Incorporate a LLP in India

How to Incorporate a LLP in India


The Limited Liability Partnership (LLP) has become a popular business form among entrepreneurs for combining the advantages of a partnership firm and a company into a single structure.

Indian firms introduced the concept of Limited Liability Partnerships (LLPs) in 2008. An LLP combines the characteristics of a partnership firm and a company. Under the Limited Liability Partnership Act, 2008, an LLP Registration is regulated in India. A minimum of two partners is required to Incorporate an LLP. There is no upper limit on the number of partners of an LLP. 

It is mandatory that at least two of the partners are individual, and at least one of them should reside in India. The LLP agreement governs the rights and duties of designated partners. All provisions of the LLP Act, 2008 as well as the provisions of the LLP agreement must be adhered to by them.

 

Benefits of LLP

  • Like companies, it has a separate legal entity.
  • A partner’s liability is limited to his or her contribution.
  • An LLP can be formed for a low fee.
  • Regulations and compliance are less important.
  • It is not required to contribute a minimum amount of capital.

In order to incorporate an LLP, two partners are required. The maximum number of partners is unrestricted. Of the two partners, one needs to be an Indian resident, while the other must be a foreign resident.

 

In the LLP agreement, the rights and duties of designated partners are defined. The designated partners are personally accountable for ensuring the LLP Agreement and the LLP Act 2008 are followed.

 

You must register a Limited Liability Partnership under the Limited Liability Partnership Act, 2008 if you plan on starting a business using a Limited Liability Partnership.

Name of the form

The purpose of the form

LLP (Limited Liability Partnership) – RESERVE UNICORNED NAME

LLP name reservation form

FiLLiP

Incorporation form for a limited liability company

Form 5

This is a notice of change of name

Form 17

A statement and application for converting a firm into a limited liability partnership

Form 18

Form for converting a private or unlisted company into an LLP

LLP Advantages

Legal entity separate from the company

LLPs are separate legal entities from their partners. They can sue and be sued on their own behalf. The contracts are signed in the company’s name, which enhances trust between cooperating parties. stakeholders and gives the customers and suppliers a sense of confidence in the business.

Partners are limited in their liability

In the LLP, liability is limited to contributions by the partners. As a result, they are liable only for the amount of contributions they made, and they are not personally responsible for any losses in the business. As long as the LLP assets are sufficient to cover its debts, the partners have no personal liabilities, which allows them to operate as credible businessmen even if they become insolvent at the time of winding up.

Reduced compliance costs and low costs 

In comparison with the costs of setting up a public or private limited company, an LLP is much cheaper. Also, the compliances to be followed by an LLP are quite minimal. They need to file only two statements annually, namely an Annual Return and a Statement of Accounts and Solvency.

There is no requirement to contribute a minimum amount to the capital

There is no minimum amount of capital required for an LLP. The partners can contribute any amount to the capital of the LLP before going for incorporation.

LLPs Have Disadvantages

Penalties for non-compliance

Although LLP has a minimal amount of compliance to follow, if it fails to comply with these requirements, a heavy fine will be imposed. LLPs are required to file returns with the Ministry of Corporate Affairs (MCA) each year, even if they have no activity in the year. If they fail to do so, they will face heavy penalties.

 

Dissolution of LLP and winding up

To form an LLP, two partners must be present. If the number of partners is below two for six months, the LLP will be dissolved. The LLP may also be dissolved if it fails to pay its debts. 

 

Raising capital is difficult 

Equity and shareholders are not present in the LLP as they are in a company. Venture capitalists and angel investors cannot become shareholders in the LLP as they must become partners in the company and assume all of its responsibilities. Angel investors can therefore and venture capitalists prefer to invest in a company rather than an LLP making it difficult for the LLPs to raise capital.

 

Registration Process of an LLP

Step 1: Register for a Digital Signature Certificate (DSC)Certificate (DSC)

As all documents for LLP are filed online, they must be digitally signed. Therefore, you must obtain the digital signature certificates of the designated partners before starting the registration process. In order to obtain the digital signature certificates, the designated partner must work with a government-recognized certifying agency.

 These agencies are listed below. DSCs vary in cost according to the certifying agency. Also, you should obtain a class 3 DSC, or you can click here & let a ClearTax expert obtain a DIN for you. You do not need to apply for DIN separately if you register a Limited Liability Partnership with ClearTax, since up to two DINs are included in the plan.

 

Step 2: Obtain a Director Identification Number (DIN)

You must apply for the DIN for all partners or those who intend to be partners of the proposed LLP. The DIN application must be completed in Form DIR-3.

The form must be accompanied by scanned copies of the documents (usually Aadhaar and PAN). As a condition of appointment, the application must be signed by either the Managing Director of the company, the Director, the CEO, or the Chief Financial Officer of the existing company.

 

Step 3: Approval of the name

For the reservation of the proposed LLP’s name, LLP-RUN (Limited Liability Partnership-Reserve Unique Name) will be filed with the Central Registration Centre under Non-STP and processed there. It is recommended, however, that you use the free name search facility on the MCA portal before you quote the name in the form.

As a result of the search criteria filled in, the system will suggest names that are closely related to those of existing companies/LLPs. This will assist you in choosing names not similar to those of already existing companies/LLPs. Only names that are not undesirable in the opinion of the Central Government and that do not resemble any existing partnership firm, an LLP, a body corporate or a trademark will be approved by the registrar.

As per Annexure ‘A’, the RUN-LLP form must be accompanied by fees, which may be accepted/rejected by the registrar. There is provision to allow for two proposed names of the LLP to be proposed. A resubmission of the form may be made within 15 days for rectifying the defects.

 

Step 4: Establishing the LLP

  • LLPs are incorporated via the FiLLiP (Form for Incorporation of Limited Liability Partnership). This form should be filed with the Registrar of the state where the LLP has its registered office. It should be an integrated form.
  • Fees according to Annexure “A” are due.
  • If an individual who is to be appointed as a designated partner does not have a DPIN or DIN, this form also allows them to apply for one.
  • Allotment applications may only be made by two individuals.
  • The application for reservation may be made through FiLLiP too.
  • Upon approval of the proposed name, the approved and reserved name will become the proposed name of the LLP

 

Step 5: Prepare and file the LLP agreement

The LLP agreement defines both the rights and responsibilities of the partners along with those of the LLP.

  • Form 3 on MCA Portal must be used to file LLP agreements.
  • You must file Form 3 for the LLP agreement within 30 days of incorporation.
  • Each state has a different value for Stamp Paper, which is used to print the LLP Agreement.

 

Registration of an LLP: Documents Required

A. Partners’ documents

  • At the time of registering LLP, all partners are required to provide their PAN card as an identification proof. PAN card acts as an important form of identification.
  • The address proof can be any of the following: Voter ID, Passport, Driver’s License, or Aadhaar Card. The name and other details are the same on the address proof as on the PAN card. Before submitting the address proof and PAN card to RoC, it should be corrected if the spelling of the own name, father’s name or date of birth is different.
  • Partner residence proof should be submitted in the form of a bank statement, a phone bill, a mobile bill, an electricity bill, or a gas bill. These bills or statements should not be older than 2-3 months, and it should include a name of the partner as it appears on their PAN card.
  • A passport-sized photograph of the partner is also required, preferably against a white background.
  • In order to become a partner in an Indian Limited Liability Partnership, foreign nationals and non-residents must submit their passports. In the case of foreign nationals and NRIs, a notarized or apostilled passports are required, otherwise the Indian Embassy in that country can sign the documents as well.

The foreign national or NRI must submit proof of address, such as a driving license, bank statement, residence card or another form of government-issued identification.

An apostille or notarized translation of the documents in a language other than English will be attached.

 

B. LLP documents

  • Documentation of the registered office address is required during the registration process or within 30 days after incorporation.
    • In the event that the registered office is taken on rent, a rent agreement and a no-objection certificate from the landlord must be submitted. A no objection certificate means the landlord is giving his consent to the use of the place as a LLP’s registered office.
    • In addition to this, utility bills, such as gas, electricity, or telephone bills must be submitted. The bill should contain the address of the premise and the name of the owner and should be no older than two months.
  • As all documents and applications are digitally signed by the authorized signatory, one of the designated partners must also obtain a digital signature certificate.

 

Registration checklist for LLPs

  • Two partners are required.
  • Each designated partner should receive a DSC.
  • Each designated partner must have a DPIN.
  • The name of the LLP is unrelated to any existing LLP or trademark.
  • LLP partners contribute capital.
  • The partners have an agreement in place to form a limited liability partnership.
  • A certified copy of the LLP’s registered office.

 

Registration of an LLP involves a cost

Here are the government filing fees:

Step

Cost

Step 1 – DSC

The cost for two partners (varies depending on the agency) is around Rs. 1500-2000

Step 2 – DIN

1000 rupees for two partners

Step 3 – Name Reservation

INR 200

Step 4 – Incorporation

Capital contributions between Rs. 1 lakh and 5 lakhs are rewarded with Rs. 2000; Contributions below Rs. 1 lakh are rewarded with Rs. 500.

Step 5 – LLP Agreement

Depends on capital contribution. Contribution up to Rs 1 lakhs, plus Rs 50 for filing Form 3 and stamp duty, based upon the state where the LLP is formed

Registration of an LLP takes time

LLP formation, from obtaining DSC to filing Form 3, takes around 10 days, subject to departmental approval and response from the appropriate department.

 

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