission.
Why RUN LLP Was Introduced?
RUN LLP is a new web service that has replaced Form 1. The Form 1 contained 15 fields (4pages) for reservation of name or changing the name of the existing LLP. However, the new RUN LLP has the following simple fields in addition to the radio buttons for choosing between new service or re-submission.
Important Things To Note Before Making An Application Through RUN LLP
1. New Incorporation/Conversion
As a user, you need to choose between the various options available the moment you click the dropdown. The options available in the dropdown are as follows:
- Reservation for new incorporation
- Conversion of firm into LLP
- And Conversion of Private Company or an Unlisted Company into LLP
You need to enter LLPIN for reserving new name for an LLP in case you are an existing LLP wanting to change the name. Similarly, CIN needs to be entered if you seek to convert your private company or unlisted public company into LLP.
3. Proposed Name 1 and 2
RUN LLP provides you with the option of giving two proposed names for the registration.
This field can be used to provide purpose of the Proposed LLP and any other comments relevant to be mentioned.
It must be noted that the reservation of the name through RUN LLP does not require DPIN/DIN/DSC as a prerequisite.
Therefore, you need to click on the submit button once you fill all the fields with the requisite information. Then, you need to proceed to make the payment of Fees.
Thus, SRN is generated on successful submission of this form. This number is required to be used for further correspondence with the MCA.
Also, a Challan will be generated showing the details of the fees paid by you to the MCA.
Finally, an email acknowledging such approval or rejection along with the related documents will be sent to you upon approval or rejection of the proposed names.
2. Reservation of Name via Fillip
You may reserve the name of the LLP directly via the LLP incorporation Form in case you have not reserved the same via RUN LLP as an applicant. This form is known as e-Form Fillip.
Form Fillip provides you with facility of filling the name already reserved via RUN LLP. This is done by filling the Service Request Number (SRN) provided to you in case you reserve the name via RUN LLP. Or you may reserve the name directly by filling two proposed names in e-Form Fillip.
4. Incorporation of Limited Liability Partnership
Fillip is the Form used for incorporating an LLP. The term Fillip stands for “Form For Incorporation of Limited Liability Partnership. Thus, this form is a single application that deals with:
- Reservation of name
- Incorporation of a new Limited Liability Partnership
- Application of allotment of DPN/DPIN
You need to attach all the supporting documents including the details of the designated partners. Upon processing of the e-Form, if such a form is found complete, LLP is registered and a Limited Liability Partnership Number (LLPIN) is issued.
Further, DINs/DPIs are issued to the proposed designated partners or nominees of Body Corporate designated partners who do not possess a valid DIN/DPIN. Thus, a maximum of 2 designated partners are allowed for the allotment of DIN/DPIN. And this allotment is made by using this integrated Form for incorporating an LLP.
So, once the e-Form is processed, DIN/DPIN is generated. Further, the designated partner receives an acknowledgment email on DIN/DPIN generation. Also, Certificate of Incorporation is further sent out on the email ID of the LLP as mentioned in the Application Form. This email provides the LLPIN of the LLP.
5. Filing the Limited Liability Partnership Agreement
LLP Agreement is an agreement made between the partners of the Limited Liability Partnership. It is a document that outlines the mutual rights and duties of the partners and their rights and duties with respect to the LLP.
Such an agreement is mandatory to be made. This agreement is executed within 30 days of the incorporation of the LLP with the Registrar of Companies. Further, the value of the stamp paper or the stamp duty depends on the (1) State of Incorporation of such an LLP and (2)_ the amount of capital contributed by the partners.
Here is an infographic that explains what is LLP and how to register as an LLP in India.